I gave an advice to young people - to save 15% of your earnings. Someone commented that this is not possible. Young people do not earn enough, and will find it difficult to save 15%.
I believe that this goal is possible, and here are my reasons. Many young people stay with their parents and do not have to pay for housing and other expenses. Due to their low expenses, they can have savings, if they wish to.
Their priorities should be:
1. Essential expenses for travelling and food
2. Contribute a monthly allownane for household expenses
3. Repay their education loan
4. Set aside money for their savings
5. Use the remainder for other expenses, such as luxury items and holidays.
If they save now, the can use their savings for future expenses. They do not have to take a consumer loan and pay a high interest rate. By avoiding interest payment, they have more money to save and spend.
Friday, July 18, 2008
A fair premium for private Shield plan
Are you paying a fair premium for your private Shield plan? Are you being over-charged? How can you find out?
You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.
Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.
The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.
If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.
Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:
1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.
2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.
3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.
As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.
You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.
Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.
The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.
If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.
Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:
1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.
2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.
3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.
As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.
Invest in an indexed fund
Hi Mr. Tan,
1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?
2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?
3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?
REPLY
I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).
You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:
http://tankinlian.com/faq/savings.html
If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).
The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:
www.tankinlian.com/faq
1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?
2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?
3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?
REPLY
I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).
You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:
http://tankinlian.com/faq/savings.html
If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).
The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:
www.tankinlian.com/faq
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