Terminating an existing life policy

Dear Mr. Tan,

I have bought a vivolife policy 2 yrs ago. Recently, I am thinking of increasing my coverage as I am planning to start a family soon.

After reading your blog, I am thinking of the following: switch to term plan and invest my savings on equity personally. Do you think it's advisable?

REPLY
Please read this FAQ before you take your decision to terminate the Vivolife policy.

If you terminate the policy now, you will lose a large part of what you have paid during the past two years. If you look at the cost for the next five or ten years, you can get a better idea about the advantages of making a switch.

You should also find out the cost of the term insurance policy and critical illness coverage.

It is advisable to take up a term insurance policy, rather than a whole life policy, but a decision to terminate an existing whole life policy has to be considered separately on its merits.

BBC: Expense row minister steps down

Read this.

Salary and perks of MPs in Europe

Read this.

What to do about your endowment policy

This article is written in the context of the situation in the UK. Many of the points are valid when applied to Singapore.

http://news.bbc.co.uk/2/hi/business/8056993.stm

Lehman Role Probed in Selling Securities

onlineWSJ, 21 May

http://online.wsj.com/article/SB124286228762941197.html#mod=rss_whats_news_us

The Justice Department has questioned several former executives at Lehman Brothers Holdings Inc. as part of its criminal investigation into whether they sold supposedly safe, liquid securities to clients while knowing that the market for the securities was drying up.

Prosecutors from the U.S. attorney's office in Brooklyn and lawyers from the Securities and Exchange Commission in recent weeks interviewed several former executives who ran Lehman's auction-rate-securities business, these people said. Auction-rate securities are short-term debt instruments in which the interest rates reset at periodic auctions.

The Standard: Minibond fury hits BOCHK

22 May 2009

 

Hundreds of Lehman minibond holders vented their anger at Bank of China (Hong Kong) (2388) and demanded a faster settlement although the lender said more than 2,000 cases have been resolved. BOCHK was the largest distributor of the Lehman Brothers-linked products in the territory.

The minibond holders yesterday gathered outside the Hong Kong Convention and Exhibition Centre, Wan Chai, where the bank was holding its annual shareholders' meeting, as well as at its headquarters, demanding that cases be wrapped up soon.

Bank management came under fire at the meeting with half the questions related to the minibonds controversy.

``You said you are concerned about the issue, but you are just paying lip service,'' one shareholder said.

President He Guangbei replied that the bank has already deployed resources to deal with the matter.

``We are handling the issue actively and seriously and hope to settle the cases as soon as possible,'' He said.

An internal audit committee has been set up, and discussions with regulators are continuing.

But He could not give a settlement timetable.

The bank denied speeding up settlements and raising the starting point for resolving the issue because of political pressure _ a claim made by Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims.

``We are handling each case individually as each has a different claims level,'' He said.

Chan claimed that since April 1 the bank has sped up the process and raised the starting level of claims from 10-20 percent to 50 percent to avoid protests on the anniversary of the handover.

The BOCHK chief declined to say whether it will have to fork out more on Lehman-related issues in 2009, after last year's HK$700 million.

``The expenses last year covered costs that might also be incurred this year,'' He said.

Separately, the bank said it has no plans as yet to issue yuan bonds locally and its parent, Bank of China (3988), has no plans to privatize BOCHK.

Reuters.com - Singapore's Temasek defends costly Bank of America exit

By Kevin Lim and Saeed Azhar

SINGAPORE (Reuters) - Singapore's Temasek defended its money-losing exit from Bank of America , saying the U.S.-centric bank did not fit its investment criteria and the risk was perceived to be greater than the expected return.

The explanation, a rarity for the state investor, came in a letter to major Singapore newspapers after the loss on BofA attracted fierce criticism from the usually muted pro-government local media, investors and independent blogs, which noted BofA shares have rallied more than 70 percent after Temasek's exit.

The losses are also expected to be discussed when Singapore's Parliament convenes next week.

Temasek, which is headed by Ho Ching, the wife of Singapore's prime minister, sold its 3 percent stake in BofA in the first quarter after converting its Merrill shares into BofA in January. Temasek has not said how much it lost in the process, but Reuters estimated the loss was more than $3 billion.

Temasek announced in February that Ho will step down and be replaced by Chip Goodyear, the former CEO of BHP Billiton , on October 1.

"Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader U.S. economy. The risk-return environment had also changed substantially," Myrna Thomas, managing director for corporate affairs, said in the letter.

Temasek's aim is to ensure that its portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, Thomas said.

"We may choose to divest an investment, even at a loss, to optimize our risk or portfolio exposure, or if there are better opportunities elsewhere or later," she added.

Temasek, which like other sovereign wealth funds, plowed billions into Merrill Lynch in the early phase of the credit crisis, saw the value of its portfolio plunge 31 percent to S$127 billion between March 31 and Nov 30 last year during the severe market turmoil.

KEY QUESTION UNANSWERED

Financial investments accounted for 40 percent of its portfolio.

"The letter doesn't give the answer that everybody is asking. How much did they lose?," Leong Sze Hian, president of the Society of Financial Services Professionals, told Reuters.

The exact losses are difficult to quantify because Temasek had also offloaded about 30 million Merrill shares last year in smaller lots, reducing its exposure to the investment bank by the time BofA took over Merrill.

Conraj Raj, editor-at-large at the Today newspaper in Singapore, threw the spotlight on the sovereign wealth fund's stated strategy of taking a long-term view of its investments.

"After all, it has been drummed into us ad nauseam that both Temasek and its cousin, the Government of Singapore Investment Corporation, invest for the long term with a time horizon that could stretch for as long as 50 years," he wrote on May 18.

"Whatever happened to the sovereign wealth fund's (SWF) strategy of taking a long-term view of its investments?"

Singapore's bigger sovereign wealth fund, GIC, on the other hand said it was a long-term investor in Citigroup and UBS .

"It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centers to the end, but did not try to exercise a little bit more patience with a U.S. government-backed entity like BofA," Png Eng Huat wrote in a letter to Straits Times forum.

"The U.S. government has stated clearly that it will not nationalize BofA even though it is technically the largest shareholder of the bank."

(Editing by Muralikumar Anantharaman)

China Daily:Settlements complicate Lehman inquiry

HONG KONG: Investigations of financial institutions that sold Lehman Brothers minibonds became more difficult after some complainants in the case reached separate settlements, Hong Kong Monetary Authority chief executive Joseph Yam said yesterday.

Yam made the revelation Friday as he was grilled by legislators in the Legislative Council subcommittee hearing on the Lehman Brothers products disaster.

"We can still get the information we need from banks," he said. "However, we cannot make verification with the investors (under terms of settlement agreements, investors are prohibited from disclosing information about their individual cases). That makes our investigation difficult."

Yam's revelation immediately drew criticism from subcommittee members. James To accused the authority of protecting the banks.

"How can you let this happen to hinder your investigation?" he demanded.

Yam defended the authority, countering that it could not stop investors from settling their complaints with the banks that sold the instruments.

"If we imposed restrictions on banks because of the difficulty involved in the investigations, the investors may not be able to reach settlements and get back their money. That is not fair to them," he said.

Yam, who will retire in October, has been grilled by the subcommittee on six occasions. Friday's hearing saw repetition of earlier incidents, with Yam's testimony interrupted by shouts from angry investors in the public gallery. Subcommittee chairman Raymond Ho Chung-tai was forced to call five-minute adjournments on two occasions so that the furor from the gallery could be quieted.

Financial services sector legislator Chim Pui-chung and Hong Kong Island constituency legislator Regina Ip said the authority failed to prevent banks from employing hard-sell tactics to persuade investors to buy Lehman Brothers financial products.

"One of the investors purchased the product through her daughter working in the banks. The daughter has not gone through any training. The bank hires her, and she is just trying hard to sell the products to her relatives as well. It is a problem for banks to set a selling quota for the staff to achieve," she said.

Yam reiterated that the authority does not tolerate irregular sales practices and will deal with the matter seriously.

"If the investors, under the cold call practice, are not interested in the product, and the investors purchased the products simply because the banks or agents called them saying they have money in their accounts, this will not be tolerated," he said.

He said the authority asked about 50 banks to conduct self-assessments in 2008.

He added that the authority would be more thorough when assessing banks in the future.

The authority deputy chief executive Choi Yiu-kwan will give evidence at a hearing of the subcommittee in June. But chairman Ho said legislators intend to recall Yam to give further evidence after Choi's testimony.

SCMP:Yam denies shielding banks from scrutiny

The Monetary Authority cannot stop banks that settle with minibond investors inserting clauses requiring that they drop their complaints and cease disclosing information about their case, its chief executive told lawmakers yesterday.

Joseph Yam Chi-kwong denied he was shielding banks from scrutiny.

He was testifying for the sixth time to the Legislative Council panel inquiring into the alleged mis-selling by banks of credit-linked derivatives, including minibonds, issued or guaranteed by Lehman Brothers. At the end of last year, three months after the American bank filed for bankruptcy - causing 48,000 Hong Kong investors to lose much or all of the HK$20 billion they put into such products - 17 banks paid HK$257 million to settle 616 investors' claims.

"My view is that the HKMA doesn't have any power to interfere with the relationship between the banks and their clients, even if an investor has promised the bank to withdraw their complaint or to not make available further information," Mr Yam told the subcommittee.

"We can still get hold of the information we require from the banks. Of course, if we cannot get information from the investors to corroborate, then it would be more difficult to proceed with the investigation."

He said he would seek legal advice as to whether the inclusion of such conditions in settlements with investors was against the public interest.

A spokesman for the authority said the outcome of such settlements would not affect its investigations.

The authority has received nearly 21,000 complaints about banks' sale of minibonds. Despite their name, minibonds are complex products that derive part of their value from underlying credit instruments.

An authority circular issued in March said banks should not include in settlement agreements clauses that stopped investors disclosing relevant information to regulators.

Democratic Party lawmaker James To Kun-sun called on Mr Yam to reconsider allowing banks to impose such conditions, since they might interfere with the authority's statutory duty to regulate banks. Mr Yam said he would reconsider, but insisted that restricting banks would be unfair if it affected minibond investors' ability to reach a settlement.

Questioned by lawmakers yesterday, Mr Yam sought to show that the authority was on top of the situation. Inspections of bank activities continued between 2003 and 2007 even though there were not many cases of suspected mis-selling of such derivatives, he said. Around the middle of last year, the authority identified more cases of suspected mis-selling. In February last year, the authority set out to investigate 11 banks selling high-risk derivatives, but launched investigations into only four.

Yesterday's Legco session was interrupted three times by rowdy spectators in the public gallery calling for Mr Yam to step down. He will retire on October 1 after 16 years in the job.