Saturday, October 17, 2009
Benefit Illustration for a Life Insurance Policy
If you have bought a life insurance policy within the last two years and you wish to me give you an analysis, you can send it by fax to me at 64053100.
Guaranteed products
Some people like to have guaranteed products. They may not realise that these products are "guaranteed to lose".
Suppose you buy a product that is guaranteed to give you a yield of 5% over 20 years. Is this a good product?
If there is high inflation in the future, the value of your investment will drop. You are locked into a product with a low yield, compared to the market rates. The issuer of the product makes a big profit.
If interest rate drops to near zero, like in Japan for many years, will you benefit by getting the guaranteed 5%? Maybe not. If the issuer is not able to meet its obligation, they will declare bankrupcy. You lose again.
Do not buy a guaranteed product unless it is backed by a financially strong institution. Do not buy a "guaranteed product" which may be "guaranteed to lose".
This is why I prefer to buy an exchange traded fund of equities and keep it for the long term. It has liquidity, transparency and diversification. It does not provide any guarantee, but is likely to give a better yield than any guaranteed product.
Note on Exchange Traded Fund (ETF)
There are several ETF available in the Singapore Exchange. The most well known is the STI ETF which is intended to track the performance of the Straits Times Index. It offers diversification into several large stocks and has low annual fee of 0.3%. You have to ask your stockbroker about the ETF or attend a briefing organised by SGX.
Suppose you buy a product that is guaranteed to give you a yield of 5% over 20 years. Is this a good product?
If there is high inflation in the future, the value of your investment will drop. You are locked into a product with a low yield, compared to the market rates. The issuer of the product makes a big profit.
If interest rate drops to near zero, like in Japan for many years, will you benefit by getting the guaranteed 5%? Maybe not. If the issuer is not able to meet its obligation, they will declare bankrupcy. You lose again.
Do not buy a guaranteed product unless it is backed by a financially strong institution. Do not buy a "guaranteed product" which may be "guaranteed to lose".
This is why I prefer to buy an exchange traded fund of equities and keep it for the long term. It has liquidity, transparency and diversification. It does not provide any guarantee, but is likely to give a better yield than any guaranteed product.
Note on Exchange Traded Fund (ETF)
There are several ETF available in the Singapore Exchange. The most well known is the STI ETF which is intended to track the performance of the Straits Times Index. It offers diversification into several large stocks and has low annual fee of 0.3%. You have to ask your stockbroker about the ETF or attend a briefing organised by SGX.
Postive views about CPF Life
I believe that CPF Life is good for the people. Here are my reasons:
a)It is operated as a mutual scheme. The future payment will reflect the investment yield and mortality experience.
b) The administrative expense is low
c) Most people (except the affluent) will receive a bonus when they join the scheme
d) The interest rate credited to the investments is higher than the market rates.
e) CPF or the Government will not make any profit from the scheme.
Members who buy CPF Life is getting a good deal, much better than any life annuity that can be offered by an insurance company. The view held by some people, that the Government is trying to make money from CPF Life is unfounded.
The non-guaranteed nature of the monthly payout will work better for the members. If there is high inflation in the future, it is likely that a higher payount will be made under CPF Life (as inflation is usually accompanied by higher interest rate).
I hope that readers of my blog will listen to my positive views on CPF Life and not be influenced by the negative views and the distrust.
Tan Kin Lian
a)It is operated as a mutual scheme. The future payment will reflect the investment yield and mortality experience.
b) The administrative expense is low
c) Most people (except the affluent) will receive a bonus when they join the scheme
d) The interest rate credited to the investments is higher than the market rates.
e) CPF or the Government will not make any profit from the scheme.
Members who buy CPF Life is getting a good deal, much better than any life annuity that can be offered by an insurance company. The view held by some people, that the Government is trying to make money from CPF Life is unfounded.
The non-guaranteed nature of the monthly payout will work better for the members. If there is high inflation in the future, it is likely that a higher payount will be made under CPF Life (as inflation is usually accompanied by higher interest rate).
I hope that readers of my blog will listen to my positive views on CPF Life and not be influenced by the negative views and the distrust.
Tan Kin Lian
Difference of views
Mr. Tan,
You seem to block opinion that differs from yours. Don't you allow other people to post their differing views
REPLY
I have to block comments that are potentially defamatory. I suspect that some people may get their own people to put ananymous comments to attack themselves, and then get a lawyer to give me trouble. This is dishonest, but is possible.
There are comments that attack my views. If you wish your comments to be accepted, you have to show respect for my views and be courteous. Do not be abusive or arrogant.
Some people post views for the sake of debating. This causes confusion and is not helpful. My blog is intended to educate people, and is not intended to be a place for academic debate.
Some people want to argue the perceived advantages of their products. Please go to your own company's website to do your marketing.
You seem to block opinion that differs from yours. Don't you allow other people to post their differing views
REPLY
I have to block comments that are potentially defamatory. I suspect that some people may get their own people to put ananymous comments to attack themselves, and then get a lawyer to give me trouble. This is dishonest, but is possible.
There are comments that attack my views. If you wish your comments to be accepted, you have to show respect for my views and be courteous. Do not be abusive or arrogant.
Some people post views for the sake of debating. This causes confusion and is not helpful. My blog is intended to educate people, and is not intended to be a place for academic debate.
Some people want to argue the perceived advantages of their products. Please go to your own company's website to do your marketing.
Finally, those who dislike my views are not required to visit this blog. Goodbye.
Articles in my blog
I post several articles in my blog every day.
A few regular visitors to my blog send articles to me, usually of news clippings from other newspapers on insurance, finance and other issues covered in my blog. If I find them relevant, I post them into my blog with my comments.
Some contributors have a specific purpose. For example, they had bad investments in land banking products and send articles to me to warn others about the bad experience.
Some had a bad opinion about insurance agents. They continue to post comments to attack insurance agents. I find these comments to be unjustified and have blocked many of them.
I write some articles on my own based on my knowledge and research. These articles will usually carry my name.
A few regular visitors to my blog send articles to me, usually of news clippings from other newspapers on insurance, finance and other issues covered in my blog. If I find them relevant, I post them into my blog with my comments.
Some contributors have a specific purpose. For example, they had bad investments in land banking products and send articles to me to warn others about the bad experience.
Some had a bad opinion about insurance agents. They continue to post comments to attack insurance agents. I find these comments to be unjustified and have blocked many of them.
I write some articles on my own based on my knowledge and research. These articles will usually carry my name.
Dislike of CPF Life
I met a retiree. He expressed a strong dislike of CPF Life. He said that the four options are misleading. The Government said that there is a refund to the beneficiary on the death of the annuitant. He argued that if the annuitant lives long enough, there will be no further refund.
I disagree with his reasoning. He should not complain about the available of options or the fact that there is no refund, if the annuitant lives to an advanced age. But, he refuses to listen.
I am quite sad at the distrust of the Government expressed by this person. This distrust seems to be quite widespread. It is not justified in this particular instance about the CPF Life.
Tan Kin Lian
I disagree with his reasoning. He should not complain about the available of options or the fact that there is no refund, if the annuitant lives to an advanced age. But, he refuses to listen.
I am quite sad at the distrust of the Government expressed by this person. This distrust seems to be quite widespread. It is not justified in this particular instance about the CPF Life.
Tan Kin Lian
Wasteful reserving of parking spaces
It is wasteful to reserve parking spaces for season parking in HDB estates as many of the spaces are empty during the day time and visitors had a difficult time to find an empty space to park the car. Read here.
Confusing road names in Singapore
An American, who now lives in Singapore, found the road names to be confusing. Read her views here.
Financial planning - Practical Steps (draft 5a)
Jobs in Life Insurance industry
Mr. Tan,
You have recommended people to buy Term insurance. If everyone takes your advice, will there be enough jobs for the people working in the life insurance industry?
REPLY
Yes. There will be enough jobs - as many as there are now working in the industry. They will be providing a better quality of service to customers in financial planning and insurance. I shall talk about this matter in a separate article.
You have recommended people to buy Term insurance. If everyone takes your advice, will there be enough jobs for the people working in the life insurance industry?
REPLY
Yes. There will be enough jobs - as many as there are now working in the industry. They will be providing a better quality of service to customers in financial planning and insurance. I shall talk about this matter in a separate article.
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