Break-even point for old NTUC policies

Dear Mr. Tan,

When you were in charge of NTUC, did your products have a breakeven point of 5 years?

REPLY

If my memory was correct, most of the products have a break-even point of 5 to 8 years. They also provide a good yield to the customer, after 20 years, i.e. 5% or higher. So, most customers who bought the NTUC policies in the early days obtained a good deal. The high yield was possible due to low distribution cost, and a high rate of bonus distribution.

Advice on stock selection and timing

Dear Mr Tan,
In the investement section of yday's Sunday Times, CIMB research recommended Parkway Life Reits as heath care assets is seen as one of the most stable asset classes and this reits stands out as one of the few heath-care reits that can amalgamate such assets.

I am thinking of liquidating my Comfortdelgro shares (with some profit) and invest into Parkway Life Reits as it seems to pay higher dividends. What is your opinion on this ?

REPLY
I am not able to advise on stock selection and timing. Wish you all the best in your decision.

Breakeven point

Dear Mr. Tan,
What is an acceptable break-even point for a life insurance policy? I have a policy that breaks even after 20 years, i.e. the cash value is more than the premiums paid. Is this acceptable?

REPLY
If you are saving your money, the break-even point should be 0 years. This is what you get when you put your money in a bank account. You can withdraw it at any time without penalty.

If you invest in a unit trust with a front end load of 2% (or less), you can break even within 1 year (provided that the stock-market gives a positive return.

A life insurance policy takes many years to break even due to the high commission paid to the insurance agent. If the distribution cost is 50% of the annual premium, it should take 5 years to break even. If it is 100%, it should take 7 years to break even.

I consider a distribution cost of 50% to be rather high, but may be acceptable. Your life insurance policy should take 5 years to break even. If it takes longer than 5 years, it is not good for consumers. There are better ways to invest your money.

However, if the life insurance policy is able to give an attractive yield, compared to other types of investments, you may accept a higher break-even point of 7 years.

Tan Kin Lian

NOTE

The break-even point is the number of years required for the surrender value of the policy to reach the total amount of premiums paid.

Why do bankers make so much money?

Read this article. It did not mention the following - "they create toxic products to sell to their clients".

Bend reality and become dishonest

QUOTE
We MUST recognise that when we get into situations where our personal benefits (mostly financial) stand in opposition to our moral standards, we are able to "bend" reality, see the world in terms compatible with our selfish interest, and become dishonest.

Dan Ariely, author of Predictably Irrational