Dear Mr Tan,
I brought a 25 years anticipated endowment plan from P in Year 2003. This plan with monthly premium of S$137.67 allows annual cashback of S$1,000 (from 2nd year onwards).
The guaranteed surrender value start from S$1,000 on the 2nd year and increased up to S$1,413 on the 15th year, and then decreased to S$1,000 on the 25th matured year.
The Non-guaranteed surrender value start from S$110 on the 3rd year and increased up to S$24,811 on the 25th matured year (based on 2.78% projected investment yield to maturity).
I have done a quick calculation as follows:
Annual Premium = $1,652.04
Total Premium paid for 25 years = S$41,301
Total Cashback received (from 2nd years onwards) = S$24,000
Guaranteed maturity benefit = S$1,000 (5% of sum assured)
Total guaranteed benefit with total cashback received = S$25,000
Total Non-guaranteed maturity benefit: S$24,811 (based on 2.78% projected investment yield to maturity)
After 25 years, if the 2.78% projected investment yield to maturity is met, I will only received a total of S$8,510 after deducted the total premium paid, or even lower if the actual investment yield decreases.
After coming to 5 years of enforcing this plan, I have realised that I may have make a wrong choice to buy this policy as the returns seems rather low. I would like to seek your advice on the followings:
1) Do you think I should continue with this plan till 25 years?
2) What plans are there with better guaranteed returns?
TY
REPLY
I find it difficult to analyse this complicated product. The maturity benefit is uncertain, as a large part is not guaranteed. I also do not know what is the loss that you have to face, if you decide to terminate the policy now.
If you decide to terminate the policy, you can buy a decreasing term insurance policy for the insurance protection and invest the difference in a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Thursday, June 19, 2008
Wednesday, June 18, 2008
Business Ethics
In olden Chinese society, the respected occupations were the government officials, teachers, doctors, farmers and craftsmen. The merchants were considered to be near the bottom of the ranking. Why were the merchants given so low a ranking in the past?
Today, the merchants (i.e. businessmen, entrepreneurs, traders, bankers) are the most lucrative occupations. They earn large amounts of money, especially in financial services and corporate dealings.
Even the professionals (i.e. doctors, lawyers, accountants and teachers) want to be converted into businesses to make more money.
The drive to "make more profit" has resulted in a deterioration of business ethics. Nowaways, businesses find it all right to "skim off the consumers" to increase their profits, so long as they do not break the law. It has become an acceptable business practice to take advantage of the ignorant or weak consumers to maximise profits. .
I believe that there will be a backlash. I hope that the business community will understand that fair treatment of consumers is for the long term benefit of the free market system.
Today, the merchants (i.e. businessmen, entrepreneurs, traders, bankers) are the most lucrative occupations. They earn large amounts of money, especially in financial services and corporate dealings.
Even the professionals (i.e. doctors, lawyers, accountants and teachers) want to be converted into businesses to make more money.
The drive to "make more profit" has resulted in a deterioration of business ethics. Nowaways, businesses find it all right to "skim off the consumers" to increase their profits, so long as they do not break the law. It has become an acceptable business practice to take advantage of the ignorant or weak consumers to maximise profits. .
I believe that there will be a backlash. I hope that the business community will understand that fair treatment of consumers is for the long term benefit of the free market system.
A poor yield on single premium endowment
My wife's single premium endowment will mature in 2 months time. She will get a yield of 3.06% for the past 5 years.
During the past 10 years, the insurance company reported that the averge yield was 7.8%. I found the yield of 3.06% to be unsatisfactory, for a participating policy.
Here are some key figures:
Single premium $50,000
Insurance company earned 7.8% for 5 years, giving a total of $72,800
Maturity benefit: $58,100
By giving a low payout of $58,100, the insurance company kept $14,700 for the 5 years, or $2,940 a year. That is a lot of money to keep from the policyholder for the small insurance protection provided by this policy. The actual expenses for this policy are quite low anyway.
If the insurance company had earned a low return, they would have reduced the payout (i.e. cut the annual and special bonus). As the insurance company had actually earned a high return, they should increase the payout to the policyholder on the maturity, instead of keeping a large part of the unexpected gain in the fund. This is the "promise" of a participating policy.
I have raised this matter with the insurance company. I believe that they payout has not meet the standard of "fair and consistent with the actual experience".
During the past 10 years, the insurance company reported that the averge yield was 7.8%. I found the yield of 3.06% to be unsatisfactory, for a participating policy.
Here are some key figures:
Single premium $50,000
Insurance company earned 7.8% for 5 years, giving a total of $72,800
Maturity benefit: $58,100
By giving a low payout of $58,100, the insurance company kept $14,700 for the 5 years, or $2,940 a year. That is a lot of money to keep from the policyholder for the small insurance protection provided by this policy. The actual expenses for this policy are quite low anyway.
If the insurance company had earned a low return, they would have reduced the payout (i.e. cut the annual and special bonus). As the insurance company had actually earned a high return, they should increase the payout to the policyholder on the maturity, instead of keeping a large part of the unexpected gain in the fund. This is the "promise" of a participating policy.
I have raised this matter with the insurance company. I believe that they payout has not meet the standard of "fair and consistent with the actual experience".
Sudoku
Sudoku is a popular game. It appears in many daily newspapers around the world. It appears in Today and MyPaper in Singapore.
I have asked many people in Singapore. Over 90% said that they are not familiar with the game. I taught them the technique of solving the Sudoku puzzle in 5 minutes. Many of them found the game to be stimulating and interesting.
It takes only 5 minute to learn a skill that can be useful in life. If you are interested to learn this skill, click here:
http://www.tankinlian.com/logic9/
I have asked many people in Singapore. Over 90% said that they are not familiar with the game. I taught them the technique of solving the Sudoku puzzle in 5 minutes. Many of them found the game to be stimulating and interesting.
It takes only 5 minute to learn a skill that can be useful in life. If you are interested to learn this skill, click here:
http://www.tankinlian.com/logic9/
Incontestable Clause
Most life insurance companies have an "Incontestable Clause". It states that the insurance company will not contest any claim after two years, except in the case of fraud. Some insurance professionals claim that they can contest a claim if there is material non-disclosure, on the grounds of fraud.
I hold a different view - that the insurance company has to prove that there is fraudulent intent, in order to reject a claim after two years. I find that insurance professionals are too ready to reject a claim, even on weak grounds.
My position appears to be supported by this chapter from a textbook on "Principles of Risk Management and Insurance" by George Rejda.
The incontestable clause states that the insurer cannot contest the policy after it has been inforce two years during the insured's lifetime. After the policy has been in force for two years, the insurer cannot later contest a death claim on the basis of a material misrepresentation, concealment, or fraud when the policy was first issued. The insurer has two years in which to discover any irregularities in the contrct. With few exceptions, if the insured dies, the death claim must be paid after the contestable period expires.
The purpose of the incontestable clause is to protect the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued. Because the insured is dead, he or she cannot refute the insurer's allegations. As a result, the beneficiary could be financially harmed if the claim is denied on the grounds of a material misrepresentation or concealment.
The incontestable clause is normally effective against fraud. If the insured makes a fraudlent misstatement to obtain the insurance, the compnay has two years to detect the fraud. Otherwise, the death claim has to be paid.
However, there are certain situations where the fraud is so outrageous that payment of the death claim would be against public interest. In these cases the insurer can contest the claim after the contestable period runs out. They include the following:
> The beneficiary takes out a policy with the intent of murdering the insured.
> The applicant for insurance has someone else take a medical examination.
> An insurable interest does not exist at the inception of the policy.
I hold a different view - that the insurance company has to prove that there is fraudulent intent, in order to reject a claim after two years. I find that insurance professionals are too ready to reject a claim, even on weak grounds.
My position appears to be supported by this chapter from a textbook on "Principles of Risk Management and Insurance" by George Rejda.
The incontestable clause states that the insurer cannot contest the policy after it has been inforce two years during the insured's lifetime. After the policy has been in force for two years, the insurer cannot later contest a death claim on the basis of a material misrepresentation, concealment, or fraud when the policy was first issued. The insurer has two years in which to discover any irregularities in the contrct. With few exceptions, if the insured dies, the death claim must be paid after the contestable period expires.
The purpose of the incontestable clause is to protect the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued. Because the insured is dead, he or she cannot refute the insurer's allegations. As a result, the beneficiary could be financially harmed if the claim is denied on the grounds of a material misrepresentation or concealment.
The incontestable clause is normally effective against fraud. If the insured makes a fraudlent misstatement to obtain the insurance, the compnay has two years to detect the fraud. Otherwise, the death claim has to be paid.
However, there are certain situations where the fraud is so outrageous that payment of the death claim would be against public interest. In these cases the insurer can contest the claim after the contestable period runs out. They include the following:
> The beneficiary takes out a policy with the intent of murdering the insured.
> The applicant for insurance has someone else take a medical examination.
> An insurable interest does not exist at the inception of the policy.
Tuesday, June 17, 2008
Rejection of Shield claim
Dear Mr. Tan,
I am writing to you to seek your advice on how I should go about seeking redress with regards to my claim with Y.
I bought the Shield plan from Y. I was hospitalised 9 months later for angioplasty (ballooning). Y had written to state that they are not covering me because my hospital discharge summary indicates the diagnosis as : Primary - Ischaemic Heart Disease, Secondary - Hypertension and Hyperlipidemia and that I did not declare that I had high cholesterol.
I did a health screening with my GP and results showed that my cholesterol level was slightly high. My GP advised me to do more exercise and lead a healthier lifestyle. He deemed it was not necessary for me to be on medication. I carried on my life as usual without making much changes at all as I didn't take the condition seriously.
I did another health screening a few years later. My GP told me that my cholesterol level had improved slightly. It was not necessary for me to go on medication.
All this while, it has never occurred to me that I have high cholesterol because I was not on medication. As a layman, I sincerely and honestly didn't know the seriousness of having high cholesterol which may lead to heart disease.
When I was asked questions about my health during the proposal, I had declared whatever I know (ie, on medication for high blood pressure which was under control.) In Y's proposal form, there was no question asked about cholesterol. If it is an important factor in risk assessment, I think it is only fair to include this question.
CY
REPLY
I suggest that you write to Y and pose them the facts that you have presented. If they wish to reject your claim due to non-disclosure, it is their duty to prove that you have deliberately hidden a material fact.
As they did not ask about your high cholesteral, and you were not aware about its significance, you have a right to press for your claim to be approved. Let us see what is their reply to this matter.
If you feel that your claim has not been handled fairly, you can lodge a complaint with FiDREC. They will appoint an independent assessor to look into this matter. Their contact is:
http://www.fidrec.com.sg/website/faq.html
I am writing to you to seek your advice on how I should go about seeking redress with regards to my claim with Y.
I bought the Shield plan from Y. I was hospitalised 9 months later for angioplasty (ballooning). Y had written to state that they are not covering me because my hospital discharge summary indicates the diagnosis as : Primary - Ischaemic Heart Disease, Secondary - Hypertension and Hyperlipidemia and that I did not declare that I had high cholesterol.
I did a health screening with my GP and results showed that my cholesterol level was slightly high. My GP advised me to do more exercise and lead a healthier lifestyle. He deemed it was not necessary for me to be on medication. I carried on my life as usual without making much changes at all as I didn't take the condition seriously.
I did another health screening a few years later. My GP told me that my cholesterol level had improved slightly. It was not necessary for me to go on medication.
All this while, it has never occurred to me that I have high cholesterol because I was not on medication. As a layman, I sincerely and honestly didn't know the seriousness of having high cholesterol which may lead to heart disease.
When I was asked questions about my health during the proposal, I had declared whatever I know (ie, on medication for high blood pressure which was under control.) In Y's proposal form, there was no question asked about cholesterol. If it is an important factor in risk assessment, I think it is only fair to include this question.
CY
REPLY
I suggest that you write to Y and pose them the facts that you have presented. If they wish to reject your claim due to non-disclosure, it is their duty to prove that you have deliberately hidden a material fact.
As they did not ask about your high cholesteral, and you were not aware about its significance, you have a right to press for your claim to be approved. Let us see what is their reply to this matter.
If you feel that your claim has not been handled fairly, you can lodge a complaint with FiDREC. They will appoint an independent assessor to look into this matter. Their contact is:
http://www.fidrec.com.sg/website/faq.html
Loss of goodwill
A met an Income policyholder at a cocktail party. He told me that in the past, he did not have to think twice about buying insurance from Income, as he was sure that being a cooperative, he would get a lower price and better return.
With the recent change, he is not not sure whether Income will continue to give the same good value. He is worried about the higher expenses and the recent change in bonus to make Income follow the practice of other insurance companies. He would check carefully before he buy a policy from Income.
He said that a lot of goodwill is being lost through the recent changes.
With the recent change, he is not not sure whether Income will continue to give the same good value. He is worried about the higher expenses and the recent change in bonus to make Income follow the practice of other insurance companies. He would check carefully before he buy a policy from Income.
He said that a lot of goodwill is being lost through the recent changes.
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