I wish to address the questions: What is wrong with traditional policies, such as whole life, endowment or critical illness, which have been sold for decades? Can the shortcomings be corrected?
The shortcomings are:
a) High upfront charges - as much as 160% of the annual premium
b) Lack of transparency
c) Fair distribution of bonus
These shortcomings can be overcome by:
a) Reduce upfront charges
b) Adopt the asset share method - improve transparency and ensure fair distribution of bonus.
Using the asset share approach, the insurance company has to give an annual statement to the policyholder showing the premiums paid, the charges taken out of the premium (for mortality risk and expenses) and the interest credited (based on the investment yield earned by the fund) and the asset share. The asset share has to be paid to the policyholder on the termination of the policy.
This transparency will help to reduce the upfront charge (as consumers will never agree to have 160% of their annual premium taken away). The transparency and competition will make the upfront charge to disappear one day (similar to opening a savings account in a bank!)
Some countries (e.g. Malaysia) have already adopted the asset share method and also placed a modest cap on the upfront charge. If a similar approach is adopted in Singapore, I will be happy to recommend the whole life, endowment and critical illness plans as being good for consumers.
tan Kin Lian
Saturday, September 19, 2009
Arbitrary decisions on health insurance claims
This article contains several letters on arbitrary and illogical decisions taken by health insurance companies on insurance claims. They argue for regulation.
Duration of Term Assurance
As a rule of thumb, the correct duration for a term assurance should be 25 years or up to age 60 (if shorter). If you look at the benchmark premiums shown in this FAQ, you will find that the premium is affordable for a large amount of insurance.
The purpose of term assurance is to provide a capital sum in the event of premature death during the years when your children are still young. After 25 years, your children would have grown up and are likely to be independent. If you make adequate savings during the 25 years, you will have sufficient savings to meet your financial needs after that period. There is no further need for life assurance.
Under a decreasing term insurance, the protection reduces each year over the term. For example, if you insure for $300,000 over 25 years, the protection will reduce by $12,000 a year. Although the protection reduces, it can be compensated by the increased saving that you have put aside each year. Regular saving is an important part of your financial plan. The cost of decreasing term assurance is less than half of the cost of level term assurance for the same duration.
The purpose of term assurance is to provide a capital sum in the event of premature death during the years when your children are still young. After 25 years, your children would have grown up and are likely to be independent. If you make adequate savings during the 25 years, you will have sufficient savings to meet your financial needs after that period. There is no further need for life assurance.
Under a decreasing term insurance, the protection reduces each year over the term. For example, if you insure for $300,000 over 25 years, the protection will reduce by $12,000 a year. Although the protection reduces, it can be compensated by the increased saving that you have put aside each year. Regular saving is an important part of your financial plan. The cost of decreasing term assurance is less than half of the cost of level term assurance for the same duration.
You can buy a term assurance that covers critical illness as well. The cost is about 2 times of a basic term assurance that covers death only, but will be still quite affordable.
You have the choice of paying a level premium for the entire term or to pay a premium that varies according to your age. Both methods are suitable. For most people, a level premium is probably better, as they do not have to worry about whether the higher premium charged each year is at a fair rate.
You have the choice of paying a level premium for the entire term or to pay a premium that varies according to your age. Both methods are suitable. For most people, a level premium is probably better, as they do not have to worry about whether the higher premium charged each year is at a fair rate.
There is no need to buy life assurance for more than 25 years or beyond age 60. The premium will be too high. Some insurance agents recommend term insurance up to age 75, which is unnecessary and costly There is no need to buy life assurance for more than 25 years or beyond age 60. The premium will be too high. Some insurance agents recommend term insurance up to age 75, which is not necessary and too costly (and give higher commission to the agent).
Tan Kin Lian
Financial planning - Practical Steps (draft 4)
CyCab - Driverless Electric Vehicle
I will be visiting a research facility in France that is developing a driverless electric vehicle, called the Cycab. The visit will be in late November. Read more about this vehicle in various blog postings here. Watch an intereseting animated video about this vehicle.
Friday, September 18, 2009
RED Portal (7) - Graph of Price Trends
The RED portal allows you to displace a graph showing the price trend for the last 24 months where there are transactions. Those months without transactions will be skipped, so that actual period could be more than 24 months. It gives you a good idea about the movement in prices.
The information provided in the RED Portal is valuable and is now given FREE. At a later date, there will be some charge to access certain valuable information. Meanwhile, enjoy the FREE information. I hope that you find them useful.
www.easysearch.sg (Real Estate Data).
The information provided in the RED Portal is valuable and is now given FREE. At a later date, there will be some charge to access certain valuable information. Meanwhile, enjoy the FREE information. I hope that you find them useful.
www.easysearch.sg (Real Estate Data).
Experience with Part Time Work Portal
I tried to locate part time workers at the Part Time Work portal, www.easysearch.sg. I was able to get two good candidates for a project work, where they can work from their home.
It was more difficult to get someone to work in the office. Many of the registered people did not reply to my e-mail. Some have found a job already. I am still trying.
The advantage of this service is that it is free to the employer. It is also easy to find a worker that lives close to the place of work. I will be trying the unemployed workers at the older ages, as they are more likely to want my kind of work.
I wish to encourage employers to try this portal. If you wish to get someone to do the preliminary screening, you can click on the tab Agency. We will handle the initial search and screening for you.
I also encourage unemployed people and those looking for short term work to register in the portal. Although it is for Part Time Work, some employers are keen to offer full time work. It is also possible to do project work from your home.
www.easysearch.sg (Part Time Work)
It was more difficult to get someone to work in the office. Many of the registered people did not reply to my e-mail. Some have found a job already. I am still trying.
The advantage of this service is that it is free to the employer. It is also easy to find a worker that lives close to the place of work. I will be trying the unemployed workers at the older ages, as they are more likely to want my kind of work.
I wish to encourage employers to try this portal. If you wish to get someone to do the preliminary screening, you can click on the tab Agency. We will handle the initial search and screening for you.
I also encourage unemployed people and those looking for short term work to register in the portal. Although it is for Part Time Work, some employers are keen to offer full time work. It is also possible to do project work from your home.
www.easysearch.sg (Part Time Work)
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