I posted a story of a non-working woman who invested all of her savings in a 21 year endowment policy. She would have paid $18,000 in premium and obtained a return of $16,000 on maturity. This gave a negative return. Part of the premium went into paying for a rider to provide additiona insurance protection, but this was over-priced.
She obtained a meagre return of less than 1% per annum on the savings portion of the premium. The insurance company would probably have earned an average yield of 5% per annum. More than 80% of the gains went into the commission, expenses and profit. The meagre return could not even cover the inflation during the years. To this woman, it represented most of her lifetime savings, which has been denied of a fair return for a financial plan that was traditionally supposed to be trustworthy.
When I think about the million of policyholders who have suffered this fate, I wonder about the harm that the life insruance industry and the advisers had done to the people. Perhaps this applied to only some of the companies and agents, and that the other companies could have offered a more decent return. But, to my knowledge, quite a large number of people have suffered from the poor return.
Even life insurance companies that offered decent return in the past could change their strategy to focus on making profit for their shareholders and agents. Their policyholders would be placed in a helpless situation, unless the regulator steps forward to protect the interest of the public. In some countries, the regulators were appalled by the type of predactory practices and have taken steps to control the excesses.
Tan Kin Lian
Sunday, June 6, 2010
Saturday, June 5, 2010
A matter of chance
Here is a puzzle. You have to guess a number from 1 to 4. Each day the correct answer is drawn. You have 1 out of 4 chance of getting it right. You repeat this exercise for 6 days. What is the probability (chance) of getting the right number for 6 days, 5 days, 4 days, 3 days, 2 days, 1 day and 0 day? Please show in percentages to 2 decimal places. The total must add up to 100%
Send your answer to kinlian@gmail.com. The first correct answer will win my Tangram book.
Send your answer to kinlian@gmail.com. The first correct answer will win my Tangram book.
Competition Law
I am surprised that SISTIC should be charged, found guilty and fined nearly $1 million for breaching the Competition Act. Here are my reasons:
a) SISTIC competed fairly to win the contract from the venue owners to handle the ticketing of their shows.
b) It is more sensible for the venue owner to get one ticketing company, rather than several companies, to handle the sale of the tickets.
c) The ticket charge (presumably $2) is a small charge for the work of issuing a ticket
d) ticket charge can be considered as part of the total cost of the show. If the customer does not like the total price, the customer is not required to watch the show.
The ticket charge is small, as compared to the charge of $30 imposed by the banks to transfer US$100. If SISTIC should be fined for this charged for this fee, why are the banks allowed to impose a charge that is 15 times of this sum? The work is similar in both cases.
I am not sure if I got my facts and issues correctly, so I look forward to getting the views of other people on this matter.
Tan Kin Lian
a) SISTIC competed fairly to win the contract from the venue owners to handle the ticketing of their shows.
b) It is more sensible for the venue owner to get one ticketing company, rather than several companies, to handle the sale of the tickets.
c) The ticket charge (presumably $2) is a small charge for the work of issuing a ticket
d) ticket charge can be considered as part of the total cost of the show. If the customer does not like the total price, the customer is not required to watch the show.
The ticket charge is small, as compared to the charge of $30 imposed by the banks to transfer US$100. If SISTIC should be fined for this charged for this fee, why are the banks allowed to impose a charge that is 15 times of this sum? The work is similar in both cases.
I am not sure if I got my facts and issues correctly, so I look forward to getting the views of other people on this matter.
Tan Kin Lian
Poor return from endowment policy
Dear Mr Tan,
In 1995, my mother was sold an endowment product. The policy is maturing in about 5 years time. By that time, she would have paid a total of $16,000 in premium for the life policy and $2,000 for the critical illness rider. The insurance company said that the guaranteed payout after 21 years is $14,000 and the projected payout is about $16,000.
This is really a ridiculous situation. If she had left her money in FD over 21 years, she would have got a better return than this endowment product. This product is giving a negative returns over the 21 year period! At that time, my mother was not working and the premium was all she could afford. It is sickening that there are people out there who will even try to milk money out of such poor people, as the agent sold the policy as a "savings plan".
Is there any action that I can take against the insurance company? The agent who sold the policy has long since vanished.
MY REPLY
I agree with your views. A fair return for 21 years should be 3% p.a. This would give a maturity benefit of $21,800, instead of $16,000. Another insurance company has advertised that it gave a return of more than 5% over a similar period in the past. This would have produced more than $27,200.
I suggest that you write a complaint to MAS and to the newspaper.
In 1995, my mother was sold an endowment product. The policy is maturing in about 5 years time. By that time, she would have paid a total of $16,000 in premium for the life policy and $2,000 for the critical illness rider. The insurance company said that the guaranteed payout after 21 years is $14,000 and the projected payout is about $16,000.
This is really a ridiculous situation. If she had left her money in FD over 21 years, she would have got a better return than this endowment product. This product is giving a negative returns over the 21 year period! At that time, my mother was not working and the premium was all she could afford. It is sickening that there are people out there who will even try to milk money out of such poor people, as the agent sold the policy as a "savings plan".
Is there any action that I can take against the insurance company? The agent who sold the policy has long since vanished.
MY REPLY
I agree with your views. A fair return for 21 years should be 3% p.a. This would give a maturity benefit of $21,800, instead of $16,000. Another insurance company has advertised that it gave a return of more than 5% over a similar period in the past. This would have produced more than $27,200.
I suggest that you write a complaint to MAS and to the newspaper.
Friday, June 4, 2010
Avoid markeeteers
In the past, many people have approached me on land banking and time sharing products. These are people who meet me at various events and claimed to know me. They gave me a business cards indicating their involvement in these companies. They wanted to market the products to me. I declined. Some of these marketeers called my home telephone to tell me about the investment opportunities. I also declined to talk to them.
I make it a point to avoid every one who markets investment products. I know that they earn commission from their sales to investors. It is easy for them to tell stories about how much profit can be made from these investments, so that they can close a sale and earn their commission. But the stories of the potential profits are mostly exaggerated.
I do not even bother to spend time to due research on these investment products. I just avoided all of them. This is why I did not know about the min-bonds, pinnacle notes and other credit-linked notes until they busted.
Tan Kin Lian
I make it a point to avoid every one who markets investment products. I know that they earn commission from their sales to investors. It is easy for them to tell stories about how much profit can be made from these investments, so that they can close a sale and earn their commission. But the stories of the potential profits are mostly exaggerated.
I do not even bother to spend time to due research on these investment products. I just avoided all of them. This is why I did not know about the min-bonds, pinnacle notes and other credit-linked notes until they busted.
Tan Kin Lian
Medical insurance
Dear Mr. Tan,
I hope that you can post some advice in your blog on choosing between the Medishield, Shield and hospital insurance.
Reply
You can view some of my postings on medical insurance here. You can get a more complete writeup in my book, Practical Guide on Financial Planning.
My advice is to buy a Medishield plan (from CPF) or a Shield Plan B from an insurance company. There is no need to insure the co-payment and deductible, as these expenses are small and can be paid out of Medisave.
I hope that you can post some advice in your blog on choosing between the Medishield, Shield and hospital insurance.
Reply
You can view some of my postings on medical insurance here. You can get a more complete writeup in my book, Practical Guide on Financial Planning.
My advice is to buy a Medishield plan (from CPF) or a Shield Plan B from an insurance company. There is no need to insure the co-payment and deductible, as these expenses are small and can be paid out of Medisave.
Lawyers and shady practices
Dear Mr. Tan,
The land banking company that is mentioned in many blogs for failing to return the investments on maturity is being advised by a big legal firm in Singapore. This firm is headed by a well known lawyer who is also a MP. How can the Government allow the MP to be involved in advising a company that is engaged in shady practices? Is this why the relevant bodies are not prepared to investigate this land banking company, in spite of many complaints being lodged with the CAD and MAS?
REPLY
I do not know whether this MP is aware about the practices of the land banking company. Perhaps, it is another partner that is advising the company.
The land banking company that is mentioned in many blogs for failing to return the investments on maturity is being advised by a big legal firm in Singapore. This firm is headed by a well known lawyer who is also a MP. How can the Government allow the MP to be involved in advising a company that is engaged in shady practices? Is this why the relevant bodies are not prepared to investigate this land banking company, in spite of many complaints being lodged with the CAD and MAS?
REPLY
I do not know whether this MP is aware about the practices of the land banking company. Perhaps, it is another partner that is advising the company.
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