Risk management

In this article, I explain the various ways to manage risks, besides buying insurance. I also explain the importance of savings as a form of risk management and the important factors to look for in selecing an insurance policy.

www.tankinlian.com (see Latest or Ask Mr. Tan)

High deduction for investment linked plan

A graduate, who recently got a job, was approached by a friend to invest $300 a month in an investment linked policy. His friend showed him the colorful brochures of three funds with projections of yields of 5% and 9%. The graduate sought my views about these funds.

I asked him to send the benefit illustration to me. He initially sent me the fund brochures (which he mistook to be the benefit illustration). Later, he found the benefit illustration. Here is my reply to him:

1) The distribution cost for 5 year sis $6,383, representing 177% of your annual savings. Do you really want to give so much of your saving away?

2) Based on 9% yield (which is not guaranteed and over-optimistic), the accumulated premium at the end of 25 years is $332,366. However, the amount that is taken away from you is $131,966 (39% of total), leaving you with a net amount of only $200,400. This is a lot of money to be taken away. According to the benchmark in my book, an acceptable deduction is 20%.

3) Based on a more realistic gross yield of 5%, the projected cash value at the end of 25 years is only $115,900 representing a net yield of 2%. This is a hefty deduction of 3% from the gross yield of 5% and is not sufficient to cover future inflation.

4) This is a bad investment plan and should be avoided.

The graduate was also asked to pay another $150 a month for the death and critical illness cover. This is excessive, compared to the premium charged on similar cover in the SAF group insurance policy. It is so easy for the public to be misled into buying life insurance products that offer poor value for their savings.

Tan Kin Lian


Practical Guide on Financial Planning
FAQs in TKL website

Yes, Prime Minister

Read this response from a citizen to the National Day message from the Prime Minister.

When should one retire?

Read this article.

My view
I agree with Dr. Wong Wee Nam. We need to build the services and infrastructure to cater to the needs of our aging population. We should also relieve them from the worry of meeting the rising cost of living.

National Day Award

Here is another perspective.

Relevance of Tommy Wong's book

If you consider there are many negative events happening around the world, and would like a understanding of the mentality of the rich and powerful, you are recommended to read the chapter “Conversation with Guru Dick” in Tommy Wong’s book “Wisdom on How to Live Life”. The book also offers an alternative, spiritual way of living our lives. It has special relevance to the people who were misled into investing in the toxic financial products.

The book can be ordered here.

 

Build FISCA

A young man thanked me for replying promptly to his question about an insurance policy that is being offered to him, especially (as he pointed out) on a public holiday.

I run a small start up (see www.tankinlian.com for a range of my consulting, software development and other activities) and have to spend most of my working time there.

I can and have to do the educational work (i.e my blog and website) mostly in the evenings, weekends and public holidays. I also have to spend a lot of time looking for volunteers for FISCA and to get their commitment to spend time on its educational activities. That is also a lot of work and sacrifice. But the work has to be done, in the interest of educating the public about financial issues and giving them the knowledge to make better financial decisions.

I like to ask those who have benefited from my blog and FAQs in my website to give tangible support for FISCA in the following ways:

• Join FISCA as a member (only $36 a year) 
• Attend the educational talks of FISCA ($30 for public, reduced rate for members)
• Donate to FISCA (say 10% of the distribution cost that you saved by avoiding a bad policy)

FISCA needs funds to pay an allowance to its volunteers (some of whom are not gainfully employed). I am not able to handle FISCA on my own.  More people are joining FISCA (and I thank them for their support), but I need much more. So please spread the word around.

Remember - if you have gained from my educational activities, you could save $100,000 over the next 30 years,. That is a lot of money - not to be taken for granted. Make a generous donation to FISCA.

www.fisca.sg

Tan Kin Lian