Belgian prosecutor wants Citibank to repay 'duped' savers

Read this report. The public prosecutors in other countries are more active in protecting the interest of consumers. I hope that our authority can also be more active.

Effect of Deduction

The benefit illustration for a life insurance policy (i.e. whole life, endowment, critical illness) shows the projected surrender values based on an interest rate of 3.75% and 5.25%. The average of 4.5% represents, in my view, a fairly realistic projection of the future yield on the investment of a well diversified life insurance fund based on current economic conditions.

If you are getting this type of yield, it is important that the amount taken away from your savings should be modest, and not excessive. In my view, a reduction in yield (to cover the mortality and expenses) of 1.5% is acceptable, giving you a net yield of 3%. If you buy riders to cover other risks, the premiums are charged separately and do not affect the calculation for the basic policy.

I find that most benefit illustrations show a higher reduction in yield, due to high commission and high profit margin for the insurance company. The product is bad for consumers and should be avoided.

The reduction in yield is not shown in the benefit illustration. However, you can compute it by looking at two figures that are shown, namely the "effect of deduction" and the "value of accumulated premiums".

Based on the benchmark of 1.5% reduction in yield, the "effect of deduction" should not exceed the following percentage of the "value of accumulated premiums".

Premium payable for	Maximum deduction
10 years	8%
15 years	11.8%
20 years	15.6%
25 years	19.4%

For example, if you pay $X a year in premium and the value of premium after 20 years is $100,000, the "effect of deduction" should not exceed 15.6%,or $15.600. I have seen many examples where the effect of deduction could be twice of the fair amount, giving a poor yield to the policyholder.

Tip: If the "effect of deduction" is less than the above benchmark, the policy gives you a good value. If it exceeds the above benchmark by a small amount (say 5%), it is still acceptable. But do not accept any product where the "effect of deduction" is more higher. If you are earning so little (due to the low interest environment), do not allow the insurance company or the agent to take so much away from you.

Personal attack

There is one person who finds all opportunities to attack me personally. This person posts anonymously and will find fault and pass cynical remarks on most of my views. I have blocked his views, so he goes to other blogs to attack me. I suspect that this person has been paid to do this type of dirty work.

Electronic display on MRT trains

Here are my views of the electronic displays.

Ask the insurer to provide an explanation

Dear Mr Tan,
Recently I received my renewed incomeshield with the attachment of Endorsement E0901 stated that with effect from the renewal date, the following new definitions shall replace and supersede the existing definitions by the same name appearing in the "definitions" section of the policy.

Can you comments over all those definitions? How are they different from the previous definitions? Any 'small prints' that we should be aware of & take exception? I think those who are in this scheme received the same endorsement.

REPLY
I suggest that you write to NTUC Income and ask them for an explanation of the effect of the change in definition. It is their duty to provide a satisfactory explanation to you. If you have received the explanation, you can send them to me for a second opinion.

Mandating health insurance

This article explains the need to pass a law to require every person to be insured, use of community rated premiums and guaranteed issue, i.e. no medical underwriting. This approach is adopted by several countries, e.g. Australia, Germany.

Price chart of land in UK

Dear Mr Tan
I notice that many Singaporeans seem to fail to grasp the problem with land banking. The argument is always that land increase in price and since you own the land you cannot lose.

I have created this chart to explain my case. This is based on real land banking company data. I used a starting plot price of 10,000 UKP in 2006 converted into S$.

The green belt land value is based on land registry data in 2006 The value with planning permission is based on a land banking company estimate of 250% returns adjust by the recent fall in property prices.

I have adjust all prices using both currency and the recent boom and bust in the UK property market. I have made an assupmtion of 5% per annum increase in the value of land from 2011 forward.

Since there are no recorded successes with UK land banking plots I cannot see how any company can make claims for expercted, estimated or anticipated returns on this investment.

You will note according to this graph that in real terms land banking plots have got cheaper since 2006 as the UK currency declined in value. However many land banking companies have increased their UK pound price of their plots so that they still get the same number of Singapore dollars. As an example X increased their plot price from 5600 Pounds to 8000 Pounds in 2008.