The bonus projections of life insurance policies are not guaranteed. They depend on the future investment yield earned by the insurance company.
Long, long ago, the bonuses were distributed yearly to the policyholders based on sound actuarial principles. During the old days, you can trust the bonuses are computed fairly, and reflect the underlying economic conditions.
In the early 1990s, life insurance companies in Singapore started to "manipulate" the bonuses. They pay lower bonuses during the earlier years and jacked-up bonuses from age 60 or 65. The policy appears to give a good yield for the long term. As these bonuses are not guaranteed, the policyholder has to wait for a long time to find out if the higher bonuses will be paid. (In many cases, the actual bonuses paid were lower).
Many policies were sold on the basis of these projections. Insurance agents used the bonus projections to sell the concept that the policyholder can stop paying premiums after a certain number of years, called the "critical year". In many cases, the policyholders had to pay the premium for many years more than the projected "critical year". This affected many tens of thousands of policyholders.
I used the term "manipulated" because the bonuses do not reflect the real yield on the investments during the years. There is lack of clarity of the principles on which the bonuses were calculated.
These bonus projections are used to hide the high cost of marketing the life insurance products, which reduces the yield of the policy considerably. The effective yield is less than 2% in most cases, lower than the future rate of inflation. The policyholder is guaranteed to lose out on buying a life insurance policy.
Lesson: Do not trust this type of haphazard bonus projection. Do not trust insurance companies that offer these type of "manipulated" products.
Read this FAQ on how to invest your savings for the future:
http://www.tankinlian.com/faq/savings.html
Wednesday, April 9, 2008
Armed robbery in Singapore
There are more armed robbery and serious crimes in Singapore. They are a sign of hard times. People are becoming desperate, and have to resort to crime.
Sometimes, I wonder if the large number of foreign workers earning low wages in Singapore increase the exposure to criminal activities.
What can we do? We have to find more effective ways to help people to cope with inflation and high cost of living, for our locals and foreign workers.
Sometimes, I wonder if the large number of foreign workers earning low wages in Singapore increase the exposure to criminal activities.
What can we do? We have to find more effective ways to help people to cope with inflation and high cost of living, for our locals and foreign workers.
Wider choice of cards for public transport
The Land Transport Authority plan to introduce a wider choice of cards to be used in public transport in 2009. This requires a big investments to change the readers in buses and MRT stations.
I think that this is a bad idea. It is wasteful. We are spending too much money in hardware. This should be avoided.
There is a perception competition will bring down cost. I doubt it, in this instance. After all, ez-Link is owned by the Government. It is easy to establish performance benchmarks for ez-Link. It is not necessary to have the market to establish it, especially as the market mechanism is likely to impose heavy cost.
I hope that the Government will drop this idea and avoid spending too much money, adding to inflation for the future years.
I think that this is a bad idea. It is wasteful. We are spending too much money in hardware. This should be avoided.
There is a perception competition will bring down cost. I doubt it, in this instance. After all, ez-Link is owned by the Government. It is easy to establish performance benchmarks for ez-Link. It is not necessary to have the market to establish it, especially as the market mechanism is likely to impose heavy cost.
I hope that the Government will drop this idea and avoid spending too much money, adding to inflation for the future years.
Haphazard projections
Dear Mr. Tan
I have two whole life policy proposals (from NTUC Income and Great Eastern Life).Both have sum assured of $100K and premium is payable for only 20 years to enjoy whole life coverage. I am thinking of buying the policy for my baby.
I am attracted to Great Eastern's higher annual reversionary bonus rate of $10 per $1,000 sum assured + 2% attaching bonus (compared to Income's $7 per $1,000 sum assured, compounded at 0.7% p.a.). This could explain why Great Eastern's total projected protection value of $416,000 at age 65 is much higher than Income's $263,000.
Great Eastern also has higher terminal bonus and surrender bonus rates than Income. However, Income has a higher guaranteed surrender value of $65,000 at age 65 (compared to Great Eastern's $54,000).
My guess is that this shows that Income is more confident of earning a higher yield compared to Great Eastern? However, Income's total projected surrender value of $171,000 at age 65 is much lower than Great Eastern's $226,000. Under "Reduction in Yield", Great Eastern's projected reduced yield of 4.43% at age 65 is higher than Income's 3.61%.
This is very confusing. On one hand, Income is confident of guaranteeing a higher surrender value at age 65 than Great Eastern, but Income's projections for total surrender value and total protection value are much lower than Great Eastern's.
Would greatly appreciate your advice on whether I should go for Income's Vivolife or Great Eastern's FlexiLife20. Also, can you help recommend a reliable and experienced insurance agent from Income?
REPLY
I am not able to advice on the merits of these two proposals. I do not advice buying a life insurance policy for a child.
Some life insurance companies adjust their bonuses to show attractive values at certain durations. They are not guaranteed and do not give consistent values. I do not trust these types of haphazard projections.
My advice is to buy a Term insurance policy on your own life and to invest the difference. See this FAQ:
http://www.tankinlian.com/faq/savings.html
I have two whole life policy proposals (from NTUC Income and Great Eastern Life).Both have sum assured of $100K and premium is payable for only 20 years to enjoy whole life coverage. I am thinking of buying the policy for my baby.
I am attracted to Great Eastern's higher annual reversionary bonus rate of $10 per $1,000 sum assured + 2% attaching bonus (compared to Income's $7 per $1,000 sum assured, compounded at 0.7% p.a.). This could explain why Great Eastern's total projected protection value of $416,000 at age 65 is much higher than Income's $263,000.
Great Eastern also has higher terminal bonus and surrender bonus rates than Income. However, Income has a higher guaranteed surrender value of $65,000 at age 65 (compared to Great Eastern's $54,000).
My guess is that this shows that Income is more confident of earning a higher yield compared to Great Eastern? However, Income's total projected surrender value of $171,000 at age 65 is much lower than Great Eastern's $226,000. Under "Reduction in Yield", Great Eastern's projected reduced yield of 4.43% at age 65 is higher than Income's 3.61%.
This is very confusing. On one hand, Income is confident of guaranteeing a higher surrender value at age 65 than Great Eastern, but Income's projections for total surrender value and total protection value are much lower than Great Eastern's.
Would greatly appreciate your advice on whether I should go for Income's Vivolife or Great Eastern's FlexiLife20. Also, can you help recommend a reliable and experienced insurance agent from Income?
REPLY
I am not able to advice on the merits of these two proposals. I do not advice buying a life insurance policy for a child.
Some life insurance companies adjust their bonuses to show attractive values at certain durations. They are not guaranteed and do not give consistent values. I do not trust these types of haphazard projections.
My advice is to buy a Term insurance policy on your own life and to invest the difference. See this FAQ:
http://www.tankinlian.com/faq/savings.html
Large American Airlines
Thirty years ago, there were two large American airlines, called Pan American (PanAm) and Trans World Airlines (TWA). They have disappeared. What happened to them?
Transfer of shares on death of shareholder
Hi Mr. Tan,
I need your advice. My father has passed away more than 10 years ago. He holds the shares of a specific company on SGX. May I have your advice in how to go about having the shares transfered to my mother or myself? I understand in the past, usually a share certificate is required but then after so long, we did not know where is the share certificate. SGX now practices scripless policy.
REPLY
The shares were registered in the name of your father. If your family has applied for letters of adminstration or probate of a will, the administrator or executor can take over the shares of your deceased father and distirbute it as part of the estate.
If this process was not done, you can apply for the letter or probate now. It should cost a few thousand dollars. I hope that the value of the shares are worth much more. Ask a lawyer.
I need your advice. My father has passed away more than 10 years ago. He holds the shares of a specific company on SGX. May I have your advice in how to go about having the shares transfered to my mother or myself? I understand in the past, usually a share certificate is required but then after so long, we did not know where is the share certificate. SGX now practices scripless policy.
REPLY
The shares were registered in the name of your father. If your family has applied for letters of adminstration or probate of a will, the administrator or executor can take over the shares of your deceased father and distirbute it as part of the estate.
If this process was not done, you can apply for the letter or probate now. It should cost a few thousand dollars. I hope that the value of the shares are worth much more. Ask a lawyer.
Life and term insurance
Hi,
For term insurance cover, do you mean life insurance?
REPLY
Term insurance covers a limited term, such as 15 or 30 years. Whole life assurance covers for whole of life and is 5 to 10 times more expensive than term insurance.
For term insurance cover, do you mean life insurance?
REPLY
Term insurance covers a limited term, such as 15 or 30 years. Whole life assurance covers for whole of life and is 5 to 10 times more expensive than term insurance.
High yield in the past years will not be repeated
Dear Mr. Tan,
NTUC has advertised its yield on endowment policies at about 6% per annum. This is attractive, compared to the low interest rate on fixed deposits. Will I be able to get this type of return in the future?
REPLY
The yield of 6% was obtained on the endowment policies bought 20 to 30 years ago, and matured this year. This high yield was possible due to:
a) High interest rate prior during 1970s and 1980s.
b) High return from the stock and property market
c) Low expenses in the past years
Going into the future, the yield should be much lower. I understand that the new products being sold today project a return of less than 2% per annum.
In the future, life insurance products will usually give a poor return due to:
a) A high proportion invested in low yielding bond
b) High expenses to pay agents commission and marketing
If you wish to have a higher return, you should invest in a low cost, diversified investment fund, as shown in this FAQ:
http://www.tankinlian.com/faq/savings.html
NTUC has advertised its yield on endowment policies at about 6% per annum. This is attractive, compared to the low interest rate on fixed deposits. Will I be able to get this type of return in the future?
REPLY
The yield of 6% was obtained on the endowment policies bought 20 to 30 years ago, and matured this year. This high yield was possible due to:
a) High interest rate prior during 1970s and 1980s.
b) High return from the stock and property market
c) Low expenses in the past years
Going into the future, the yield should be much lower. I understand that the new products being sold today project a return of less than 2% per annum.
In the future, life insurance products will usually give a poor return due to:
a) A high proportion invested in low yielding bond
b) High expenses to pay agents commission and marketing
If you wish to have a higher return, you should invest in a low cost, diversified investment fund, as shown in this FAQ:
http://www.tankinlian.com/faq/savings.html
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