Whole Life by Limited Payment

1. An insurance agent offered two whole life policies to a parent to buy for the children. The premiums are payable for 10 years and becomes fully paid.

2. The benefit illustration shows the following:

                Annual     Premium    Cash        Assume       Opport
               premium   for 10 yr    Value       4% p.a.        Loss
Child 1    $1,252     $12,520      $12,192    $15,632      $3,440
Child 2   $1,598     $15,980       $15,573   $19,954      $4,387

3. Here is my advice:

If you pay premium for 10 years, the total premium is shown in (2). The cash value (both guaranteed and non-guaranteed) is shown in (3). It is lower than the total premiums that you have paid for 10 years. It does not make sense to put your money into these two policies, as you are sure to get a bad deal after 10 years.

If you invested the premium for 10 years to earn 4% per annum, you will get the figure shown in (4). The Opportuity Loss to you, by buying the Vivolife policy is shown in (5). This large cost goes to pay the insurance agent's commission and the company's profits. They are at the expense of the customer.

Conclusion: Do not buy these two policies, due to the poor return and opportunity cost. It is better to save for your children separately and give them the accumulated savings (say 20% more) at the end of 10 years. They can buy a low cost Term insurance when they start work.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Lippo Karawaci in Jakarta

I visited a new town called Lippo Karawaci in Jakarta. It is developed by the Lippo Group. It is a well contained town with excellent shopping malls, golf club, university, commercial buildings, shops, medical centers and residential houses.

I like the internal transport system. Light buses take people along most of the internal roads to bring them to the public buildings and malls and also to the bus stops to tke the big buses that travel to other parts of Jakarta.

The traffic in Karawaci is not so heavy. The living condition appears to be quite pleasant. It is nicer to live in a town that is well planned and not so congested.

Tianjin Eco-city

Singapore is helping Tianjin to build an eco-city. It will rely on a well developed public transport comprising of bus and light rail, and reduce the dependence on cars.

I hope that some of these concepts can be adopted in the new towns and business districts to be developed in Singapore, e.g. Marina South and Jurong Lake District.

I suggest that we should have light rail transport or light buses to run along Orchard Road and in the Central Business District. We should reduce the private cars that travels on these congested roads.

Simplify the bureaucratic requirements

I sent this e-mail to a large organisation in Singapore that engaged me to give a talk on financial planning.

Dear

Please pass this feedback to your Finance Department. I had a lot of trouble in complying with the financial requirements in getting this payment. For a person who works from home, without the support of full time staff, I had a lot of trouble in preparing and mailing an invoice, to be accompanied with a photocopy of the bank statement.

After preparing the invoice, I forgot to mail it for more than a week. Fortunately, I did not run out of stamps.

I have received many payments from other parties, from much larger sums. They are willing to accept an instruction through e-mails and do not require so much trouble from me. I hope that you Finance Department will update their requirements to make things easier for other people, especially for small payments.

Lawyer acting on third party claim

Dear Mr. Tan

I read with interest on the post below on your blog:http://tankinlian.blogspot.com/2008/04/inflated-injury-claims.html



Recently, my parents also met with the same situation as the person who made the comment in this post. i.e. engage a lawyer.



Is there really nothing much we could do about it, besides waiting for the government to take action? Your blog has been very informative.



REPLY
If you get a letter from a lawyer acting for the other party, you can send it to your insurance company to handle the third party claim.

If you feel that the system is unsatisfactory, you should write to the consumer association or the media. If more people write about it, the Government may act to reduce the wasteful legal cost in handling third party claims.

Cut the loss in an ILP

Hi Mr. Tan,
Thank for your quick advice, seems like I had really made a bad investment decision by over-trusting this insurance agent friend of mine. A painful lesson learnt for me, but the plan will be 1 year old soon, all I can do is to keep it. Will continue to read your blog! It's really interesting!

REPLY
You can consider terminating the plan. As only half of the upfront charge has been incurred, you may be able to reduce your loss by terminating it. It is better to invest your savings in the STI ETF or just to keep it in the bank account for the time being.

High cost of Investment Linked Policy

A policyholder sent the projection of his investment linked policy. I calculated the result as follows:


Annual premium: $2,160


Projected yield at end of 20 years:
Gross yield: 5% p.a.
Projected cash value: $47,400
Net yield: 0.9%
Reduction in yield: 4.1%


Projected yield at end of 20 years:
Gross yield: 9% p.a.
Projected cash value: $64,200
Net yield: 3.8%
Reduction in yield: 5.2%


The reduction in yield varies from 4.1% to 5.2%. This is excessive. The ILP is extremely costly and gives a poor return to the policyholder. The charges taken away from the policy are far too high.


If the policyholder buys a decreasing term assurance and invest the remaining savings in a low cost investment fund, the reduction in yield is likely to be 1.5%.


The difference in yield of 3% can give the policyholder about 35% more in cash value at the end of 20 years. Read this FAQ:
http://www.tankinlian.com/faq/savings.html


Lesson: Avoid high cost investment-linked plans. It gives a poor yield due to high charges.