Invest separately for higher return

Dear Mr Tan,
Thanks for your great advice in your blog, I always thinking that NTUC is the best insurance company in term of its low premium compared to other companies. However, after go through your article, I start to wonder.

Recently I have just bought a living policy (VIVO life) for my wife, my son and me, I attached the policies for your reference.

Would you mind to advice me whether I should continue or cancel this policy and change to Term policy instead?

REPLY

In the table below, I tabulate the cash value for each policy at the end of 20 years (based on 3.75% and 5/25%) and the amount that you can get by investing the same premium to earn a net yield of 4.5%

policy      Annual     Cash value 20 years     Amount
              premium    @3.75%       @5.25%    @4.5%
Self          $1,454      $31,294      $34,907      $47,666
Wife         $1,217      $26,428     $29,478       $39,890
Son           $1,171      $27,105     $30,234       $38,389

You can get about $10,000 (or 30% more) more for each policy by investing separately. If you buy decreasing Term insurance to provide the protection, the cost is very low. The Vivolife policy gives a poor return due to its high expenses, which are taken away from your savings.

It is better for you to buy Term insurance and invest the difference, as explained in this FAQ:
http://www.tankinlian.com/faq/savings.html

You should have adequate life insurance cover on your life (say about 5 years of your income). You can buy a 20 year Decreasing Term or level TErm insurance.

REad this FAQ:
http://www.tankinlian.com/faq/benchmark.html

I hope that this information is helpful for you to make an informed decision.

Poor yield from financial products

Do you fit into any of these categories? What about your family members?

1. Many people earn a low rate of interest on bank deposits. The bank interest rate, which has been less than 2% for several years and now less than 1%, is insufficient to cover the rate of inflation, which has now increased to more than 5%. If they invest in other financial products, they have to pay high charges and get a poor yield.

2. Many people invested several billions of dollars in structured financial products in the hope of getting a better yield than bank deposits. They were taken to the cleaners. Many housewives and retirees told me about their investment in the capital guaranteed products that were heavily advertised and sold by our trusted banks. After locking up their principal for five years, they get a total return of less than 1% per year, worse than bank deposit. They missed the chance of earning more than 10% per annum on the booming stockmarket.

3. For most people who invested in unit trusts and investment funds offered by life insurance companies, the outcome was not better. They have to suffer an upfront charge of 3% to 7% on their investment and an annual charge of 1% to 3%. After deducting these high charges, the net yield on their investment is mediocre and does not commensurate with the risk. The fund managers and other financial intermediaries have taken away most of the gains.

4. The worst cases are the hundred thousands of people who invested their regular savings in an investment linked product sold by the life insurance companies. In addition to the high charges mentioned above, they have to suffer “allocation rates” that takes away two years of their savings to pay commissions to the insurance agents. Many were not aware about the financial impact of these predatory “allocation rates”.

This is an extract of an artilce printed in: http://www.theonlinecitizen.com/.

Reply: Puncturing inflated claims

This letter is printed by Straits Times on 30 April with some editing.

25 April 2008

Editor
Forum page
Straits Times

I refer to Christopher Tan's article entitled "Puncturing Inflated Motor Claims" in the Straits Times 21 April 2008.

I wish to share my perspective on this matter, having been personally involved in helping my team to build the largest market share in motor insurance during my period as the chief executive officer of NTUC Income. We were able to offer lower premium rates to more than 300,000 policyholders and still produce a profitable business.

For many decades, insurance managers in Singapore are aware that dishonest workshops inflate the repair bills on third party claims. These workshops aggravate the damages to inflate the repair bills, claim for parts that are not replaced and exaggerate the repair time to claim a higher compensation for loss of use.

They use lawyers to lodge the third party claim against the insurance companies. The legal fees are added to the total claim. If insurance companies do not settle the inflated claims, the lawyers are quick to file a legal suit, which takes the cases into the domain of the courts. This further increases the legal fees and now adds the court costs.

To avoid the high legal fees, many insurance company assessors find it better to settle the third party claim, even though they are ware that the claim amount has been exaggerated. The higher claim payments are ultimately reflected in higher insurance premiums paid by motorists.

What can be done to reduce these inflated claims?

Six years ago, the insurance companies introduced the Idac scheme (i.e. independent damage assessment centers). They require the motorists to report the accident at an Idac center for the damages to be assessed on the spot, before the vehicles are sent to the workshop. This reduces the opportunity for the workshop to aggravate the damages. The Idac scheme was intended to apply to all claims, including third party claims.

The Idac centers are actually more convenient for motorists. The centers are open during most hours of the day and night and are a one-stop center for reporting of accidents and assessment of damages. Many motorists who experienced the service of the Idac centres give positive feedback on their convenience and reliability.

Unfortunately, some insurance companies decided to withdraw from the Idac scheme. Without the full participation of the insurance companies, it is not possible for the Idac centers to play its role in controlling the inflated third party claims. This led to the escalation of motor claims during the following years.

In my view, the Idac scheme still represents the best way to control the inflated claims. I hope that the insurance companies will review their position on this matter.

Another possible solution is for the Government to pass a law to make it mandatory for a motorist to lodge a third party claim directly with the insurance company immediately after the accident. This will allow the insurance company to assess the damages and settle the claim, without involving a lawyer. If the claim is in dispute, the owner can then engage a lawyer to handle the case. This is a common practice in many other countries.

Without legislative support, it is a constant cat and mouse game with the dishonest workshops. Insurance managers have to devise many checks and controls to manage the dishonest claims. It is expensive and tiresome.

Singapore has an expensive and wasteful method of handling third party claims, resulting in inflated claims and high legal expenses. It is a blemish on our record as an efficient, transparent society.

Tan Kin Lian

1309 visitors on April 29

1,309 people visited this blog on April 29. This is an increase of 30% over the last peak - which was below 1,000 visitors. My guess is that the bonus cut by NTUC Income contributed to this big jump.

Pay of our leaders

Kin Lian
I like to pose a question and You have the prerogative not to answer though I eagerly look for one. Do You think our leaders' performances commensurate with their pays? Thank You!
From: patriot.

REPLY
I suppose that you are referring to our government leaders. In my reply, I shall also focus on the pay of our corporate leaders. I shall have to be careful about how I address this matter. Wait for a few days.