Uncertain yield

A policyholder sent to me a whole life policy (premiums payable for 10 years) taken for a child age 19, covering a sum assured of $50,000.

         Total      Cash Value                Yield         
        Premium     Gtd    N-Gtd     Total    p.a.
10 yr   $15,980   $14,050   $1,523  $15,573   -0.5% 
20 yr   $15,980   $18,400   $6,887  $25,287    2.2% 
30 yr   $15,980   $23,700  $15,723  $39,423    3.0% 

The yield for the first 10 years is negative. The yield becomes positive over the subsequent 20 years due to the non-guaranteed special bonus. If the special bonus is reduced, the yield will fall accordingly. The yield on this policy is uncertain.

Revolution in financial advisory industry

Mr. Tan,

I'm an ardent follower of your blog since it was launched. It has been delightful gaining insight into your views on investment and insurance.

I just read your entry on the fee based approach. For me, that is a very viable alternative for both clients and advisors which I whole-heartedly endorse. I, too, believe "Buy Term, Invest the Rest" is a mantra that give the best value to most clients.

However, most financial advisory firms do not advocate this. It might be attributed to :-

1) Infrastructure. The two investment platform, iFast and Navigator, available do not carry low-cost funds especially index funds or index ETFs.

2) Business sustainability. The current business model of the firms are meant to maximize shareholder value.

3) The Advisors. Advisors are commissioned based and as such, it's human instinct to "milk" as much as possible, considering that the amount of time expended in travelling and prospecting need to be justified.

With your approach of clients visiting the "clinic", I am sure that advisors will be more willing to jump onto the bandwagon and hopefully, lead to a revolution in the financial advisory industry.

W

Invest your SRS savings

Hi Mr. Tan,

Let me say thank you for your blog which has been educational. I hope more people will read it and hopefully learn to be slightly more financially savvy in their personal financial planning / management.

I believed that ultimately knowledge and education is the best way the customer can be protected. The rules and regulation set by the authorities such as MAS are also important steps that served to protect customer's interest.

In view of Income proposed restructuring of its bonus, which effectively reduce the yearly vested annual bonus significantly in favour of non-vested terminal/special bonus, I think that parking SRS money in Growth policies for long-term is no longer an attractive option.

For you personally, where would you park your yearly SRS contribution, given the current situation, assuming that you are taking an investment time-frame of 15 to 20 years?

REPLY

In the past, I have invested my SRS in the Growth Policy (i.e. single premium endowment). I will keep this policy, as NTUC Income has assured the policyholders that the total bonus payout on maturity will not be reduced by the restructuring of the bonus. The reduction in annual bonus will be compensated by an increase in the special (terminal) bonus.

Today, if I wish to invest my SRS contribution for next 15 to 20 years, I would chose an investment fund. This is explained here:

http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/investown.html