Many people like to invest in foreign currency fixed deposit, such as Australian or New Zealand dollars, to enjoy the higher interest rate. They face a few practical difficulties:
> get a good conversion rate from Singapore dollar to the foreign currency
> get a good interest rate on the foreign currency deposit
It is possible to set up a fund that will invest in a few high yielding foreign currency fixed deposits, e.g. Australian dollar, New Zealand dollar, British pounds, Euro and US dollar. These currencies have higher interest rate than Singapore dollars.
The fund manager will be able to source for the most competitive exchange and interest rate. This should save the investor up to 1% spread on the currency and interest rate. This should be more than sufficient to cover the fee of the fund manager, and still give an additional benefit to the investor. The investor will be able to enjoy the higher interest rate and the spread of currencies.
I think that there should be interest in this type of fund.
Sunday, June 1, 2008
Inflation adjusted Income Benefit
I discussed this idea with an insurance agency manager. I said that most people preferred an income benefit to be provided to the family in the event of premature death.
For example, the breadwinner may wish to have a monthly income of $3,000 payable to the family for the remainder of the term of 25 years, in the event of premature death. I suggested a 25 year term, as the children would have grown up by that age.
A monthly payment of $3,000 for 10 years (say) is better than a lump sum payment of $300,000 (say). The family does not have to worry about investing the lump sum.
He agreed with me. He said that his agents have been selling this type of protection, and it is well received. The only disadvantage is that the current products do not allow for inflation adjustment. He said that if the monthly income could be adjusted by 2% or 3% a year, it would be ideal.
This is possible. I shall be designing this product. As it is a term insurance product which ceases after 25 years, the cost will be quite affordable.
For example, the breadwinner may wish to have a monthly income of $3,000 payable to the family for the remainder of the term of 25 years, in the event of premature death. I suggested a 25 year term, as the children would have grown up by that age.
A monthly payment of $3,000 for 10 years (say) is better than a lump sum payment of $300,000 (say). The family does not have to worry about investing the lump sum.
He agreed with me. He said that his agents have been selling this type of protection, and it is well received. The only disadvantage is that the current products do not allow for inflation adjustment. He said that if the monthly income could be adjusted by 2% or 3% a year, it would be ideal.
This is possible. I shall be designing this product. As it is a term insurance product which ceases after 25 years, the cost will be quite affordable.
Higher interest rate?
Someone pointed out that the interest rate for Singapore Government bonds has increased in recent days, and is now above 3% for longer term bonds.
When interest rate increases, the prices of the bond drops. An increase of 1% in the yield can cause a drop of more than 10% in the price of the longer term bonds.
During the past 15 years, Singapore went through a period of low inflation and low interest rate. As inflation has increased this year, and may continue at a high level in the future, there is the likelihood that interest rate will increase.
If you are invested in a long term Government bond or life insurance policy with a guaratneed return, you may be locked into the low return for many years.
Try to invest for the shorter term, say up to 3 years, or into equities and REITS, which are likely to give some hedge against inflation.
When interest rate increases, the prices of the bond drops. An increase of 1% in the yield can cause a drop of more than 10% in the price of the longer term bonds.
During the past 15 years, Singapore went through a period of low inflation and low interest rate. As inflation has increased this year, and may continue at a high level in the future, there is the likelihood that interest rate will increase.
If you are invested in a long term Government bond or life insurance policy with a guaratneed return, you may be locked into the low return for many years.
Try to invest for the shorter term, say up to 3 years, or into equities and REITS, which are likely to give some hedge against inflation.
Reply to New Comment in Today
2 June 2008
Editor
Today Paper
I refer to your News Comment “Which hat was Tan Kin Lian wearing?” (Today, 2 June).
I have two policies affected by the bonus restructure. My initial reaction was to terminate these two policies and take a loss. I decided against this course of action, as I would lose the opportunity to raise this issue as a policyholder. My key concern was that 310,000 policyholders should not lose out.
Under the new bonus structure, the policyholder receives a lower annual bonus, to be compensated by a higher special bonus payable on surrender, death or maturity. My concern was that the special bonus is not guaranteed and it is difficult to keep track of the correct amount of special bonus required to compensate the cut in annual bonus for each policy.
After I started the collective protest, I obtained another important piece of information. The average investment yield earned by Income during the past 10 years was 7.8% per annum. This was higher than the yield used to project the bonuses at the point of sale.
Most of these 310,000 policies had received bonuses that are lower than originally projected, due to the cut in bonus during some past years. I felt that it is more important for these past bonus cuts to be restored, subject to financial solvency.
In my meeting with Mr. Lim Boon Heng and Mr. Matthias Yao, I raised these two issues. They understood my concerns and reaffirmed that Income would observe its social purpose, treat policyholders fairly and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals.
Income has issued a statement, which is posted in their website, to address these concerns. The statement is reiterated by the chairman at the annual general meeting.
The first two points address the concern about the payment of special bonus. The third point that “the bonus allocated to policyholders should be fair and consistent with the experience of the fund” is more important for the long term interest of the policyholders. I am following up with Income on this important goal.
The comments of your editorial director about my “strategic errors” arose from a misunderstanding of my purpose, which is to protect the long term interest of the policyholders. I hope that the resulting actions will benefit the other policyholders as well.
Tan Kin Lian
Editor
Today Paper
I refer to your News Comment “Which hat was Tan Kin Lian wearing?” (Today, 2 June).
I have two policies affected by the bonus restructure. My initial reaction was to terminate these two policies and take a loss. I decided against this course of action, as I would lose the opportunity to raise this issue as a policyholder. My key concern was that 310,000 policyholders should not lose out.
Under the new bonus structure, the policyholder receives a lower annual bonus, to be compensated by a higher special bonus payable on surrender, death or maturity. My concern was that the special bonus is not guaranteed and it is difficult to keep track of the correct amount of special bonus required to compensate the cut in annual bonus for each policy.
After I started the collective protest, I obtained another important piece of information. The average investment yield earned by Income during the past 10 years was 7.8% per annum. This was higher than the yield used to project the bonuses at the point of sale.
Most of these 310,000 policies had received bonuses that are lower than originally projected, due to the cut in bonus during some past years. I felt that it is more important for these past bonus cuts to be restored, subject to financial solvency.
In my meeting with Mr. Lim Boon Heng and Mr. Matthias Yao, I raised these two issues. They understood my concerns and reaffirmed that Income would observe its social purpose, treat policyholders fairly and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals.
Income has issued a statement, which is posted in their website, to address these concerns. The statement is reiterated by the chairman at the annual general meeting.
The first two points address the concern about the payment of special bonus. The third point that “the bonus allocated to policyholders should be fair and consistent with the experience of the fund” is more important for the long term interest of the policyholders. I am following up with Income on this important goal.
The comments of your editorial director about my “strategic errors” arose from a misunderstanding of my purpose, which is to protect the long term interest of the policyholders. I hope that the resulting actions will benefit the other policyholders as well.
Tan Kin Lian
Poll on the Collective Protest
I decided to withdraw the Collective Protest after receiving the assurances from Income's chairman and deputy chairman and the chairman of NTUC's social enterprise development committee. These assurances address the two key concerns regarding the payment of the special bonus and that the future bonuses will reflect the actual experience.
I carried out a Poll on this matter. 76% of visitors (90 replies) to my blog disagreed with my decision. They must have felt strongly that policyholders should be given an option to stay under the old bonus structure. I wish to apologise for disappointing these policyholders.
I have agreed to withdraw the Collective Protest (670 signatures) in return for the assurances. I believe that we will not be able to achieve more by lodging the protest. It will affect the reputation of Income, and is not good for Income or the policyholders.
I believe that these assurances are important for the policyholders. I will continue to monitor the developments to make sure that they are implemented within the near future.
It is more important to policyholders that they should get bonuses that reflect the actual experience. I believe that the good investment yield of 7.8% earned over the past 10 years should allow Income to restore the cut in bonuses that were made during the bad years. If these bonuses are restored, even as a non-guaranteed special bonus, it will be good news to the policyholders.
Although the special bonus is non-guaranteed, Income has given an assurance on the payment of these bonus. I believe that this assurance can be accepted. Income has further assured policyholders that they will be fairly treated and given good value on their polciies.
I carried out a Poll on this matter. 76% of visitors (90 replies) to my blog disagreed with my decision. They must have felt strongly that policyholders should be given an option to stay under the old bonus structure. I wish to apologise for disappointing these policyholders.
I have agreed to withdraw the Collective Protest (670 signatures) in return for the assurances. I believe that we will not be able to achieve more by lodging the protest. It will affect the reputation of Income, and is not good for Income or the policyholders.
I believe that these assurances are important for the policyholders. I will continue to monitor the developments to make sure that they are implemented within the near future.
It is more important to policyholders that they should get bonuses that reflect the actual experience. I believe that the good investment yield of 7.8% earned over the past 10 years should allow Income to restore the cut in bonuses that were made during the bad years. If these bonuses are restored, even as a non-guaranteed special bonus, it will be good news to the policyholders.
Although the special bonus is non-guaranteed, Income has given an assurance on the payment of these bonus. I believe that this assurance can be accepted. Income has further assured policyholders that they will be fairly treated and given good value on their polciies.
Calculate your Life Expectancy
You can calculate your life expectancy based on your actual age, and lifestyle. Try this calculator: http://www.peterrussell.com/Odds/RealAge.php
This test shows that my virtual age is 46 (actual age 60) due to my lifestyle. My life expectancy is 90 years (another 30 years more to go!)
This test shows that my virtual age is 46 (actual age 60) due to my lifestyle. My life expectancy is 90 years (another 30 years more to go!)
Insurance for parents
Dear Mr. Tan,
My parents are in the mid 50s. They do not have any insurance coverage other than a private Shield plan. They belong to the old school - they do not see the benefits on insurance when they were young and now that they are old, the premiums for people of their age are very high.
An agent quoted close to $200 per month for a $30,000 critical illness term coverage. This seems like quite a high amount to pay for such little coverage. Are these premium rates the norm?
They are both in good health now but I worry when they fall sick in future as they do not have much savings to fall back on. I am very keen to buy these plans on their behalf but I do not want to be paying excessive for such little coverage.
REPLY
They are already adequately covered for medical expenses under the Shield plan. There is no need to buy the critical illness coverage at this age.
It is better for you to put the savings into a low cost investment fund, and accumulate some savings for them to draw down during their old age. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
The agent wants to earn a high commission from selling the critical illness coverage. This is not suitable for your parents, as their greater need is for an income during their retirement.
My parents are in the mid 50s. They do not have any insurance coverage other than a private Shield plan. They belong to the old school - they do not see the benefits on insurance when they were young and now that they are old, the premiums for people of their age are very high.
An agent quoted close to $200 per month for a $30,000 critical illness term coverage. This seems like quite a high amount to pay for such little coverage. Are these premium rates the norm?
They are both in good health now but I worry when they fall sick in future as they do not have much savings to fall back on. I am very keen to buy these plans on their behalf but I do not want to be paying excessive for such little coverage.
REPLY
They are already adequately covered for medical expenses under the Shield plan. There is no need to buy the critical illness coverage at this age.
It is better for you to put the savings into a low cost investment fund, and accumulate some savings for them to draw down during their old age. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
The agent wants to earn a high commission from selling the critical illness coverage. This is not suitable for your parents, as their greater need is for an income during their retirement.
Wise words from the late Dr. Lee Kum Tatt
How do we help our young to find a purpose in life? Dr. Lee Kum Tatt said:
One of the ways I follow is to ask questions and try to help them to find the answers. Here is an example.What do you treasure most in your life?
This sounds like a stupid question. My children thought so when they were young. My teenage grand children have taken over this thinking for a while but are now beginning to appreciate the good in some of our way of thinking. I take this as the generation gap which will narrow down with time and age.
As parents, we want our family members to grow up and be good citizens. It is exasperating that there are no accepted set paths to do this and our kids are constantly exposed to all sorts of ideas, some of which were not considered to be acceptable to us before.
For the younger generation, it is just as frustrating not knowing how to achieve what they think they like to have or to be. Our youngsters are looking for guidance on how to succeed in life.
Encouraging them to go for money is easy. Teaching them how to earn money in the correct way is a different matter. To teach them good values in words is also not difficult.
Some common words used include: love your parents; have integrity, be caring for others, avoid the four vices, etc. But to teach others how to live these values is not so easy. This is especially so when our society places strong emphasis on money making above everything else. To do anything different from the newly introduced acceptable norms will cost our young opportunities, effort, money, fun and with no materialistic or other tangible returns.
But as grandparents and elders we still have a role to play to guide the future generation to keep them on the “straight and narrow path” which are good for us all now and for our future generations.
Extracted from:
www.leekumtatt.blogspot.com
One of the ways I follow is to ask questions and try to help them to find the answers. Here is an example.What do you treasure most in your life?
This sounds like a stupid question. My children thought so when they were young. My teenage grand children have taken over this thinking for a while but are now beginning to appreciate the good in some of our way of thinking. I take this as the generation gap which will narrow down with time and age.
As parents, we want our family members to grow up and be good citizens. It is exasperating that there are no accepted set paths to do this and our kids are constantly exposed to all sorts of ideas, some of which were not considered to be acceptable to us before.
For the younger generation, it is just as frustrating not knowing how to achieve what they think they like to have or to be. Our youngsters are looking for guidance on how to succeed in life.
Encouraging them to go for money is easy. Teaching them how to earn money in the correct way is a different matter. To teach them good values in words is also not difficult.
Some common words used include: love your parents; have integrity, be caring for others, avoid the four vices, etc. But to teach others how to live these values is not so easy. This is especially so when our society places strong emphasis on money making above everything else. To do anything different from the newly introduced acceptable norms will cost our young opportunities, effort, money, fun and with no materialistic or other tangible returns.
But as grandparents and elders we still have a role to play to guide the future generation to keep them on the “straight and narrow path” which are good for us all now and for our future generations.
Extracted from:
www.leekumtatt.blogspot.com
Farewell to Dr. Lee Kum Tatt
I am deeply saddened to inform you that my very good friend, Dr. Lee Kum Tatt, passed away this morning.
For the past year, I have helped him to maintain his blog. He shared his passion about science, research, innovation and the values that are good for Singapore. We will not be able to learn from his wisdom any more.
Do read his blog, www.leekumtatt.blogspot.com.
For the past year, I have helped him to maintain his blog. He shared his passion about science, research, innovation and the values that are good for Singapore. We will not be able to learn from his wisdom any more.
Do read his blog, www.leekumtatt.blogspot.com.
Bonus based on long term yield
POSTED IN MY BLOG
I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.
If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.
I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.
And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?
Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.
pete
REPLY
Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.
In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:
http://www.tankinlian.com/faq/savings.html
I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.
If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.
I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.
And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?
Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.
pete
REPLY
Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.
In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:
http://www.tankinlian.com/faq/savings.html
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