Hi Mr. Tan,
I have several Growth policies (single premium) and a Living policy. Are these policies much affected by the bonus resturcturing?
REPLY
I suggest that you write to ask NTUC Income. They should have informed you by now.
If your policies are taken during the last 15 years, and I suspect that your Growth policy falls in this category, it is affected by the bonus restructuring. My Growth policy is in this category.-
Saturday, May 17, 2008
Mortgage Insurance
Dear Mr Tan,
We are planning to apply for Bank Home Loan (both my wife and I are PRs) and would like to know about Home Loan insurance. We already have term insurance including critical illness policy, hospitalisation insurance.
Should we buy Home Loan insurance? I know some banks already included in their home loan product. Can we opt-out and choose separate Home Loan insurance? What are the best low cost insurance for Home Loan in the market?
REPLY
You can buy a Mortgage Insurance. You need to provide the following:
Amount of mortgage loan
Duration of repayment
Interest rate on theloan
Ages of the insured persons, e.g. you and your spouse
You can call a few insurance companies and ask them to give you a quote. You can select the company that respond to you (indicate that they give good service) and give you the best terms. Ask about the annual premium and the number of years paid. You can also opt to pay a single premium.
The telephone numbers of the insurance companies are shown here:
http://www.tankinlian.com/faq/termd.html
We are planning to apply for Bank Home Loan (both my wife and I are PRs) and would like to know about Home Loan insurance. We already have term insurance including critical illness policy, hospitalisation insurance.
Should we buy Home Loan insurance? I know some banks already included in their home loan product. Can we opt-out and choose separate Home Loan insurance? What are the best low cost insurance for Home Loan in the market?
REPLY
You can buy a Mortgage Insurance. You need to provide the following:
Amount of mortgage loan
Duration of repayment
Interest rate on theloan
Ages of the insured persons, e.g. you and your spouse
You can call a few insurance companies and ask them to give you a quote. You can select the company that respond to you (indicate that they give good service) and give you the best terms. Ask about the annual premium and the number of years paid. You can also opt to pay a single premium.
The telephone numbers of the insurance companies are shown here:
http://www.tankinlian.com/faq/termd.html
Effect of Deduction
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.
The Effect of Deduction is as follows:
After paying the premium for 10 years, the cash value is still less than the premiums paid. The effect of deduction is about $5,830, This is the money that could have been earned by investing the premiums.
The effect of deduction over 30 years is about $20,132. If the parent had bought a level term assurance for the child for 30 years, the total premiums plus interest would be about $3,500. This is cheaper than the $20,132 (i.e. "effect of deduction") charged under the life insurance policy.
Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
The Effect of Deduction is as follows:
Total Cash Value Effect of
Premium Gtd N-Gtd Total Deduction
10 yr $15,980 $14,050 $1,523 $15,573 $5,830
20 yr $15,980 $18,400 $6,887 $25,287 $10,416
30 yr $15,980 $23,700 $15,723 $39,423 $20,132
After paying the premium for 10 years, the cash value is still less than the premiums paid. The effect of deduction is about $5,830, This is the money that could have been earned by investing the premiums.
The effect of deduction over 30 years is about $20,132. If the parent had bought a level term assurance for the child for 30 years, the total premiums plus interest would be about $3,500. This is cheaper than the $20,132 (i.e. "effect of deduction") charged under the life insurance policy.
Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
Vivolife (premiums payable for 10 years)
Dear Mr Tan,
My posting on theonlinecitizen gave an example of a Vivolife policy, where premium is payable for 10 yrs (not 20 yrs as mentioned by you) but the coverage is for whole life.
Here are the details you requested:
Age 30 male (non-smoker).
Premium for a $100,000 Vivolife-10 yr premium term. Premium is $4251.75 a yr.
Total premium paid for 10 yrs is $42518. The cash value continues to grow even though premium is stopped.
At age 60 (that is, after the policy is inforce for 30 yrs), the cash value is $99306. If the policyholder surrenders the policy, he gets $99,306 (capital gain of $56788). Using a financial calculator, the yield is 4%p.a. This is similar to the coupon rate of long term government bonds.
Where can you find a zero coupon bond that allows you to pay in installments (instead of upfront) and yet offers you insurance coverage, as well as the flexibility to cash out and get a FULL refund + interests?
My investment savvy clients are familiar with asset allocation and they prefer to include Vivolife in part of their bond portfolio.
They classify Vivolife as an appreciating asset and Term policy is an expense. My clients are covered with both term and whole life policies.
Catherine Choong
REPLY
Dear Catherine
I calculate the yield on this policy, kept for 30 years, to be about 3.5% p.a. (and not 4%).
Can you give the following figures from your Benefit Illustration, i.e. total premiums paid, cash value (guaranteed, non guaranteed), effect of deduction for 10, 20, and 30 years.
I understand that a large portion of the yield at the end of 30 years depends on non-gauranteed terminal bonuses. There is a high degree of uncertainty, as the terminal bonuses could be removed during bad years (and this has happened with other insurance companies). I suspect also, that the yields during the earlier durations could be negative.
If the policyholder invest the premium in an investment fund to earn a net yield of 4.5% p.a. the total amount at the end of 30 years is $132,000 (i.e. 33% higher than $99,306). As he is investing for 30 years, he can choose a higher risk profile and invest in equities. If he earns a net yield of 6%, he will get $191,000 at the end of 30 years.
The cost of providing the insurance protection has to be paid out of the savings, so the estimated return in 30 years could be lower than the gross figures of $132,000 and $191,000 by 10% to 15% (my estimate, depending on the cost of the protection).
If the policyholder choose an investment fund, there is flexibility to continue the saving beyond 10 years, instead of having to buy another high cost product. He can also discontinue saving for some years, without suffering any penalty.
In spite of my comments, I recognise that the non-savvy policyholders may find the packaging of Vivolife to be more suitable to their needs. A good adviser will present both options for the customer to choose.
My posting on theonlinecitizen gave an example of a Vivolife policy, where premium is payable for 10 yrs (not 20 yrs as mentioned by you) but the coverage is for whole life.
Here are the details you requested:
Age 30 male (non-smoker).
Premium for a $100,000 Vivolife-10 yr premium term. Premium is $4251.75 a yr.
Total premium paid for 10 yrs is $42518. The cash value continues to grow even though premium is stopped.
At age 60 (that is, after the policy is inforce for 30 yrs), the cash value is $99306. If the policyholder surrenders the policy, he gets $99,306 (capital gain of $56788). Using a financial calculator, the yield is 4%p.a. This is similar to the coupon rate of long term government bonds.
Where can you find a zero coupon bond that allows you to pay in installments (instead of upfront) and yet offers you insurance coverage, as well as the flexibility to cash out and get a FULL refund + interests?
My investment savvy clients are familiar with asset allocation and they prefer to include Vivolife in part of their bond portfolio.
They classify Vivolife as an appreciating asset and Term policy is an expense. My clients are covered with both term and whole life policies.
Catherine Choong
REPLY
Dear Catherine
I calculate the yield on this policy, kept for 30 years, to be about 3.5% p.a. (and not 4%).
Can you give the following figures from your Benefit Illustration, i.e. total premiums paid, cash value (guaranteed, non guaranteed), effect of deduction for 10, 20, and 30 years.
I understand that a large portion of the yield at the end of 30 years depends on non-gauranteed terminal bonuses. There is a high degree of uncertainty, as the terminal bonuses could be removed during bad years (and this has happened with other insurance companies). I suspect also, that the yields during the earlier durations could be negative.
If the policyholder invest the premium in an investment fund to earn a net yield of 4.5% p.a. the total amount at the end of 30 years is $132,000 (i.e. 33% higher than $99,306). As he is investing for 30 years, he can choose a higher risk profile and invest in equities. If he earns a net yield of 6%, he will get $191,000 at the end of 30 years.
The cost of providing the insurance protection has to be paid out of the savings, so the estimated return in 30 years could be lower than the gross figures of $132,000 and $191,000 by 10% to 15% (my estimate, depending on the cost of the protection).
If the policyholder choose an investment fund, there is flexibility to continue the saving beyond 10 years, instead of having to buy another high cost product. He can also discontinue saving for some years, without suffering any penalty.
In spite of my comments, I recognise that the non-savvy policyholders may find the packaging of Vivolife to be more suitable to their needs. A good adviser will present both options for the customer to choose.
Friday, May 16, 2008
Due diligence on Credit Cards
tatos@irc.rizon.net said...
In the age, actually one have to actually watch out for 'Card Tricks', affectionately known at 'clauses that specifically' protect the Credit Card Companies' interests, in general.
No Joke - I mean No Joke. I have friends who incur a lot of debts just by little overdrafting and letting the mini-debt grow and grow.
This doesn't come at a surprise to anybody, but most money lenders do not have your best interests at heart. Some even send out 'misleading' marketing information as lure. Even the most reputable credit card issues bombard customers with 'benefits' that are specially designed to 'pad' fees and interest payments. Cash Advances and convenience checks don't come cheap, just read about the new Hybrid Cards in Singapore, and one can imagine a consequences of mis-using it, like overdrafting a 'debit card'.
There are some common 'ouchies' that could happen if you own a credit card.
1) Magical Appearing Annual Fee. You signed up for a card with no Annual fee. Then out of the sudden, you find one, some lenders start charging annual feel who pay their bills off every month - Its best to cancel the card AS SOON AS POSSIBLE.
2) Sliding Credit Line. Another inethical but not uncommon practice to entice a customer to use a cash advance check or skip-a-month payment offer and then lower their credit limit. The maxed-out customer is then charged an additional fee for being above it. Or just simply lower customer's credit limit once they reach it - It depends on how disciplined you are with your card, you might not have to worry as much as the other fellow if you are really concious about debt payments.
3) Mysterious Fees. You may not have to pay a charge to get a cash advance. But most banks charges hefty transaction fees, which can easily go around 2% of the total amount and no less than $10. Also watch out for calling the toll-free number to check your balance and penalty fees for ACCOUNT INACTIVITY. (Don't forget about the credit card buried at the bottom of your wallet!)
4) The Disappearing Grace Period. Watch out for lenders who pull the grace period out from under you. Remember, if your grace period is eliminated, you'll accrue interest from the day you make a purchase. And the only way to avoid this charge would be to pay your bill before you even receive it. This is the most horrible act I've heard, but it yet happened to Singapoeans, I think.
5) Credit Report Blunders - These do happen in real life. But with little diligence on your part, such inaccuracies can be looked into, updated and even removed from your account relatively quickly. If you are sure thats an Error (by keeping records of copies of your purchases, checks and past billing statements) and they still wouldn't bulge in helping you, try finding any authority to investigate your claim AS SOON AS POSSIBLE.
Not that Credit Cards are bad, its just require a little more due diligence prior getting a card and maintaining that card for your own conveniences and benefits, like actually assist in your budgeting by posting monthly statement print statements, etc. While also bolster your image in the eyes of another lender, especially if you consider using credit to establish a firm borrowing history, if you are going to apply for a large line of credit, like mortage or car loan, but overall it depends on one's disciplined to use it responsibly, and productively.
And remember, if you are going to cancel a card, it is best to contact though the Hotline AS SOON AS POSSIBLE and CLOSE THE ACCOUNT rather than going though other means (waiting for them to close the account for you), for this may help to reserve your Credit Score (if such a thing exist).
In the age, actually one have to actually watch out for 'Card Tricks', affectionately known at 'clauses that specifically' protect the Credit Card Companies' interests, in general.
No Joke - I mean No Joke. I have friends who incur a lot of debts just by little overdrafting and letting the mini-debt grow and grow.
This doesn't come at a surprise to anybody, but most money lenders do not have your best interests at heart. Some even send out 'misleading' marketing information as lure. Even the most reputable credit card issues bombard customers with 'benefits' that are specially designed to 'pad' fees and interest payments. Cash Advances and convenience checks don't come cheap, just read about the new Hybrid Cards in Singapore, and one can imagine a consequences of mis-using it, like overdrafting a 'debit card'.
There are some common 'ouchies' that could happen if you own a credit card.
1) Magical Appearing Annual Fee. You signed up for a card with no Annual fee. Then out of the sudden, you find one, some lenders start charging annual feel who pay their bills off every month - Its best to cancel the card AS SOON AS POSSIBLE.
2) Sliding Credit Line. Another inethical but not uncommon practice to entice a customer to use a cash advance check or skip-a-month payment offer and then lower their credit limit. The maxed-out customer is then charged an additional fee for being above it. Or just simply lower customer's credit limit once they reach it - It depends on how disciplined you are with your card, you might not have to worry as much as the other fellow if you are really concious about debt payments.
3) Mysterious Fees. You may not have to pay a charge to get a cash advance. But most banks charges hefty transaction fees, which can easily go around 2% of the total amount and no less than $10. Also watch out for calling the toll-free number to check your balance and penalty fees for ACCOUNT INACTIVITY. (Don't forget about the credit card buried at the bottom of your wallet!)
4) The Disappearing Grace Period. Watch out for lenders who pull the grace period out from under you. Remember, if your grace period is eliminated, you'll accrue interest from the day you make a purchase. And the only way to avoid this charge would be to pay your bill before you even receive it. This is the most horrible act I've heard, but it yet happened to Singapoeans, I think.
5) Credit Report Blunders - These do happen in real life. But with little diligence on your part, such inaccuracies can be looked into, updated and even removed from your account relatively quickly. If you are sure thats an Error (by keeping records of copies of your purchases, checks and past billing statements) and they still wouldn't bulge in helping you, try finding any authority to investigate your claim AS SOON AS POSSIBLE.
Not that Credit Cards are bad, its just require a little more due diligence prior getting a card and maintaining that card for your own conveniences and benefits, like actually assist in your budgeting by posting monthly statement print statements, etc. While also bolster your image in the eyes of another lender, especially if you consider using credit to establish a firm borrowing history, if you are going to apply for a large line of credit, like mortage or car loan, but overall it depends on one's disciplined to use it responsibly, and productively.
And remember, if you are going to cancel a card, it is best to contact though the Hotline AS SOON AS POSSIBLE and CLOSE THE ACCOUNT rather than going though other means (waiting for them to close the account for you), for this may help to reserve your Credit Score (if such a thing exist).
More trains for commuters
I congratulate SMRT and the Land Transport Authority for introducing more train services to meet the higher demand for public transport. This will reduce the over-crowding and waiting time, and make the journey more pleasant.
I hope that LTA will allow SMRT to introduce more feeder services to bring commuters to the train station. This allows a more integrated service. The feeder services will be easier for commuters to use. I hope that these new feeder services do not make many long loops within the area that they serve.
SBS Transit can continue to provide a competitive service to provide point-to-point journeys.
I hope that LTA officials reading this blog can pass my congratulation and suggestion to your bosses.
I hope that LTA will allow SMRT to introduce more feeder services to bring commuters to the train station. This allows a more integrated service. The feeder services will be easier for commuters to use. I hope that these new feeder services do not make many long loops within the area that they serve.
SBS Transit can continue to provide a competitive service to provide point-to-point journeys.
I hope that LTA officials reading this blog can pass my congratulation and suggestion to your bosses.
Return on Vivolife policies
Catherine Choong posted a detailed posting on Vivolife (i.e. whole life policy with premiums paid for 20 years) in The Online Citizen. She pointed out several benefits of the policy, (which I accept). The main drawback of the policy, in my view, is the somewhat low return to the policyholder at the end of 20 years.
A few weeks ago, a policyholder asked my advice on three Vivolife policies that he bought for his family. I calculated the return on the policies as follows:
The total premium paid for 20 years is shown in (2). If the premium is invested to earn a net yield of 4.5%, the accumulated amount is shown in (3). The expected gain is shown in (4). The cash value of the policy (based on a gross yield of 5.25%) is shown in (5). The gain in cash value is shown in (6).
Assuming a gross yield of 5.25%, the Vivolife policies took away between 58% to 69% of the expected gain, leaving 31% to 42% of the gain to the policyholder. If the gross yield is lower, the value to the policyholder will be even lower.
If the policyholder buy the insurance cover separately, the cost of the cover is likely to be not more than 20% of the expected gain (just my guess). A good adviser will be able to calculate this alternative cost for the customer to make an informed choice.
If these examples do not reflect a true picture of the return on the Vivolife policy, I hope that Caterine Choong will send some other examples to me. I shall be happy to post them here.
Note: I believe that the Vivolife gives better values compared to similar products in the market (although I do not have concrete evidence on this point).
A few weeks ago, a policyholder asked my advice on three Vivolife policies that he bought for his family. I calculated the return on the policies as follows:
1. 2. 3. 4. 5. 6. 7. 8.
Policy Premium Accum Expected Cash Value Gain % Taken
20 yrs @4.5% gain 20 yrs in CV away
Self $29,080 $47,666 $18,586 $34,907 $5,827 31% 69%
Wife $24,340 $39,890 $15,550 $29,478 $5,138 33% 67%
Son $23,420 $38,389 $15,969 $30,234 $6,814 42% 58%
The total premium paid for 20 years is shown in (2). If the premium is invested to earn a net yield of 4.5%, the accumulated amount is shown in (3). The expected gain is shown in (4). The cash value of the policy (based on a gross yield of 5.25%) is shown in (5). The gain in cash value is shown in (6).
Assuming a gross yield of 5.25%, the Vivolife policies took away between 58% to 69% of the expected gain, leaving 31% to 42% of the gain to the policyholder. If the gross yield is lower, the value to the policyholder will be even lower.
If the policyholder buy the insurance cover separately, the cost of the cover is likely to be not more than 20% of the expected gain (just my guess). A good adviser will be able to calculate this alternative cost for the customer to make an informed choice.
If these examples do not reflect a true picture of the return on the Vivolife policy, I hope that Caterine Choong will send some other examples to me. I shall be happy to post them here.
Note: I believe that the Vivolife gives better values compared to similar products in the market (although I do not have concrete evidence on this point).
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