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.
Sunday, June 1, 2008
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
Saturday, May 31, 2008
Higher interest rate for Government bonds
Dear Mr, Tan,
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?
REPLY
I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.
If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.
Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.
Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:
http://www.fundsupermart.com/main/sgs/SGShome.tpl
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?
REPLY
I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.
If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.
Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.
Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:
http://www.fundsupermart.com/main/sgs/SGShome.tpl
Maturing Remaining Yield
year duration
2011 3.1 yr 1.79%
2013 5.1 yr 2.51%
2018 10.2 yr 3.38%
2022 14.2 yr 3.39%
2027 18.7 yr 3.80%
Drop in maturity benefit
Dear Mr. Tan,
You should know the implication, a new page in Singapore insurance ....
20 year ago, I bought a 25 yrs endowment with premium payments limited to 20 year from X. The maturity benefit was projected to be $24,583 with an annual premium of $500. After paying for 20 yrs, I received a statement from X stating the projected total maturity benefit is $19,810 instead of $24,583 - a 20% drop.
Since NTUC is the largest, all other insurance company will follow and I believe not only endowment policy, other policies are also affected. This will affect every citizen. I pity those agents whose customers were mostly friends and relatives.
JK
REPLY
The drop in the maturity benefit is due probably to the lower investment yield earned during the past 20 years, compared to the expected yield at the time that the policy was sold to you. Based on the revised maturity benefit, the yield is 3.9%.
I agree that the yield on this poilcy is somewhat how, compared to the yield earned by company X during the past 20 years. I hope that life insurance companies will reduce their charges and give a better yield to their customers in the future.
You should know the implication, a new page in Singapore insurance ....
20 year ago, I bought a 25 yrs endowment with premium payments limited to 20 year from X. The maturity benefit was projected to be $24,583 with an annual premium of $500. After paying for 20 yrs, I received a statement from X stating the projected total maturity benefit is $19,810 instead of $24,583 - a 20% drop.
Since NTUC is the largest, all other insurance company will follow and I believe not only endowment policy, other policies are also affected. This will affect every citizen. I pity those agents whose customers were mostly friends and relatives.
JK
REPLY
The drop in the maturity benefit is due probably to the lower investment yield earned during the past 20 years, compared to the expected yield at the time that the policy was sold to you. Based on the revised maturity benefit, the yield is 3.9%.
I agree that the yield on this poilcy is somewhat how, compared to the yield earned by company X during the past 20 years. I hope that life insurance companies will reduce their charges and give a better yield to their customers in the future.
Reason for Restructuring of Bonus
If you like to know Income's reason for the restructuring of bonus, you can read their statement in their website: http://www.income.com.sg/
Here are some key points from the press statement issued by Income:
> We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.
> Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.
> We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.
I remember that these points are also reiterated in the speech given by chairman Ng Kee Choe at the annual general meeting. I believe that his full speech will be posted in the website over the next few days.
Here are some key points from the press statement issued by Income:
> We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.
> Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.
> We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.
I remember that these points are also reiterated in the speech given by chairman Ng Kee Choe at the annual general meeting. I believe that his full speech will be posted in the website over the next few days.
Restructuring of EV series
Dear Mr. Tan
I have just voted in your Poll that I disagree with your decision to call off the Collective Protest. I attended the annual general meeting and heard your question about the EV series, introduced recently, where the bonus has not been restructured.
Is it fair to restructure the bonus for the old series and expose the policyholders to the uncertainty, and at the same time sell new policies (i.e. EV series) on the unrestrucutred bonus? If the restructured bonus is good for the future, why is it not applied to the EV series? (Remainder of statement deleted)
I urge you to continue to lodge the Collective Protest.
MS
REPLY
I have followed up on this matter after the annual general meeting with Mr. Matthias Yao. Let us wait for his reply.
There are three products under the EV series. One has been restructured. Maybe, the other two products will be restructured next year (just my guess).
I have just voted in your Poll that I disagree with your decision to call off the Collective Protest. I attended the annual general meeting and heard your question about the EV series, introduced recently, where the bonus has not been restructured.
Is it fair to restructure the bonus for the old series and expose the policyholders to the uncertainty, and at the same time sell new policies (i.e. EV series) on the unrestrucutred bonus? If the restructured bonus is good for the future, why is it not applied to the EV series? (Remainder of statement deleted)
I urge you to continue to lodge the Collective Protest.
MS
REPLY
I have followed up on this matter after the annual general meeting with Mr. Matthias Yao. Let us wait for his reply.
There are three products under the EV series. One has been restructured. Maybe, the other two products will be restructured next year (just my guess).
Gold Link Capital Protected Fund
Dear Mr. Tan
What are your view of this product?
> 100% Capital Protected
> 3 years
> MAX annual return 23% - 25%p.a.
> No service charge if hold until maturity
> A small portion in invested in JP MORGAN GOLD INDEX
> The balance is invested in 3 years NRID
This fund will invest in the gold market in June. What is your forecast on its performance? Is now a good time to do in Gold-LINK products?? Is commodity related funds favorable to go in at this point of time?
REPLY
I dislike all capital protected and capital guaranteed products. My reasons are stated in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
If you are willing to take a risk in gold, it is best to invest in it directly, and not through a structured product. However, if you are not sure about the risk, you should stay away from it.
Personally, I find gold, oil and commodity prices to be too high, due to speculation. I avoid them at this time.
What are your view of this product?
> 100% Capital Protected
> 3 years
> MAX annual return 23% - 25%p.a.
> No service charge if hold until maturity
> A small portion in invested in JP MORGAN GOLD INDEX
> The balance is invested in 3 years NRID
This fund will invest in the gold market in June. What is your forecast on its performance? Is now a good time to do in Gold-LINK products?? Is commodity related funds favorable to go in at this point of time?
REPLY
I dislike all capital protected and capital guaranteed products. My reasons are stated in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
If you are willing to take a risk in gold, it is best to invest in it directly, and not through a structured product. However, if you are not sure about the risk, you should stay away from it.
Personally, I find gold, oil and commodity prices to be too high, due to speculation. I avoid them at this time.
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