Archive for the ‘Insurance’ Category

Posted on August 26, 2010 - by Adrian Khiat

Is Whole Life Plan necessary?

I again have to emphasize that I’m not comparing a “Buy Term Invest the Difference” Vs “Buy Whole Life Plan” argument. Getting into such arguments will waste me a lot of time where I rather spend to serve my clients and expand my business. Writing this blog is to feed my interest in writing about Financial Planning issues and my opinion of the industry and not to generate businesses or to engage in time wasting arguments. (A mistake that I committed in my old website).

Whole life cover is not for all
In my opinion, it is necessary for some and not necessary for some. Let us look into our basic Medical Insurance needs first.
1) Hospital and Surgical – Urgent and Important
2) Critical Illnesses Coverage (Temporary needs) - Urgent and Important
3) Whole Life CI Coverage (Permanent needs) - Not Urgent but Important
For people who can confidently self-insured their Permanent needs need not get a Whole Life plan.

We must know what our priorities are first. There are many agents or FAs who will try shift priorities of their prospects. They will try to make the temporary needs to become permanent in order to justify a higher WL coverage. I will not say that there is anything wrong with this but provided that the adviser had did a good job by recommending after analysing the propects other Financial needs such as Retirement, Children Education, short/mid/long term goals, investment profile based on experience, willingness, ability, etc and have informed the client fully on their options and client insisted on his recommendation.

I like to share 2 common practices. Read more…

Posted on August 19, 2010 - by Ee Min

Whole Life vs Term (critical illness)

I read a post by fellow IFA (Martin Lee of Promiseland, aka the Lion Investor). Being a personal friend, I respect him in well regard of his views on investment and personal finances.

He recently wrote a piece on Whole Life (insurance) vs Term.

Other than pointing out the opportunity cost of whole life insurance vs term insurance, I wholeheartedly agree with him that whole life insurance is, in my opinion, solely for the purpose of lifetime critical illness protection. Beyond the lifetime protection, whole life insurance offers an inflation hedge to maintain real dollar value protection. Of course, this hedge is only effective as the bonuses (reversionary & terminal) get accrued over time and provided the insurer delivers what has been projected.

Certainly, there will those who disagree and stand convinced that ‘buy term (insurance), invest the (premium) difference’ works to their advantage. Caveat being the ability to invest at a consistent compounded rate of return over many years.

My point here is not to take sides. Read more…

Posted on August 19, 2010 - by La Papillion

Old people don’t need life insurance?

I was browsing through some of the blogs when I saw Mr Tan’s post on insurance. It’s his usual style to advice people to buy term and invest the rest. But that doesn’t attract me – it’s this line:

“There is no need for people to have life insurance when they are old.”

By ‘life insurance’, I take it that he means the whole life variety – those plans that gives a lump sum pay out in the event of death and total permanent disability of the insured person from the inception of the policy till age 100.  This is very different from the very much cheaper term plan where a similar lump sum pay out will be paid out but it is usually up to age 65. However, life insurance these days come along with a critical illness (CI) rider that allows a lump sum payment when it strikes. Since this rider ‘rides’ onto the main plan of the whole life, which is up to age 100, the CI cover will also be up to age 100. I am under the impression that CI stand alone cover up to age 100 is either exorbitant in price or does not exist.

What do we need when we’re old? (more…)

Posted on August 13, 2010 - by Tan Kin Lian

High deduction for investment linked plan

A graduate, who recently got a job, was approached by a friend to invest $300 a month in an investment linked policy. His friend showed him the colorful brochures of three funds with projections of yields of 5% and 9%. The graduate sought my views about these funds.

I asked him to send the benefit illustration to me. He initially sent me the fund brochures (which he mistook to be the benefit illustration). Later, he found the benefit illustration. Here is my reply to him:

1) The distribution cost for 5 year sis $6,383, representing 177% of your annual savings. Do you really want to give so much of your saving away?

2) Based on 9% yield (which is not guaranteed and over-optimistic), the accumulated premium at the end of 25 years is $332,366. However, the amount that is taken away from you is $131,966 (39% of total), leaving you with a net amount of only $200,400. This is a lot of money to be taken away. According to the benchmark in my book, an acceptable deduction is 20%. Read more…

Posted on August 7, 2010 - by Patrick Lim

A vicious cycle?

I couldn’t have articulated it better myself on Adrian’s point of making co-payment compulsory as it was never the intention of our government to do so when medishield was first introduced in july 1990.

In fact, when i was in aviva’s product committee in the design of an integrated shield plan back in late 2004/early 2005, i stressed this to the management of aviva and the product committee as well.

And when aviva myshield made it appearance in mid-2005 which by itself was radical being the first shield plan to come with ‘as-charged’ benefits, i was pleasantly pleased as punch that the rider when launched, did not cover the deductible of the plan, only the co-insurance portion.

Adrian mentioned that he applauds ntuc-income for being the only shield provider not to provide 100% reimbursement through it’s current rider, the incomeshield assist rider. perhaps this may not be strictly by choice because the incomeshield plus rider (covers 100% deductible and co-insurance) was withdrawn on november 16, 2007 due to what mr lawrence wong, the general manager of ntuc-income cited as loss-ratio and the new incomeshield assist rider being introduced on the same day. Read more…

Posted on August 3, 2010 - by Wilfred Ling

The lousy NTUC Income Vivolife

Today I decided to do some calculation on Vivolife. Why? Because I’ve been hearing that this is a very lousy whole life that gives poor value for money. But Vivolife is a whole life policy that is never meant for savings and yet people continue to calculate its yield like as if it is a saving plan. Anyway, I decided to calculate the yield if it is treated like a saving plan (when in reality it is NOT).

Parameters: Last age 0, female, limited premium 15 years of $1427 annual premium for sum assured $120,000 with $150,000 as the minimum death benefit for the first 15 years. Read more…

Posted on August 1, 2010 - by Adrian Khiat

100% Hospitalisation Expenses Insurance coverage may not benefit Healthcare System in Singapore

My letter to ST Forum recently. Believe they will ignore me again as they never seems interested to publish financial planning related issues or maybe that I’m not a big shot enough…

** QTE **

Medishield is a low cost catastrophic medical insurance scheme introduced in 1990 to help CPF members meet medical expenses from major illnesses. Over time, several insurance companies introduced their version of shield coverage meant for those who wish to stay in higher wards and hospitals. These shield plans operate on a co-payment feature by mean of “Deductible” and “Co-insurance”. These insurance companies later also introduced riders with premium payable by cash to cover the deductible and co-insurance of these shield plans which mean that their policyholders need not pay a single cent in event they are hospitalised. (more…)

Posted on July 6, 2010 - by Drizzt

Decreasing Term Life Insurance can be your low cost insurance solution

Insuring so that your dependents not able to pay huge financial burden can be cheaper than you realise

As a working adult aged 20-35, some of the hardest financial risks you are likely to face is:What if you are not around leaving your wife and kids to pay for the biggest financial burden, your mortgage.

One can argue that there are other big ticket credits that you can take up such as

1. Student Loans
2. Credit Card Loans
3. Car Loans

But with home prices fluctuating around 400k, a single bread winner will be severely  tested.

The solution known to many

The common solution, which is likely to be sold by most financial advisors you will meet is to take a whole life insurance.

The problem with that is to insure against a 300k mortgage payment, you will require a whole life plan of at least SGD 400 per month.

Folks who do not earn that much or have competing financial priorities will feel pressurized by that figure.

How can a decreasing term life insurance help?

A Decreasing Term Life insurance is a unique life insurance that provides a lump sum payment should the person is hit with death, TPD and in certain cases Critical Illness.

You will need to pay a fixed rate of premium payment for the limited duration that you and the insurer decide to insure against.

The unique thing about a decreasing term compare to a level term is that the sum that you are insured for decreases over time. Read more…

Posted on June 23, 2010 - by Martin Lee

Case Study of an Unplanned Hospitalisation Financial Disaster

Patrick (not his real name) suffered some discomfort late at night. As the normal clinics were already closed, he went by himself to a private hospital to seek consultation.

While waiting for the test results, Patrick collapsed and went into a coma. His condition worsened and he ended up having multiple organ failure. Four specialists (including one anaesthetist) had to be put on standby to stabilize his condition. Patrick also had to be connected to a life support machine in ICU just to keep him alive.

medical-insuranceEven though Patrick was fairly well off, this unexpected incident had lead to a financial disaster for his family due to a number of factors:

1) Patrick only had a private shield plan that covered him only up to A ward in a government hospital, so he can only claim 65% of the private hospital bill from his insurance. The original bill is a whopping $12,000 a day so the uninsured portion works out to be about $4200 a day. There is also an annual limit of $250,000 for his current insurance plan. Transferring him to a government hospital is out of the question due to his condition. Read more…

Posted on June 8, 2010 - by Tan Kin Lian

Life time savings

I posted a story of a non-working woman who invested all of her savings in a 21 year endowment policy. She would have paid $18,000 in premium and obtained a return of $16,000 on maturity. This gave a negative return. Part of the premium went into paying for a rider to provide additiona insurance protection, but this was over-priced.

She obtained a meagre return of less than 1% per annum on the savings portion of the premium. The insurance company would probably have earned an average yield of 5% per annum. More than 80% of the gains went into the commission, expenses and profit. The meagre return could not even cover the inflation during the years. To this woman, it represented most of her lifetime savings, which has been denied of a fair return for a financial plan that was traditionally supposed to be trustworthy. Read more…