To kickstart 2012, i realised i need to visit this topic of whether a young person should buy saving plan or life insurance? Well in my personal opinion, one MUST buy a life insurance FIRST before anything else. Of course some may beg to differ but i’m just sharing out my view.

The most and first reason why life insurance is a MUST is that the premium is much cheaper when purchased a younger age and second reason is because the person is usually healthier when young. You dont want to wait till your healthy deteriorate or when you are old to start to buy insurance.

Many outside sales agent will tell you that its a good habit to start saving when young. While the idea is good but the intention behind their words is wrong. They want you to buy long term saving plan as compared to asking you to save in bank for rainy days. They will also say that if you wait longer, premium will go up. If you ever hear such thing next time, please kindly tell the person that only life insurance premium goes up as you aged. Saving plan doesnt really matter.

Since a young person is to buy a life insurance, the next immediate question is how much he/she should buy. Again in my personal view, one should get a minimum of coverage for 5 areas: Death, Disability, Major illness, Accidental and Hospitalisation coverage. For such a comprehensive and minimum coverage, it will only cost roughly between $100-$200 depending on the amount of coverage. It should only take up 5-12% of a person net salary. Anything more is too much for a start.

So therefore there is really no need for one person to buy till $300-400/mth and only cover for few areas only. There are many sales person out there so please beware. I have seen many friends who suffered from bad planning so i am even more determined to spread the word to my readers. Should you known of anyone who is in similar situation, you can email or call me to ask me to meet this friend of yours. I be willing to help me to construct a more beneficial portfolio.

Just my two cent worth!

I believed this topic has been quite popular among those people who has ever experienced or have friends/relatives who had contracted major illness before. The most popular question that people asked would be whether can they claim from insurance?

Well the question is easy to answer by just asking two questions: Have you bought a major illness plan and what stage of the major illness is the person in now? Very often people would have thought that they have bought one or two illness plan because their agent told them their saving plan got inlcuded. So often than not, these are the people who will end up with very low coverge because the nature of saving plan is not meant for coverage and its not for whole life. So even if major illness rider was added, its also for short term (20 or 25yr) Agent simply just add the major illness to make the plan looks attractive. Personally an average person coverage for major illness can range between $150k to $400k and whether they will get more really dependable on their income and how importance is major illness coverage worth to them.

Of course all agent will tell you that fact finding is very important and you should follow as accordingly to what you need but however to be realistic, we all have unlimited wants and limited resources. Until we can find more resources to fill up our needs, all things have a limit. So to me although a fact find is important but it is not the most important thing. The important issue is whether client has a comprehensive coverage first. Then from there, bit by bit i will increase their coverage accordingly to their affordibility.

Back to the second question that i would ask: What stage of the critical illness are you in? This is very important because for anyone who last purchased an illness plan was 2 years ago, i can quite certain to inform them that they are not covered if they ever diagnosed with early stage critical illness. For all the old trad or ILP, all the critical illness coverage definition must be in critical stage which means its stage 3 or 4 of cancer for example.

There was one newspaper article few years back that featured a woman who was diagnosed with early stage major illness but wasnt able to claim because her plan was meant for critical major illness coverage. Because of such issue, all insurance companies have came up a plan that specially catered for early stage illness and i STRONGLY urged everyone to upgrade a little bit to enhance your overall coverage. Typically such a plan would paid out 50% upon early stage and the maximum coverage can range from $100k to $150k. Imagine with $50k or $75k to treat your illness, you can go through all the treatments without worrying about the cost.

Therefore after reading this article, i urged you to dig out your policies and check with your adviser to ask if you can upgrade your illness coverage. Dont let them lead you to buy anything else. If you are not sure, you can always email me: peterlim_agent@yahoo.com.sg to ask and i will be happy to assist.

Take care and God bless you! Cheers =)

Types of factors that need to be taken into consideration:
1) Will you be able to achieve 6-8% returns on your own?
2) Are you disciplined enough to keep invested for long term?
3) Are you able to handle the art (emotional) side when you are buying term?
4) How old are you when you are choosing to buy life insurance?
5) Are you willing to pump your money into a plan that yields no return for you if nothing happens?

I am sure that at this point of time many people would have disagreed with some of the pointers that i mentioned above but like i said, it’s purely my own opinion and i am not asking anyone to follow.

Buying ILP will simply solve many problems of a person who doesnt know how to invest but yet would like to do some form of small investments via insurance. But one thing for sure is that the age that you are buying the plan really plays an important part simply because of the mortality charges that you may be incurring. For someone who is 40 years and above, ILP is not suitable and he is better off buying a term insurance for itself. But for someone who is in the early 20s, ILP may not be a bad choice for them compared to term because of the long term approach that we are looking at. I have just done a comparison of a $100k coverage for death, disability and critical illness for ILP and term. What i found out was that in the long run, say 40 years, the different amount payable for the two plans are not really alot ($15k). However if at the point of time the person were to take out some money for his old age, he/she will still have either $37k (5% return) or $169k(9% return) from his/her ILP as compared to nothing from her term insurance.

Therefore looking at the example, one would prefer to get a ILP instead of term. However please take note that such cases differs from cases to cases so please don’t take it personally and think that it will suit you the most.

Another point that i want to emphasize is that for a person to buy term and invest the rest, they need to really master the science and art of investment. They need not only need to know how to pick the right funds but also to handle their emotionals during crisis. One mistake can cost them quite a bomb. We as a logical person, will also have problems convincing ourselves to buy a plan that may cost a $100/mth and there will be no cash value after 40 years. Example: Do you think a person will ever keep renting a house for his rest of whole life? I can tell you that after sometime, this person will still want to buy a house that can still contain some value after he grows old.

As for myself, i have a mixture of limited pay life insurance, term and ILP.  The purpose of having these policies is so that i can still be insured against death, disability and major illness even if i outlive myself and not working next time because i have already fully paid for my limited life insurance. When i grow old and not working anymore, i plan to cancel out my term and surrender my ILP for my retirement needs.

Therefore the morale of this article is to tell you that people’s needs are different and please do engage a committed and honest consultant to do a fact-finding with you and discover your strength and weakness and be able to plan out a bright future for you!

Taking the first step to make the choice to save is important. But it is only the stepping stone of many other crucial decisions that you have to make in order to accumulate more wealth.

Last year, a Citibank survey showed that Singaporeans were equally likely to park their extra cash in conservative products as in riskier ones. This came to show that people are stating to make conscious decision on the use of their money. However the answer to your investment depends on your investment disposition, for which one has to assess risk appetite, risk capacity and time horizon.

In recent Straits Times, newspaper reported that most Singaporeans are not ready to retire and there are ways that they are teaching the elderly on how to live longer comfortably. Well after reading these articles, it brought to my attention on the importance of parking your money in the right channel and how to grow your money in the right way.

Over here, i would like to share with you where would be best to part your money.

Conversative approach:
1) Deposit account: When i am refering to deposit account, it includes the typical saving account and fixed deposit that most banks offer.

In Singapore, most of us are getting quite low interest eg: 0.125% for normal bank account or ranging from 0.35  to 0.875% for fixed deposit. Even thought the interest is low but there are still people who likes this approach because they feel that it is better to earn less than to have the chance to lose up to 30% of their investments through uninformed decisions.

2) Government Bond: A bond is like a loan. In other word, it is a formal contract to repay borrowed money with interest at fixed interval. This form of investment is relatively safe as it promises regular payouts periodically even though the interest return is not high.

I would say that by investing in bonds are quite safe and it is better than normal bank deposits. However there are also junk bonds hence it would be a good idea to seek a professional advise before making the purchase.

Medium to High Risk approach: 
1) Structured products: In a layman term, these products involve derivatives to capitalise on the performance of an underlying asset such as a stock to give out a certain expected yield over a certain period.

Eg: Equity-linked notes with returns that could depend on the performance of a single stock,  a basket of stocks or stock indices. One of the concerns that i have for consumers is whether they know that if the product is capital guaranteed?

Over the past two years, we have seen many bank selling those structured products that had caused many others to lose their retirement funds. Eg: Mini bond.

2) Self-Investing: This is useful if you are really investment savvy. It includes stocks, unit trusts or bonds. If you can stomach even more risk, you can also invest in forex or properties. But all these comes with risk of losing more money hence it must be done carefully.

Please don’t think that by reading up a few books here and there makes you a savvy investors. Most successful investors i knew, have ‘paid’ their fair share of tution money to the stock market before they become the ‘ know-how’ investors. Therefore be smart and don’t act smart!

Investing is a life long skill that you will need if you like to retire comfortably.

3) Insurance and savings: Life insurance  products are another means by which people can build up their retirement funds. Typical products include endowment policies and investment linked or traditional life plans.

For those who may not have the discipline to set aside cash in the first place, an endowment policy is a great way to kick start the habit. Typically, such policy requires you to set aside premium every month into a policy that will either make regular payouts or lump sum payout upon maturiy of the policy.

Depending on your investment appetite, endowment policy can be either investment link related or non-investment link related. Investment link regular premium offers higher potential returns and the flexibility to adjust their funds allocation along the way.  However the flip side of such policies is that all the returns are non-guaranteed.

For those conversative consumers, a traditional endowment plan is the way to go. It helps to address those  with specific purposes whether be it in planning for retirement or children’s education.

Having to understand the type of products available, it is important to note that given the variety of products out there, they have to select properly. If you are unsure about where to start, it is imperative to seek professional advice from a reliable financial adviser. It is equally important for you to be forthcoming with relevant information for the adviser to work with.

Everything that i shared about are my two cent’s worth of knowledge. Hope it benefits you =)

I believe that this question has popped up in your head every time you are approached by financial consultants or come across an insurance product at the financial institutions. For me, I always recommend someone to buy insurance to address his/her “WHAT IFs” situations. This ‘what ifs’ are low probability events and unlikely to occur. However, it is still important to be prepared for them because when it does happen, the effect is usually quite severe. Remember, prevention is always better than cure. Thus, you should prepare yourself before it is too late.

What can happen to you or your family?

Throughout my 3 years, and counting, experience as a financial consultant, I have seen a few of my clients went through a life-changing experience, albeit unpleasant ones. The incidents include serious accidents that cause disabilities, life-threatening illnesses, and even death in the family. Although the scenarios might differ from family to family, the impact that they create is similar. First of all, there will be loss of income, especially if the incident involves the breadwinner of the family which in return will cause the dependants to be financially insecure. In anther scenario, the sole breadwinner might not be affected by the incident physically but he or she needs to shoulder the burden of paying for hospitalization cost for his or her family members that are involved.

The right protection for you

To protect yourself and your family against these unforeseen circumstances, a whole life or a term life policy with critical illness and total permanent disability benefits is suitable to compensate for major illness and total permanent disability. Examples of major illness are cancer, kidney failure, heart failure, etc. However, the problem with insurance products is that there is not one policy that can cover all your protection needs. Hence, one insurance policy might not be enough and you need to complement it with other policies.

For Critical illness cover, the payout is usually paid in the final stages of your illness and you will not get anything at the point of detection or earlier stage. In this case, it is most likely that your dependents will receive the payout as your chance of survival will be minimal at the later stage of your illness. Thus, you have to opt for early payout. To cushion the financial blows that the illness brought due to prolonged treatment, you should get the best shield plan available in the market. The shield plan will be able to cover a substantial amount of hospital treatment and warding when you are contracted with the illness. If your budget only allows you to buy one insurance plan, Shield plan should be your choice as hospitalization costs usually cost a bomb, especially in Singapore. For the elderly, eldershield can be bought in case they lost their ability to carry out daily functions and require private nurse to look after them.

For Total Permanent Disability cover, the payout is only paid when you lose a pair of limbs or when you are in no condition to work anymore to support yourself and your family. The solution is to buy an accident plan which has various payout percentage of the sum assured for disability of different parts of your body. In this case, you can claim if you lose a leg or an eye and need not be a pair. However, an accident plan is only claimable if your injury or disability is sustained during an accident. Alternatively, you can buy a Partial Disability Income Policy. In the event that you are unable to work, be it due to accident or illness, you can still be compensated monthly even if you are in a wheelchair and are recovering.

You can get a disability income rider if you are concerned about income upon disability. This is a very good way to get you protected and covers your income in the event of disability.

Better late than Never

After reading the article above, you should realize that it is important to insure yourself against unforeseen circumstances that will have the biggest impact on your life. There is no point in looking at the gains or returns when buying an insurance policy as it should not be the main reason to buy insurance. Some young people that I’ve met will say that such accidents or illness will never happen to them but I always tell them to ‘never say never’, not because I want to curse them but because I’ve seen a few of my clients who are around my age went through similar incidents that I had mentioned above. Trust me; you would not want it to happen to you too. One must always value one’s life. That is why insurance can be the best gift that you can give to yourself and your loved ones. So, please do your part in protecting yourself and your family now!

PS: This article can also be found under the blog corner: www.imsavvy.sg

by Jamie Lee

American International Assurance (AIA) has been sued by a policy holder who claims the insurance giant is asking for additional premium payments over a period well beyond the initial guaranteed payment period.

Zhu Yong Zhen says in 1993 she bought a Singapore Financial Guardian life policy with a sum assured of $200,000, court documents obtained by BT show.

Ms Zhu, a Chinese national who has taken Singapore citizenship and is self-represented, says she was given a quote that detailed the premium to be paid and the annual dividends accumulated as part of the policy.

Based on this document, described by her as the ‘original policy quotation’ (OPQ), she says that she had to pay an annual premium of $2,091.50 for a sum of $100,000 insured for up to 16 years, explained under an expression known as ‘critical year’.

According to her, at the end of 16 years the remaining premiums for the policy – which provides whole life protection until the age of 100 – were to be paid with dividends that snowballed over the same period.

The rolling dividends stated in the document were based on an interest rate of 7 per cent on the annual dividend awarded to the policy holder.

Explaining the interest rate, an accompanying note at the bottom of the document said ‘the rate is not guaranteed’ and ‘ is used for illustration purposes only’.

Ms Zhu says the same note did not state how the non-guaranteed dividends and interest rate would affect cumulative dividends, and that the latter, as well as the ‘critical year’, were not guaranteed.

AIA has rejected her claims, saying the OPQ – which it knows as the ‘policy benefit illustration’ (PBI) – ‘clearly stated’ that it was for illustration purposes.

‘The PBI did not have contractual effect and/or was not part of the policy,’ says AIA, which is represented by Rajah & Tann’s Adrian Wong.

Ms Zhu knew of this, AIA says in its court document. ‘The terms of the PBI were clear,’ it says.

‘The PBI was for illustration purposes only, future dividends as calculated in the PBI were not guaranteed and the interest rate at which dividends were to be calculated, as stated in the PBI, was not guaranteed.’

AIA has counter-claimed for defamation, alleging that a blog created by Ms Zhu around October last year to talk about the issue contained comments that were false and with the intent of causing AIA ‘maximum embarrassment … and loss of business’.

Comment from me:
This is not the first time that newspaper reporting regarding AIA critical year issue and if i am not wrong, this should be the second time. In my opinion, such newspaper report is quite damaging to consumer’s opinion towards the company and the confidence level would have dropped. I have a few clients who switched over from AIA over to Prudential because they are fearful. Felt sorry for those people that suffered under similar circumstances but decided to remain sliented. My heart goes out to their hard earned money and the trust they had with their adviser last time.

Read more: http://www.businesstimes.com.sg/sub/news/story/0,4574,350008,00.html?

This report really serve as a wake-up call for ALL singaporeans to realise the important of having a good insurance coverage. Basically we buy insurance is mainly so that we can provide enough cash to maintain dependent’s living standard and to cover any outstanding debts and funeral expenses. This is to avoid any financial burden that we could possibly left behind for our family members.

Looking at that figure i also realised that 70% of my clients have insured themselves to about $180,000 for their death and disability coverage. As for their major illness coverage,  the average would work out to be about $100,000. Don’t misunderstood me by saying that i never recommend the right product for them but rather it is mainly because of their budget.

Sometimes no doubt we should insure a higher amount for our clients but most of the time, we still need to depend on their comfortable level of comittment. I can’t possibly force my client to buy a policy that cost more than 20% of their take-home salary just because i feel that it is important for them to have. I need to take into consideration of their pocket. Some will also argued saying that i should recommend term insurance instead for them but however the thing is that most people prefer to have some cash value taken back at the end of their old age if nothing happen to them. It is hard to convince them to throw 5% of their salary into ‘big sea’ without any hope of return.

In Singapore, i believed that although there are a growing population of people who are a firm believer of insurance but there are still much to improve in term of mindset and perspective. They need to realise for themselves that insurance is an alternative way to transfer their risk to insurance company and to reduce their liablity. Actually if we are talking about saving money, i think buying insurance is one of the best way to ‘save’ money for a purpose.

Take this for example: You put aside $100 for a life policies which gives you $100,000 death & TPD coverage. So one year you will put around $1,200. Let say if all of the sudden you die after two years, how much do you think your family will be paid? They will be paid a min. of $100,ooo! You put in $2400 and your family get back $100,000 so can i just say that you have ‘earned’ $97,600 for your loved ones! Isn’t that amazing? I am sure your family member will remember what you have done for them when you were alive.

To me, having a good hospitalisation insurance and life insurance is very crucial. In fact, the first policy that i normally share with my clients will be a life insurance. My belief is that you should always fufill your needs first before talking about wants (saving for long term needs) However sad to say that most people often end up getting a large amount of endownment plan first before planning for their insurance needs.

I have met many people in this situation and what i normally do after that was to restructure their insurance porfolio and to maximise their money for all the necessary coverage. I do worked with IFA adviser in the sense that if i can’t fufill my client’s needs using my company products, i will pass to my IFA friend to help her with it. Through such method, i am able to provide a more sound advise for all my clients.

Let’s hope that more and more people will place more emphasize on the needs of a good insurance and stop thinking that we all financial advisers are just out to earn quick buck. Not all are bad apples! At least i still care alot for my client’s pocket than mine  =)

Recently a lot of my clients have been asking me about how they can go about planning for their child’s future education costs as they are quite worried about not having enough to save. Well in my opinion, first and foremost is to start planning early with a small amount. Being early has alot of advantages due to compounding interest effects. Most importantly you don’t need to have one big lump sum to start off. It can be as cheap as $100 per month to set aside for them.

However there are so many options available right now so the question is ‘which one’. Today i will actually be talking about the various options that can be taken to fund your child education.

There are numerous assistance schemes available to help fund for tertiary education and one of the most widely subscribed is the CPF Education Scheme. Under the scheme, CPF members can pay for their own or their children’s full-time local tertiary education at approved institutions by utilizing up to 40% of the Ordinary Account balance, including amounts withdrawn for education and investments or the remaining balance in the OA after setting aside amounts reserved for housing or any other CPF schemes. The CPF Education Scheme is a loan scheme, and if CPF members’ monies are used for their children’s education, the children would have to repay the CPF monies in cash after their graduation. There are also other schemes such as study loans from commercial banks, bursaries and scholarships from both public and private sectors.
 
However, your CPF or other assistance schemes may not be sufficient to provide for all of your children’s education needs, especially when your CPF is also used to fund your home and retirement.

The other options that are available are as follow:

Regular Saving Thru Unit Trusts
A fixed amount of money can be invested into unit trust on a monthly basis to leverage on the Dollar Cost Averaging effect. By investing fixed amounts at regular intervals, you are buying more units when the price is low & fewer units when the price is high, hence allowing you to reduce your average cost in a volatile market. There are many types of unit trusts for you to choose from, depending on your investment horizon, goal and risk appetite.  
 
When selecting which unit trusts to invest in, do take your time to understand key areas such as the investment objectives, the minimum recommended investment time horizon, the risk levels, the fees and charges, etc. Do not select funds simply based on past returns or promises of attractive potential returns, offers of promotional gifts or rumors in the market.

This option is better in a way that it can help to generate much more returns in the future but it is not meant for those people who are very investment savvy. The returns are non-guaranteed.

Investment-linked Policy
You can also subscribe to a regular-premium investment-linked plan which offers life protection with investment opportunities. Typically, such a plan will offer you some flexibility to vary the allocation of your premium towards protection or investment at different points in your life to match your life needs – be it for your children’s education or for your own retirement. Do note however that most plans may not grant you an increase in life insurance protection if you are not in good health.
 
Alternatively, you may want to consider taking up a single premium investment linked plan and periodically top up your investments. In comparison with taking up a regular premium investment plan, this option would usually come with much lower life insurance protection and hardly any flexibility to vary the allocation of your premium towards protection and investment.
 
Remember that there is no free lunch. So, while an investment-linked policy comes with both insurance and investment elements, note that these come with charges.   Take note of key factors such as the percentage of premium allocated to investments, the cost of insurance and other fees and charges, any flexibility for you to switch your investments from one fund to another, the consequences if you do not pay the regular premiums and/or decide to terminate the policy, etc.

Endowment Policy or Participating Whole Life Plans
A long term regular-premium endowment or whole life plan is another common way to help parents save in a systematic and disciplined way for their children’s education. Such plans typically offer insurance protection for the life insured (which may be the child or the parent). The market also offers benefits such as payer’s benefits so that the premiums are waived in the event of death, critical illness or permanent disability of the payer (typically the parents).
 
Do take note that endowment and whole life policies are long term instruments. If you decide to terminate the policy at the early stages, the policy cash value could be substantially less than the total premiums paid. Do also take note that bonuses are not guaranteed.

Shares and Bonds
If you are familiar with investing and know how to monitor and manage your investments, placing your money in an appropriate portfolio of instruments such as shares and bonds can also be an avenue to help you grow your funds. Common strategies such as dollar cost averaging and diversification can help reduce risks in your portfolio.
 
Before you invest in any asset, do read the prospectus or other offer documents carefully and ensure that you understand the potential benefits and risks. It is also useful to keep abreast with market and economic developments, as well as keep in touch with research reports and analyst reports. This way, you can have a better understanding of developments that could affect your investments. It is also very important to monitor your investments and take steps to adjust your portfolio where necessary.

This option can be explored if you are very investment savvy and are always reading financial news updates. Again anything that got to do with investment is all non-guarantee. So please understand your own risk profile before investing.

If you like to find out more, drop me an email to arrange a friendly discussion =)