Best Travel Insurance

Comment from my article "Travel Insurance"

"Hi Eng Peng, good point about the need for travel insurance! Thanks for sharing. There are many travel insurances available in the market. Will you be willing to share more on the other aspects that we should evaluate on to determine which is the most appropriate insurance for our travel needs? Cheers! LeroyBlogsite: http://www.leroyang.blogspot.com/"

In response to one of my reader's comment, I decided to post a follow up article on the most appropriate travel insurance to consider.

In my personal opinion, the most important aspect to evaluate is the level of service in term of claim. Meaning speedy in response and the thoughtfulness in arranging emergency evacuation e.g. my mom's case. In my experience dealing with many travel insurer, I find the the following insurer are the better one and value for money (click to view brochure):

1. AIG Assist
2. Tenet TravelJoy
3. AXA SmartTraveller

Many times people ask me for a comparison but I must say there is always no apple to apple comparison in most cases. Insurer will always have a few features or benefits that are different to cater to their target market and that is one of the reason why they charge different premium.

For example, AIG has a special service call RED24 which is a world leading personal security advice and response provider. By monitoring worldwide security activity, their services provide the advice required to keep their members and loved ones safe at home and abroad. More detail can be found in their website below:

http://srvb.red24.info/affiliate/aigintl/about.php

Tenet is the leader in benefit innovation which many insurer take as reference. They are the first NATAS approved travel insurer (The current NATAS approved travel insurer is AIG) and first travel insurer to shorten the claim for Baggage Delay, Travel Delay and Flight Deviation from 12 hours to 6 hours. They are also one of the first to have Full Terrorism coverage and Unlimited coverage for Emergency Evacuation. If you wish to cover amateur sport, then Tenet TravelJoy is your choice as they offer extension coverage on hot-air ballooning, para-sailing, white-water rafting, snow-skiing and underwater activities which most insurer will exclude.

AXA offer the best value for money in term of their annual plan.

In conclusion:
Tenet will be my first choice of insurer if travelling Asia Pacific and the more develop countries follow by AIG for more exotic countries like Cambodia, Egypt etc. For frequent traveller that travel at least 4 times a year with minimum one week duration then AXA annual plan is the best choice. However, do not just take my words as you should always read the policy wording just like reading the prospectus of unit trust before you buy. You can find their policy wording in the following links:

1. Policy Wording for AIG Assist
2. Policy Wording for Tenet TravelJoy
3. Policy Wording for AXA SmartTraveller

You will also find the following link useful on the document require for Travel Claim provided by AIG:

Travel Claim Important Notice

***Revision Note***

- AIG Assist has been rename to Chartis Travel Guard (For simplicity purpose, only links was updated leaving the original blog post untouched)

P.S. Information for travel insurance changes from time to time. Please help us to maintain up-to-date information by leaving me a comment if there is any broken links or any of the information is not updated.

Adam Khoo's New Book

I am rushing for work but feel the urge to share this before I leave the house. As I normally do my reading in the morning while my mind is still fresh, I came across Adam Khoo's new book release "Profit from the Panic" and he share his insight on his blog which I think is worth reading. The link is as follows:

http://www.adam-khoo.com/171/profit-from-the-panic-is-ready

Travel Insurance

The recent unrest in Mumbai and Bankok highlights the need to buy travel insurance before making a trip and there is a sudden surge in the demand for travel insurance among my clientele which was not their usual habit despite my constant advice.

I am a firm believer of Travel Insurance due to my own personal experience and is also my first claim experience with the insurance company which happen to be a Travel Insurance claim...My Mom's claim.

This happen way back in 1999 when I was still studying Final Year in the Polytechnic and my parent went on holiday without me. They have a habit to call when they touch down whenever they travel, but I did not receive any call from them pass 3 days from the day they left and I started to get worried. Those days handphone was not popular yet and few will bring a handphone to travel because auto roaming service was not popular then too, so I practically can only wait for them to call instead of calling them.

My sixth sense was right when my Dad call on the 4th day with a sad voice asking me to stay calm for what he was going to tell me. I could still remember he said, "Son, your Mom has a stroke in the plane even before we touch down and she is currently hospitalised unconsciously in the local hospital". I got a shock of my life since I had never experience such life event and I always take for granted that such thing will not happen in my family, who will or want that to happen anyway? I was lost of word and Dad had to comfort me to stay calm and focus on my final year exam, then he put down the phone promising to keep me updated on Mom's medical condition. I though that will be my last memory of my mom and tears start falling heavily.

Eventually my Mom got better and was sent back to Singapore for treatment. I rushed to the Airport on the day they returned and tears start rolling again when I saw her in the wheelchair with the medical apparatus. There was a doctor with her and according to my Dad all those was arranged by the insurance company. They sent a doctor over to monitor my Mom's condition and flew her back in the business class as she need more space due to the bulky medical apparatus required, then she was sent to the hospital in the long limousines that I only saw in the movie and not in real life. Mind you I was really impressed by the service rendered even though I was in my saddest moment! The rest was history as my Mom had recovered now but the scene was still vivid in my mind.

The total bill for her hospital stay oversea, plus doctor sent to accompany her back in business class with the limousines sending her to the hospital and the local hospital bills all add up close to $50,000! That's a lot of money then when liquidity was low in the family as the economy had not fully recovered from the Asian Financial Crisis where most of my Dad's money was stuck in the stock market and money sent to support my younger brother oversea study expenses. Luckily my Dad is a firm believer of travel insurance as he always says, "Since you have already spent so much money in the travel, what is another small amount to buy a peace of mind worth?". The travel insurance he bought for that trip was only $50 dollar while the claim chalk up to around $50,000 and could be even more for more severed cases! Isn't it a beautiful product? Since then, our family became advocates of Travel Insurance ensuring we spread the gospel to everyone we know.

After the emotional sharing, now is the logical sharing...

Many people have the doubt of whether should they still buy travel insurance if they had charge their air ticket with their credit card which will also provide insurance coverage. Some also think that there is a duplicate since most of the baggage lost or flight delay can seek compensation from the airlines.

The answer is a definite YES! Many do not know that the travel insurance coverage from their credit card is not comprehensive although some cards can cover up to $1 million coverage in the event of accidental death but terrorism is usually excluded, so read the terms and condition carefully. Most importantly, not one card that I know of as of now offer EMERGENCY MEDICAL EVACUATION & REPATRIATION coverage which is the main reason why you buy Travel Insurance! One of the definition for the coverage from one insurer is as follows:

"If you suffer a Disabling Injury, Sickness or Disease indemnifiable
under this Policy which, in the opinion of the Appointed Assistance
Company, is necessary to evacuate to the nearest registered medical
institution for medical treatment or return to Singapore, we will pay
for the reasonable cost of transportation and en-route medical care
and supplies including the assignment of a doctor &/or nurse to
accompany you, air ambulance, regular transportation, rail, road or
any other appropriate means necessarily incurred;"

Whatever insurance we buy must have the objective to insure what we cannot afford or feel pain to lost (eg. the big bills like my Mom's case) so that we can transfer our risk to institution with bigger financial strength like the insurance company with a small fraction of premium. The more observant people will ask is there a need for travel insurance then if we had a Personal Accident Plan with emergency evacuation? The answer is still YES as Personal Accident Plan will only cover if the incident is due to accident, what if we fall sick and not due to accident? The answer is obviously a "No", and Personal Accident Plan also does not cover other things like Trip Cancellation, Delayed or Damaged or Lost baggage etc...

In conclusion: "Never leave home without a Travel Insurance even if you just travel to Johor Bahru!"

Quote Of The Day

If you are worried about surviving in a Recession or even Depression which normally last 3 to 5 years...

I am worried about how you are going to survive your Retirement which normally last 10 to 20 years!

Quote Of The Day

Practice Make Perfect...

However, the right Practice will Perfect your Success...

But the wrong Practice will Perfect your Failure!

So BEWARE what you Practice!

Quote Of The Day

Simple is not equivalent to Easy...

Easy is a result of Hardwork and Practice for most people but is often a gift for some talented.

Moral of the story is "If you are not born talented, you can be talented being more hardworking and practice more often!"

Investment Strategy

Interestingly I have been discussing this topic with many of my friends recently which motivate me to post it in my blog instead. Please note that this article is not for layman but for audience who is at least familiar with the Technical Jargon. However if you are still interested and bother to google those Jargon, you can still understand them.

The most commonly asked question: "Is there an investment strategy that can work in current and all market condition?"

The answer will be depend on your time horizon and type of money baskets you are investing in. There is no quick answer to it but read on to discover the pot of gold yourselves. If you are sharp enough, you might point out "How about Risk Profile and Investment Objective?"

I would say that Investment Objective is normally either Long Term for Retirement Needs or Short Term for Income Needs, and I am going to cover both anyway. As for Risk Profile, I personally think is crap because when the market is good, almost everyone has an Aggressive risk profile but when the market is bad,they become Conservative risk profile. This behavior is totally opposite from the best known investment theory call "Buy Low Sell High" or "Buy when everyone is Fearful, Sell when everyone is Greedy". Having said that, thanks to all these people who are just doing the opposite by buying high, selling low and sell some more when lower, so that the value investors like Warren Buffet can make some good money and buy some cheap stocks finally! (Note: Value Investing can be apply to all things in life not restricting to stocks market. It can be apply in the way you purchase goods, luxury and property as well)

But wait! Did I say that Value Investing is the only investment strategy to make money? The answer is no. There is another strategy call Momentum Investing where you buy and sell base on trend. You can also use Option Trading or CFD Trading for Momentum Investing where you are allow to short the market and make profit even if the market is heading south aka downturn. I am not going to discuss these strategies in detail as you can find a whole lot of information if you are interested enough and take action to google them. If all seems too alien to you and you only wish to find an Idiot-Proof way of making money through investing, there is a strategy for novice call Passive Investing by investing into all market or sector over a long period of time like 20 to 30 years through Mutual Fund commonly known as Unit Trust or Index Fund commonly know as Exchange Traded Fund (ETF). Again, you can find out more if you google them.

However the number of investment strategy doesn't stops here but I just mentioned the most common one. In fact, my definition of Investment Strategy is the Strategy that work for you (You might still need to fine tune all the above strategy to suit your circumstances and need)! As the famous China leader Deng Xiaoping once says, "Regardless is Black Cat or White Cat, as long as they can catch Rats, they are good Cats". I have a friend who share with me this interesting strategy which he regards as the lousiest strategy. He says he has no strategy in investing, he only invest through feeling where he "Buy during good feeling and sell when the feeling is bad". You might laugh at it and agree with him that this is a most lousy strategy but the most remarkable part is that he is making money so far with this "lousy" strategy! Do you see anything common between his strategy with the famous investment theory "Buy when everyone is Fearful, Sell when everyone is Greedy"? Sometimes, people just don't know how to crystallize what they are actually doing. I commented to him that this is still a strategy although he think is not. Why I say so is just like when someone tell me that he hate decision making, he had already made a decision! He further share with me why he had adopted such a strategy is because there are many people who know how to read all the financial statement, reports and PE ratio but still lost money so why bother? Wow Lau! He win already lor!

The next thing you might be interested is what kind of investment return would each strategy fetch you and within how long? The following is just to serve as a guideline and past performance is not a guarantee of future performance where returns might varies according to actual scenario:

1. Passive Investing - about 12% return annually with time horizon of 20 to 30yrs period
2. Value Investing - about 15%-25% return annually with time horizon of at least 5 to 10 yrs period
3. Momentum Investing - more than 25% return within 3 to 6 months
4. Option Trading or CFD Trading - more than 100% return within 1 day to 3 months

(Note: Option Trading and CFD Trading is a tool while Momentum Investing is a strategy. You can also using normal trading platform for Momentum Investing. The difference is normal trading using Momentum Investing strategy do not give you the leverage and can only long the position.)

Now, you know the time horizon required for each strategy, what is the type of money baskets then? The key to all investment strategy is to diversify into at least 8 to 10 counters at any one time because no matter how much research you do and no matter how good a company's stock can look, things can turn against you with a single piece of negative financial news. Another way to diversify is by putting your money into 4 different baskets namely Security Basket, Growth Basket, High Growth Basket and Luxury Basket.

1. Security Basket as the name imples is for your security with investment target return of 1.5% to 4.5% p.a. which should make up from cash, Fixed-Deposit, insurance & capital guaranteed products. This basket will serve as emergency fund to meet sudden lost of job or paycut.

2. Growth Basket is the basket where you build your net worth & positive cash flow assets that will lead you to financial freedom with investment target return of 8% to 20% using Passive Investing and Value Investing Strategy

3. High Growth Basket is the basket where you ACCELERATE the building of your net worth & positive cash flow assets that will lead you to financial freedom with investment target return of 15% to 25% return using Momentum Investing Strategy

4. Luxury Basket is the basket where you save up to indulge in your dream assets with 0% investment target return. The money to be used for luxuries should not come from your primary source of income but from the passive income generated from your positive cash flow assets e.g. returns from your Growth and High Growth Basket. You should reinvest 80% of the return from Growth and High Growth Basket and put the 20% of the return to Luxury Basket.

You should allocate your investment funds in term of percentage into Security Basket, Growth Basket and High Growth Basket according to your age band. You SHOULD NOT allocate any amount of your monthly savings into your luxury baskset IF you want your savings to have high growth, else you can still allocated into your luxury basket with your primary source of income. The luxury basket should preferrably be filled by the returns generated from your growth and high growth baskets. My experience show that defer gratification will make you more hungry and your mind more active in wealth generating.

Suggestive allocation depending on your age band as follows:

Below 30 years old - 20% Security Basket, 40% Growth Basket, 40% High Growth Basket.
30 to 40 years old - 30% Security Basket, 35% Growth Basket, 35% High Growth Basket.
40 to 45 years old - 40% Security Basket, 30% Growth Basket, 30% High Growth Basket.
45 to 55 years old - 60% Security Basket, 20% Growth Basket, 20% High Growth Basket.
Above 55 years old - 70% Security Basket, 15% Growth Basket, 15% High Growth Basket.

(Note: You should adjust the pecentage in Growth Basket and High Growth Basket according to your circumstances and not neccessary always the same percentage. You might not have High Growth Basket at all if you are not comfortable with momentum investing or you could have zero fund in Growth Basket because you think you are savvy enough and value investing takes too long to double your money.)

To Summarise:

Value Investing or Passive Investing is suitable for people with little time to monitor the market and who have a longer time horizon of at least 5 years putting in the Growth Basket for Long Term Retirement Need.

Momentum Investing using Option Trading or CFD Trading is suitable for people who are more financially savvy with more time to monitor the market and who have shorter time horizon of 1 day to 6 months putting in the High Growth Basket for Short Term Income Need. You can also use this strategy to boast your Long Term Retirement Need as well with consistence return made.

Disclaimer:

No one strategy will guarantee to work as it all depend on the investor's committment place into learning the strategy with hands on experience. You are expected to make some lost initially in order to overcome your two greatest enemy call "Greed" and "Fear".

Some of the ideas in this article is not originate from me but from Adam Khoo's best seller "Secrets of Millionaire Investors" and "Secret of Self-Made Millionares". You are encouraged to read them for more details on the ideas that I have discussed here.

Making an Investment

I was gathering info to write my next article on Investment and came across CPF website on this topic where they even have comic version on how to diversify your investment! Wow! I feel sorry for what many people had missed by not visiting CPF website regularly. It already have a whole mountain of gold to dig with many information that will affect our way of investment regardless in Property or Equity Markets.

CPF recently also launch a new website call IM$avvy where you do a quick test to see how your financial knowledge measures up, ask Dr $avvy on every thing you always want to know about personal finance and most importantly you can find the latest news on personal finances and CPF saving.

This will be the most regular website that I will visit from now on!

Is Asian Market attractive?

Asian Market falls much more than the US market during this financial crisis. Is there a real problem in Asian Market? Is Asian Market still attractive? I am a fan of ASIAN and Emerging market and my personal portfolio suffer a big drop but I'm holding on and in fact buying more slowly using one of my good friend Wayne Koh's recommended method - Drip In Money commonly know as Dollar Cost Averaging.

Found the following Good Read to support my views:

Asian Financials Are Not in a Structural Crisis - Comments From Fullerton Fund Management"We see attractive opportunities emerging amongst Asian financial stocks and we believe that over time, the share prices of quality Asian financials would recover and provide attractive returns," says Choo Jee Meng, Senior Vice President of Fullerton Fund Management.

Full Article can be found on: http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=2936

My Recommended List of Credit Cards

If there are only 2 Credit Cards you wish put in your wallet, these are the two:

1. Best Credit Card for Home use - POSB Everyday Mastercard

This card give 1% rebate for your SP Services Utilities and StarHub Bills. My total expenses for these two bills add up to around $600 per month and that is $6 saving which I can use this rebate to exchange for daily necessities at Watson e.g. Toiletries.

If you like to visit Carrefour, this card will give you 5% rebate on your purchase too! This card also entitle to all DBS card promotion e.g. Dining, so I do not own any DBS credit card which is a duplicate.


For more detail of Rebate Structure, click below:

http://www.dbs.com.sg/posb/cards/everyday/partners/



2. Best Credit Card for Petrol and Dining- Citibank Dividend Platinum Mastercard

This card offer 5% rebate on top of any on-site discount and you can use it with any petrol station company so you only need to hold one card. Please read my blog on Best Credit Card Discount for Petrol.

On top of that, this card offer at least 2% rebate on any dining expenses except food & beverage spend withing hotels and wedding banquets held in hotels.

Best part of this card is you will also earn 0.5% cash back on all your other purchases. That's on
top of the exclusive discounts and privileges you'll already enjoy as a
Citibank credit cardmember.

For more detail of Cashback Structure, click below:

http://www.citibank.com.sg/SGGCB/APPS/portal/loadPage.do?path=/prod/sub_det/cc_xx_divplat_cashback.htm&tabId=Credit%20Cards

Best Credit Card Discount for Petrol

Today, I came across a website - Petrolwatch Singapore which I think is very useful to save some dollar in your Petrol by using the right Credit Card. I have posted my comment as follows:

"I am a long time user and also a hardcore user of Citibank Dividend Platinum Mastercard. I strongly recommend this card if you pump ExxonMobile petrol. I notice many have question on the extra 3% rebate, it is true because it is reflecting in my bank statement monthly. I do not know how the total discount of 12.6% come about but according to my own calculation, it should be 13% from 5% on site discount + 5% rebate + 3% extra rebate. Not to forget that with ExxonMobile SMILE card, every 300 Smiles Point can redeem $10 worth of petrol but I strongly suggest that you accumulate up to 750 Smile Point to redeem $30 worth of petrol instead! Now add up all the benefit and don't you agree this is good value? Visit my blog @ teaengpeng.blogspot.com for more detail on this card. "

Will AIA Bankrupt? - Part 2

Even much assurance from the media and MAS, client who holds AIA policies is still very concern. I decided to post a follow-up topic on this issue. Please bear in mind that this is only my personal opinion and might not be suitable for your circumstances.

I personally hold AIA policy and I am not surrendering due to the following reasons:

1. I normally will not act when the dust is not settled which I think is the most dangerous thing to do. It is like lost in the Jungle and the more you panic, the more lost and wrong decision you will make. But, now is pretty clear that I will not surrender because AIG is bailed out by US govt and US govt is the biggest stake holder now which means unless US govt is also collapsing, else the company is safe.

2. You may also lost faith in the US economy and government, but there are still many countries holding a lot of US currency, so they cannot allow US to fail too. It will take time for the rest of the countries to find an alternative solution with their US currency.

3. Now knowing the chance of AIG collapsing is minimum, let's also discuss what is the worst case scenario if AIG really collapse.

First of all, MAS explained that there are regulatory requirements, ensuring that all insurance companies maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders' funds.

If you are surrendering your Term policy, no issue because there is no cash value anyway meaning you do not get back any money if there is no claim. (Read my blog to know more about Types Of Insurance), your only concern will be "Are you be still insurable?" or "Do you still need the coverage?". If the answer for is NO, you can terminate your Term Policy.

However, when it comes to your Participating Policy (e.g. Whole Life, Investment-Linked and Endowment) meaning you will get back some money in the event of no claim, then you should consider if your cash value had breakeven? Participating Policy normally took 20 to 25 years to breakeven from your premium paid. If not your plan had not breakeven, you will not get back your capital anyway so what is there to hurry into a lose-lose situation? Perhaps you might be thinking that if you surrender now, you can still get back some instead of none in the event of AIA goes bankrupt. Well that is a valid reason but again let's consider my point 1, 2 and 3 to evaluate the chances. If you still feel uncertain, I rest my case because nothing is more important than peace of mind and to be able to sleep well at night.

4. I am not AIA agent and I do not need to put in good words for them. I am just a policyowner of AIA which I still have faith in and most importantly I am a believer of diversification. I own insurance from various company for their different coverages and features, which also provide diversification of insurance fund performance. That could be another reason why I am not as worried compare to those who only own AIA policy.

P.S. I have found this interesting link from MAS website where they post all their replies to the media as follows:

http://www.mas.gov.sg/news_room/letters_to_editors/letters_to_editors_index.html

You can also read the Insurance Act put in place to protect the consumer in the following link to see if you are comfortable:

http://www.mas.gov.sg/resource/legislation_guidelines/insurance/sub_legislation/FG(Amdtm)Regs.pdf

If any of the link is broken, you can inform me or do a google search yourselves.

*Revised 5 Oct 2008*

Found this interesting link where Dr Money commented on this issue in The New Paper on Sun, Sep 21, 2008 Titled "One in a Billion"


*Revised on 3 May 2008*

Found this interesting link from Mr Tan Kin Lian's blog on this topic: http://tankinlian.blogspot.com/2008/09/is-your-money-safe-with-aia.html

Will AIA Bankrupt?

As the recent financial market is tensing up, I decided to put on hold my 5 Part series on Insurance for the time being and address the more pressing financial issue.I have receive a few call from my client on the outlook of AIA (although I am not an AIA agent) which I have explained as per the following article I found in Channel NewsAsia so I decided to post it here instead of repeating myself. :-)

MAS urges AIA policyholders not to terminate policies hastily

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/376283/1/.html

In summary:

MAS explained that there are regulatory requirements, ensuring that all insurance companies maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders' funds. Within these funds, insurance companies must maintain sufficient assets to meet all its liabilities to policyholders, which include participating policies and investment-linked policies.

My conclusion:

AIA is just going through a downgrade of rating but even if they are rated A or worst still to B rating is still consider financially strong. The reason why many people panic is because this news is place together with Lehman Brother declaring Bankrupt and Merrill Lynch sold to Bank of America, so subconsciously everyone think that AIA is also near to bankrupt which is no where found in the news. In fact one of my friend from AIA recommend me that this might be a good time to buy AIG share at discount. However my take is in current market condition, nothing is impossible with the two financial giant in such a bad shape. :-)

Quote Of The Day

"Never reject or give up a good idea too early because even the best idea need time to implement and refine based on your circumstances"

Types of Insurance and Coverage - Part 2

Confused by all the plan out there and bombard by your advisor with all the bombastic words or terms?

Here is what I have promised to deliver - Simple example and layman term to understand the complex product. In order to provide you with a clear picture so that you can make an informed decision, I'll break this Topic into 5 Parts, so read on.

These 5 Part Series are written in a way where you can analyze for yourself base on the non biased information provided ( Both Benefit and Limitation are highlighted). You can then determine for yourselves whether this Financial Product suits your circumstances, characteristic and requirement. I will also provide a summary in Things to Consider to further simulate your thinking.

Note: My 5 Part Series on "Types of Insurance and Coverage" are NOT written with the objective to provide answer but rather provide simulation for your thinking and to analyze.


Part 2

We shall explore the first 2 Types of Insurance Plan in this Part 2 of 5.

1) Term Insurance

Description:

I call this a TOTO plan. It "Strike" which pays if something happen to you (depending on the Types of Coverage you add to this plan) and the insurance company will take your "Bet" which is your premium if nothing happen to you. Generally you can buy this plan for a certain number of years e.g. 5, 10,15, 20, 25 or even up to 99. (Just like your TOTO, you can buy your favorite numbers for just one day or you can buy for one week and even lifetime!)

Benefit:

a) The most economical Type of Insurance - Low Cost, High Insured Amount. Most of the time cost only a fraction e.g. 1/10 of the other Types of Insurance with the same insured amount.

b) Mainly for someone with a budget issue or for boosting temporary coverage e.g. covering the extra liability of 20 to 25 years when there is a new born baby in the family or just personal income protection up to retirement age e.g. Age 65.

Limitation:

a) No surrender value or cash value. Meaning you do not get back any money if you terminate the plan by choice (e.g. you write in to terminate or the term of coverage ended) or by mistake (e.g. forgot to pay premium). It is very common that people terminate this plan by mistake because they were either too busy with their life and forgot to pay the premium even after the grace period which insurance company normally offer or might have change bank account number without re-activating their GIRO instruction. All it takes is just one carelessness out of the 20 or 25 years of term that you chose to cover and the plan is terminated!

b) Inflation will shrink the value of the money. E.g. $100,000 in 25 years down the road is only worth about $29,530 of today purchasing power base on a modest 5% p.a. inflation rate (Current inflation rate is already more than 6%). Just like you can buy a bowl of noodle 25 years ago at less than $1 but now you will need averagely $3.50 to buy a bowl of noodle.

Things to Consider:

There are various Types of Term Plan available in the market e.g. Decreasing Term or commonly known as Mortgage Insurance, Increasing Term, Natural Premium Term and Level Term for your consideration which I'll explain one by one:

a) Decreasing Term or Mortgage Insurance is a Term Plan that will reduce in Insured Amount yearly base on the selected inflation rate but premium remains the same throughout the Term of Coverage. Commonly use for covering the outstanding loan of a property. This is the lowest cost term plan compare to the rest of the Term Plan.

b) Increasing Term is a Term Plan that allow increase in Insured Amount yearly with increase Premium to hedge against inflation. For people who still prefer Term for their overall planning but wish to keep up with the inflation as "Buy Term Invest The Rest" (BTITR) is getting popular.

c) Natural Premium Term, which is also know as Yearly Renewable Term, is a Term Plan that will increase in Premium yearly while the Insured Amount remains the same. This feature can also be found in an Investment Link Policy. For people who do not want to pay anything more than they need and calculate to the last cents worth, this plan might suit them in some circumstances. ( Read: http://www.waynekoh.com/2008/08/saf-group-term-insurance.html )

d) Level Premium Term is a Term Plan that both Insure Amount and Premium remain the same throughout the Term of Coverage. This is the most commonly available term plan in the market where most agent / adviser will market due to easy explanation and for the client to understand. For everyone who find a standard no frill Term Plan is the solution to their Financial Planning and Risk Management.

Is "Buy Term Invest The Rest" (B.T.I.T.R) a good strategy? We will discuss this in future article and not here.

2) Endowment

Description:

Endowment is basically a "Saving Plan" where you choose a Period or Term to save e.g. 5, 10, 20 or even 30 years and will pay you a lump sum of money (Normally capital plus interest) when the Period or Term ends.

Benefit:

a) Force Saving for those who need a little penalty to help them resist the temptation of spending away the critical sum of money which they had finally accumulated.

b) Mainly for people who are risk adverse but wish to have better than bank saving return over a period of time with a specific purpose on the use of the maturity money e.g. To accumulate enough fund to start a business, go on a dream vocation or buy the dream car at age 40 but more commonly use as Education Funding for the child.

Limitation:

a) The most Expensive types of insurance where you pay the highest premium to get a low Insured Amount. If Protection is your concern, then this plan is definitely out of your consideration as you can insure a much higher amount with a Term Plan, Whole Life Plan and even Investment-Link Policy with the same premium.

b) The main bulk of the bonus is only given at the end of the Period / Term and Insurance company have the right to adjust the bonus rate or even remove it totally due to adverse economy. That is the reason why it is so important to ensure this kind of plan to have a high guaranteed return than the variable bonus.

Things to Consider:

There are various Types of Endowment Plan available in the market e.g. Pure Endowment, Anticipated Endowment and Single Premium Endownment for your consideration which I'll explain one by one:

a) Pure Endowment is a standard no frill type of Endowment where you can only get back your money with interest at the end of the chosen Period / Term. Any early termination of the plan will substantially set your financial position back by many years as you might not get back your capital even!

b) Anticipated Endowment is a modified Endowment Plan where you can start receiving money call "coupons" from 2nd years onwards base on 5% or 10% of the Insured Amount depending from company to company. Some company pay "coupons" every year from 2nd years onward, some pay every two years. Some even pay every five years but not as common and useful compare to the prior. The "coupons" paid can usually be re-invested or be withdrawn anytime to provide flexibility for people who like to play safe so that they will not be caught in the event of poor cash flow.

c) Single Premium Endowment is basically an Endowment Plan that accept single lump sum to be invested instead of investing regularly. This is different from paying premium in advance which most types of insurance plan allows. For people who had inherited a sum of money or wish to set aside a lump sum of money for retirement without taking taking too much risk. This type of Endowment generally break even faster compare to Pure Endowment and Anticipated Endowment.

Is Endowment the best plan for Education or Retirement? We will discuss this in future article and not here.

Types of Insurance and Coverage - Part 1 (Overview)

Confused by all the plan out there and bombard by your advisor with all the bombastic words or terms?


Here is what I have promised to deliver - Simple example and layman term to understand the complex product. In order to provide you with a clear picture so that you can make an informed decision, I'll break this Topic into 5 Parts, so read on.

These 5 Part Series are written in a way where you can analyze for yourself base on the non biased information provided ( Both Benefit and Limitation are highlighted). You can then determine for yourselves whether this Financial Product suits your circumstances, characteristic and requirement. I will also provide a summary in Things to Consider to further simulate your thinking.

Note: My 5 Part Series on "Types of Insurance and Coverage" are NOT written with the objective to provide answer but rather provide simulation for your thinking and to analyze.


PART 1


There are basically only 5 types of insurance and coverage, but don't mix up between the Insurance and the Coverage.


5 Types of Insurance are:

1. Term


2. Endowment


3. Whole Life


4. Investment-Link


5. Annuity

5 Types of Coverage are:

1. Death


2. Disability


3. Dread Disease or Critical Illness


4. Hospitalisation


5. Accident

Quote of the Day

"Never take a short term solution for a long term problem"

Quote of the Day

"The best insurance plan is the one that you already own no matter how expensive it is because the cost of not owning one is even more expensive"

Private Shield Plan Comparison

Tired of finding a good review for shield plan in Singapore?

Why not D.I.Y yourself? I've manage to compile the best private shield plan information and also a comparison done by Ministry of Health for your convenience.

There are only 5 company providing Private Shield Plan in the market currently namely:

1. NTUC
2. AVIVA
3. AIA
4. Great Eastern
5. Prudential

Click on the company's name to get more information on their shield plan. You can also find their policy wording and comparison in Ministry of Health website by clicking the following link:

http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subisdies/Medishield/Medisave-approved_Insurance.html

P.S. Website might change from time to time so please drop me a comment if you find any broken link.

(Revised on 21 Apr 2010)

How Do You Allocate Your Money - Part 2

I have promise in my article "How do you allocated your money" to extend the topic a bit by discussing about the Type 1 and Type 2 people. How these two types of people should allocate their money for financial success.

If you have read my previous blog, you'll notice that Type 1 people belong to those who always overspent while Type 2 people are those who will spend first and save the rest if there is any balance.

Both type belong to unsystematic type of people and most of the time only live by today freely. They either do not really care for the future as future might not come or their earning is too little but there is so much things that they want to spend. With the easy access of credit card, people start to spend future money and that is how they got trap in the cycle of debt. Rolling bigger and bigger like snowball.

There are two things that this two types of people need to do:

One, set up a systematic saving program no matter how small the amount might be. Start from $1 a day in the piggy bank that is kept by your trusted family member or $30 a month by transferring from salary account to fixed saving account that require two signature before you can draw out your money and no ATM Card please. When you start to feel the habit of saving and getting use to it, increase the amount to $2 a day or even $100 a month on top of what you are already doing.

If both ways still can't work, buy an insurance plan that give your money back after certain number of years. A hundred percent sure work way because if you withdraw your money half way, you are not getting much back. Hahaha!

Second, cut your credit card into two pieces and consolidate all the debt (if any) to one bank or financial institution. Try to negotiate a best term for repayment. Develop a habit of asking this life saving question: "Do I have the ability to pay back if I take a loan now?" If you do not have ability to pay back, do not borrow in the first place because you problem will grow bigger instead of smaller.

If you really need to borrow, have the commitment to pay it back regardless is from friends, family members, banks or financial institution. What people scare most is that you borrow and don't show up. If you dare to show up in front of them and keep telling them you are going to pay them back, people are more willing to believe you than those that always hide and never show up. (Please make sure you really pay them back bit by bit every time you see them and not just keep telling them that you will return them money but no action!)

If you follow the above two steps diligently, your self-esteem and finance will definitely improve tremendously. Your problem will be gone before you know! Never take a short term solution for a long term problem!

How do you allocate your money?

I had a breakfast meeting with my friend one day and he asked me how one person should allocate his money.

I thought this is an interesting topic to post here so that everyone can benefit.

There are 3 types of people in this world:

Type 1: Spend more than they earn

Type 2: Spend all their income and save if there is any balance

Type 3: Save first then spend the rest

We'll discuss Type 3 people today since they will be the only group of people that have predictable and regular saving to fund a proper financial plan. (I'll discuss Type 1 and Type 2 of people separately.. do keep a look out on that!)

Given an ideal case, one should save at least 50% of their total income and spend the rest on their living expense but in reality, if you can save 30% of your total income and spend the rest, you'll be in the above average group.

Let says you can save 30%, how should you allocate the saving?

1) Save 10% for liquidity meaning in banks or other safe instruments (e.g. Money Market Fund)where you can withdraw your money for emergency or during retrenchment. How much will be enough for this portion? Normally ranges from 6 months to 2 years of income depend on how much you feel secure. However you should continue to save this 10% even after you meet the 6 months to 2 years limit, so that you can channel it to other resources when the timing are right. E.g. Cars, Education, Property or even Business Opportunities.

2) Save 10% for investment. This investment can be in liquid asset or fixed asset.
- Liquid asset means Equity like stock and shares, unit trust, fixed deposit etc.
- Fixed asset means Property, Art Work, Gold or other Collector's Items.
This portion will help you to grow your money to fight against the silence killer called "Inflation"

3) Last but not least, most people do not like to do or never thought of doing is to save the balance 10% for your insurance. This 10% of your saving is use to protect the other 90% of your monthly income and your future potential income.

Hope this piece of information is useful to all my reader!

Until my next blog... all the best things happen!

What you need to know about your CPF Part 1

Do you know that your CPF can't be passed on by Will?

A nomination must be made in order to pass on the money to your beneficiary. A number of CPF members who died more than two years ago have left behind $2.1million that remains in Government hands - all because they failed to make a nomination! Yet it's as simple as filling out a form. CPF monies are an asset that passes on according to CPF Act, and not according to what you dictate in your will.


What you need to know:

You must nominate beneficiaries using the CPF Board's nomination form, not through a personal will. (You can either download from the CPF website or the easier way will be dropping me an email and I will send the form to you.)

You cannot give away specific items, for example, Economic Restructuring Shares. You can only specify a percentage of your total CPF assets, for example, one-third or 50 per cent, to be left to a beneficiary and another percentage to another.

You can nominate organisations as beneficiaries as long as they are registered as legal bodies.

The nomination form must be signed by two witnesses who are not your nominees and are above 21 years of age, of sound mind, and not nominees. All three of you should be signing in the presence of one another at the same sitting.

It is wise to nominate more than one person. If the primary beneficiary dies, your CPF monies will flow in a pro-rated manner to the secondary beneficiaries.

Be sure to review your nomination regularly especially pertinent . You must make a new nomination when you marry or re-marry (in which case your nominations will be automatically revoked), divorce, or when a beneficiary has passed away.

To ensure speedy claims, your beneficiaries should submit to the CPF Board your death certificate and marriage certificate, if applicable. The investigations and processing take about three months.


What are covered under CPF nomination and what are not:

Your beneficiaries will get the following assets in cash either via cheque or direct credit into a bank account:

1. Sums in the Ordinary, Special and Retirement Accounts;
2. Sums insured under the Dependent's Protection Scheme,
3. Discounted SingTel shares
4. Fixed deposits under the CPF Investment Schemes,
5. Economic Restructuring Shares.

But the following, not covered by the CPF nomination, will form part of your estate to be distributed according to your will or Intestate Succession Act, which covers persons who died without leaving legal wills:

1. Cash and investment under the CPF Investment Scheme ( both Ordinary and Special Accounts )
2. Immovable properties bought with CPF monies,
3. Shares bought under the DelGro shares scheme, and New Singapore Shares.

*Note: All the above discussed are base on Singapore context only.