Tuesday 19 August 2008
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"
Tuesday 12 August 2008
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.
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.
Thursday 7 August 2008
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:
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:
- Term
- Endowment
- Whole Life
- Investment-Link
- Annuity
5 Types of Coverage are:
- Death
- Disability
- Dread Disease or Critical Illness
- Hospitalisation
- Accident
Tuesday 5 August 2008
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"
Monday 4 August 2008
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)
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)
Saturday 2 August 2008
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!
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!
Friday 1 August 2008
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!
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!
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