Basics of Insurance

Basics of Insurance

Written by Letitia Jinghui Lean, edited by Jackie Tan and How To Adult. This was a guest post for How To Adult.

Self-sufficiency, or in easier terms, being able to cover your own ass just in case. What else does this remind you of? Yup, you guessed it – insurance. Think about having insurance as the ability to build your house from the ground after it gets blown away by the big, bad wolf. With insurance, you’ll save yourself the monetary stress!

7 Ways Couples Can Manage Their Money Without Fighting

Manage money without fighting

Written by Daniel Tay, edited by Jackie Tan. 

Getting together as a couple presents not only a new lifestyle, but also new ways on managing their finances together. It is said that couples often prefer to manage their money like how their parents did. However, a couple’s unique situation may require a style different from their parents’. Money is a huge factor in a couple’s relationship, and managing them is a key to either breaking or making it. In this article, we present seven ways of managing a couple’s finances.

#1 To Each His/Her Own

Each person handles personal finances in separate accounts.

Barry is a widower whose ex-wife had cancer. To pay for her medical expenses, Barry depleted his savings, borrowed heavily on his credit cards, and took personal loans. While paying off his debts, he enters into a new relationship with Iris. They want to buy a property together. However, Barry might be unable to take any loan, having maxed out his borrowing facilities. Barry and Iris keep their finances separate until his finances become healthier.

This way also works when:

  1. One party’s finances are much more complex than the other, e.g., one party has multiple sources of income
  2. One party has secrets to hide
  3. Mutual trust is lacking between the two
  4. Both parties spend money very differently or are unsure of their long-term commitment to each other

What is required:

  1. Simple financial planning
  2. Sophisticated estate planning, due to individually owned assets

2) What’s Mine Is Yours

Combine all finances in joint accounts.

Young adults Harry and Gwen have been dating for years. They have similar personalities, hobbies, and life goals. They do almost everything together. Each cares deeply for the other’s family. As they make similar financial decisions, they decide to combine their resources in a single account.

This works when a couple:

  1. Want to seal their long-term commitment to each other
  2. Have shared hobbies, combined financial goals, and straightforward finances
  3. Are close to their families
  4. Have mutual trust

What it requires:

  1. Sophisticated financial planning
  2. Simple estate planning with joint ownership of assets
  3. Open communication about each other’s spending

#3 You’re My Equal

Each person owns an account and contributes equally to a joint account.

In Diana’s family, the women are strong-willed. In Steve’s family, men make the decisions. Unable to agree on their money management, Diana and Steve hold separate accounts. However, they need to pay for their house and daily household needs. They pay for these expenses from a joint account to which they contribute equally.

This works when a couple has:

  1. Some combined financial goals, but want some independence.
  2. Roughly the same income
  3. Moved in together and have shared household expenses or shared savings goals.

What it requires:

  1. Complex financial planning and estate planning

#4 I Pay, You Save

One person pays for everything. The other saves/invests all of his/her income.

Scott and Jean want to take up a full-time university course, but cannot do so simultaneously. They first accumulate savings, living on Scott’s earnings and saving all of Jean’s earnings. After building their savings and emergency fund, Jean goes for full-time study. By now, they are used to living on Scott’s salary. When Jean finishes her studies, she finds a job with income roughly equal to Scott’s salary. Scott then goes for his further studies.

This works when:

  1. One person earns much more than the other
  2. A couple goes single income in future, as it disciplines them to survive on one person’s income

What it requires:

  1. An income replacement plan for the one whose income pays for all the family expenses, in case she/he becomes unable to work
  2. Family emergency fund
  3. Disciplined spending
  4. Budgeting for leisure

5) The Fair Treatment

Each person contributes an amount proportionate to his/her income.

Henry, a scientist, earns a stable income. His wife Janet starts an interior design company. At first her projects are intermittent. Some months she earns nothing. Hank contributes more to their shared account. Janet contributes when she can. When Janet’s business flourishes, she takes over contributing more to pay for their shared expenses.

This works when:

  1. One person’s income is much higher than the other’s, and he/she is uncomfortable with the other contributing the same amount.
  2. Both have different lifestyles.
  3. One party is switching career, or starting a business.

6) Pay As You Use

Each person pays for the products/services that he/she use more.

Peter is a photojournalist. Mary-Jane is a fashion model. To look her best, she uses beauty products and services. She pays for their magazine subscriptions, including her beauty magazines and Peter’s photography journals. Peter buys cameras, lenses, computers, and photo-editing software. He pays for the family computer and related online services.

This works when one partner:

  1. Does not want to pay for the other’s hobby
  2. Has an expensive hobby, like shopping, collecting luxury items, travel etc
  3. Uses a household service much more than the other e.g. internet, cable TV, garden services, etc

7) The Japanese Method

One person holds all the money and gives the other an allowance.

Clark comes from a rural Indian village. He came to Singapore to work in a tech company. His wife Lois, a homemaker, grew up in Mumbai and immigrated to Singapore. Knowing little about finances, Clark gives his monthly salary to Lois who makes the financial decisions. Lois gives Clark a monthly allowance.

This is useful when only one party knows how to manage money.

Risks:

  1. If the one managing the money becomes unable to do so, the other could be at a loss as to what to do.
  2. If the breadwinner manages the money, the other might feel a power imbalance in the relationship.

What it requires:

  1. An income replacement plan for the breadwinner, in case s/he becomes unable to work
  2. Family emergency fund
  3. Insurance for the non income earner because if he/she falls ill, becomes disabled or gets into an accident, the breadwinner may have to pay for others to look after the children and household or take time off and a pay cut to do it

At the end of the day, each couple has to decide which method best suits their preference and situation. A couple does not have to stick with one way all the way, because situations do change. And these methods are not mutually exclusive as different ways can be combined for certain situations. In addition, couples should seek the advice of a holistic financial planner to optimize their assets.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Basics of Financial Planning

Basics of Financial Planning

Written by Letitia Jinghui Lean, edited by Jackie Tan and How To Adult. This was a guest post for How To Adult.

Nothing in school ever prepares you for the tsunami of responsibilities that come with being an adult, you just get mercilessly thrown into the deep end. Suddenly, you’ve got bills to pay, budgeting to do, insurance to set up, and many other responsibilities that keep piling up!

And that’s only the tip of the iceberg.

The key is to take things one at a time, and breathe. In this article, we’re gonna simplify the mind-boggling concept of financial planning and provide baby steps you can take to set yourself up for financial success in the future.

Huh, simi ‘financial planning’ ?

It’s preparing for your future through evaluation of your current pay and desired financial future. By setting short-term and long-term goals, you’ll be better equipped and motivated to make good financial decisions and accumulate the wealth you need to meet said goals.

You could also think of it as building a house. A solid foundation is needed before everything else falls into place. Good financial planning also gives you that stable base, from which you can build your fortune to protect yourself and your family from the different types of personal disasters.

So, where do I start?

It is important to strategise. It is also equally important to remember that your strategy shouldn’t be set in stone. Your strategy should be up for re-evaluation and revision to match with the changing conditions throughout the years. You could start by:

Step 1: Determining your current financial situation

What is your current financial situation? This refers to your income, savings, expenses, debts and loans. If you are unsure, ask your parents – they’ll be sure to help! It’s good to have these information written out.

Step 2: Deciding on your financial goals

What do you wish to accomplish or own? It goes beyond saving money for that big-item purchase. Talk to your family or partner to get their advice. Ultimately, only you can decide on your goals and differentiate between your needs and wants.

Step 3: Identifying possible courses of action and alternatives

How can you achieve your goals? Here is where you become well-versed with different strategies. You could evaluate the benefits and risks of various solutions, and even get some answers from the Internet.

Step 4: Implement your financial action plan

When can you start? It’s time for you to select, plan and take action. Consult your financial advisor as they could speed up the process and help you make better decisions too.


If all these seem overwhelming, that’s because it is. It isn’t the easiest thing in the world, cus’ it actually takes plenty of time, effort and commitment – but it’s all for a better future.

In order to get a head-start on the financial planning process, here are some tried-and-tested strategies that others have used. Some of these points have already been touched on in our other posts, but hey – that just reiterates the importance of it, huh?

Set up a budget

Aha, if you’re wondering what this means, head on over to our ‘5 Budgeting Tips’ article. In this day and age, people still underestimate the impact of this strategy. You’ll be better equipped to cut down on unnecessary expenditure and direct your resources to where you want it to go, when you understand your cash flow.

Segregate your expenses into 3 categories: non-negotiables (eg. taxes, debt payments), important (eg. groceries and bills) and discretionary (eg. entertainment, shopping). You’ll be able to better prioritise – helping you achieve your financial goals!

You could even download free applications such as SeedlyPocket Expense and Expensify to help track your cash flow with ease. You’ll be surprised at how much you spend on unnecessary items! And yes, that refers to that pair of jeans adding on to your collection.

Create an emergency savings fund

As we’ve discussed in our ‘Save Money with 5 Simple Steps’ article, life is unexpected and anything can happen. It’s always good to be kiasu and start saving for that rainy day that could happen at any time (touch wood).

Separate your savings and spendings accounts

As mentioned by Kenneth Lou of Seedly during our Official Launch Party, it’s always good to separate your savings and spendings. You’ll be able to use every single cent of your spendings account, but never from your savings.

Easier said than done, but you could always automate the channelling of your finances into these 2 accounts by setting up a GIRO account. Let the bank do the hard work, while you watch your money grow! Thank you, compound interest.

You should aim to allocate less than half of your monthly salary to your spending account for all fixed and variable expenses (eg. bills, food, and entertainment), and the remaining amount towards your savings and investments. If you’d like to take it up a notch, set aside a small fixed percentage of your salary to invest – and work on making it grow from there.

Get insurance for yourself and your loved ones

As much as we’d like to be – nobody is invincible on this earth. So, if anything happens (touch wood, again), at least you’ll have insurance as a safety net, or a form of financial protection for you and your loved ones.

Get yourself a trusted insurance agent to help you with the purchase to avoid falling into the pitfalls and deathtraps of greedy money-sucking institutions. Or even suspicious ‘friends’ who are suddenly invested in your life and want to treat you to coffee, upon graduation.

Read financial websites

Get acquainted with websites such as Seedly and DollarsAndSense and don’t be afraid to ask for help! Yes, even those chat-bots on websites can be quite useful. Educate yourself to become financially literate, so as to be able to make better decisions as well.

Whether you’re a hustling millennial working hard to attain your dreams, or just plain sian about adulting – look for a trusted financial advisor. They should able to help you understand and work out the nitty-gritty details of good financial planning.

When the going gets tough, the tough get going! The earlier you start on financial planning, the faster you’ll be able to meet your goals and achieve your dreams. Go ahead, it’s time to turn those dreams into a reality.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

The Pros and Cons Of Buying An Endowment Plan In Singapore

This article first appeared on DollarsAndSense.sg

Commonly sold by both insurance agents and personal bankers, people in Singapore have varying degrees of understanding when it comes to endowment plans, sometimes, even after they have bought one.

Even among finance professionals, there may be different understanding of what an endowment plan is, and isn’t. Some advisors may look at endowment plans as a type of “forced savings”. Others may think of it as a tool for investment, while some may see it as an insurance policy.

In this article, we will look at some of the pros and cons of an endowment plan.

As there are many different types of endowment plans in Singapore, all of which, offering its own advantages (and of course, disadvantages), do note that our article may be a generalised take on the category as a whole.

Also, any reference we make in this article to actual products is simply for the purpose of education, and in no way, representing our approval or disapproval of these products.

Let’s start with some of the pros.

Pros Of Endowment Plans:

#1 Guaranteed Returns

Compared to investing in the stock market, endowment plans generally come with some form of guaranteed returns. As long as you pay all the committed premiums and hold on to the policy till maturity, you will receive the guaranteed returns.

Here’s an example based on the AIA Smart Growth (II).

Source: AIA

The illustration above is self-explanatory. The policyholder will have to commit to the annual premiums of $2,483.60 per year for 12 years, paying a total of $29,803.20. The policy matures after 21 years. If the policy is held till maturity, there is a guaranteed return of $35,000.

In other words, the minimum amount the policyholder will get is $35,000, regardless of the performance of the market.

If you were to invest on your own, there is no guarantee that you will be able earn additional returns, or even retain your principal. In extreme cases, you may even lose your entire principal.

#2 Non-Guaranteed Returns

Non-guaranteed returns can be seen as both a pro and a con. For now, let’s look at it as a pro.

Compared to other instruments such as savings accounts and fixed deposits, endowment plans are able to generate higher, non-guaranteed returns for their policyholders. These non-guaranteed returns is dependent on the performance of the insurer’s participating fund.

For example, in the case of the AIA Smart Growth (II), policyholders will earn an additional return of $19,028, if the participating fund achieves a long-term annual return of 4.75%.

The ability to generate additional, non-guaranteed returns, makes an endowment plan more attractive than a regular fixed deposit. This is especially so if the guaranteed returns from the plan already provide a similar return to what fixed deposits would be giving. In some sense, it’s almost like getting the fixed deposit returns plus a “bonus” non-guaranteed return, subject to the performance of the insurer’s participating fund.

#3 Some Insurance Coverage

Most endowment plans provide some form of insurance coverage as part of the overall benefit of the plan.

For example, Great Eastern provides a Flexi Endowment plan that offers coverage against death, terminal illness or permanent disability for the duration of the policy term. This provides some form of insurance coverage, on top of both the guaranteed and non-guaranteed benefits offered by the policy.

This is in contrast with regular investments that do not provide any insurance coverage in the event that a person passes on, even while they are investing for the future of someone important to them.

As such, endowment plans are popular among parents who would like to save and invest for their children’s education, since there is a guaranteed fixed amount given to their child, regardless of what happens in the future.

Cons Of Endowment Plans:

#1 Guaranteed Return Does Not Equate To Guaranteed Principal

One misconception to avoid when buying an endowment plan is to be assuming that the premiums you pay for the policy would automatically be guaranteed, and that you will receive all of it back, plus some extra, when the policy matures.

This is not always true. And you need to understand this for yourself to avoid major disappointment in the future.

Here’s an example based on a Straits Times article.

Source: The Straits Times

From the benefit illustration above, you can see that while premiums paid to date is $200,378, the guaranteed return at maturity is only $189,000. This may not look too attractive for a person who buys an endowment plan hoping to get guarantee returns from it.

At the same time, the death benefit in the example above is substantial. If death occurs during the policy term, a payout of $189,000 is given. In a way, the lower guaranteed payout is somewhat balanced off by the fact that there is significant insurance coverage during the policy term.

At the end of the day however, you need to ask yourself what is the reason for buying an endowment plan in the first place.

#2 Long Commitment Period

Typically, most endowment plans tend to have a period of between 10 to 20 years where you have to stay committed to the plan. This means 1) making prompt payment on your premiums and 2) not surrendering the plan.

Penalty for early termination of your endowment plan can be very costly. If you surrender your policy within the first few years, you may even get nothing back from your policy.

In our view, if you are unsure of whether you will be able to commit to the entire duration of an endowment plan, you would be better off just using a savings account and to do your own investing.

#3 Actual Investment Returns Are Lower Than Long-Term Returns Earned

Lastly, you should remember that the projected investment returns earned by an insurer’s participating fund does not equate into the actual return that you will be getting from your endowment plan.

For example, in the case of the AIA Smart Growth (II) plan, if the participating fund achieve an investment return of 4.75% per annum, the actual return to policyholder is 3.85%.

Endowment plans offered by different insurers will have their own benefit illustration. For example, here is an illustration extracted from NTUC Income.

Source: NTUC Income

Long-Term Average Return: 4.75%

Actual Return To Policyholder: 2.99%

By now, we hope that you understand enough about endowment plans to know that this does not mean the AIA plan is better than the NTUC Income plan, just because the spread is smaller between achieved returns and actual returns.

Rather, the two policies are not identical and hence, a like-for-like comparison is not possible.

Our point here is that if you are intending to buy an endowment plan for investment purposes, you should know for yourself the difference between long-term average return achieved by the insurer, and the actual returns that you are going to get.

Otherwise, you might unknowingly be buying a product that is more insurance-based, rather than one which is investment-based.

Summary

Here are the pros and cons of an endowment plan which you should fully understand before you even consider a policy.

DollarsAndSense.sg is a personal finance website that aim to help Singaporeans make better financial decision.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Here’s What You Need To Know Before Selling Off Your Endowment Plan

Thinking to sell endowment plan

Endowment buyers typically belong in three different groups. People who:

  1. forgot why they bought it
  2. know why they bought it
  3. didn’t know why they bought it

If you belong to the first group, go dig your storeroom for your policy and recall why you bought the plan in the first place. Go ahead and contact your insurance company to update the benefits illustration and see if it still aligns with your financial goal. On the other hand, if you belong to the second group, well done and we hope you’re on track to achieve your financial target. Lastly, if you belong to this group, you’re most likely confused and frustrated since you are paying regularly for something you weren’t sure of. Typically, members of the last group of consumers would have the strongest reasons to sell since it is a pain on their cash liquidity.

Endowment plans are like marmite

Endowment plans can evoke quite strong feelings of either hatred or love. When used properly at the right time in your life, it is a good way of saving over a period of time to achieve certain financial goals upon maturity. However, when used inappropriately at the wrong time instead, you end up paying the premiums begrudgingly   with seemingly no end in sight.

In our previous article, we mentioned that selling your endowment plan is a viable option if you want to get out of this expensive ride. It’s a decision that can help you make the best out of the worst of situations. For the kiasi and concerned consumers, fret not – it’s perfectly legal.

While it is a relatively fuss-free experience to sell your endowment (based on real-life accounts), you should nonetheless take note of a few things. In this article, fundMyLife shares several things you need to know before you sell your endowment plan.

How long more before your plan hits a (meaningful) milestone

It sounds like a bad question, but can you afford to hang onto the plan? If you’re selling it because you have a sudden expense, debt, or lack of liquidity, it is truly understandable and you should strongly consider selling it. However, if you can afford to hang on to it just a bit more for a couple of years, you might lose relatively less; the percentage gap between premium paid and surrender value closes as it approaches maturity.

In addition, there is a point in your endowment plan called the break-even point. It is a point where the payout value is equal or almost equal to the total premiums paid. By selling your policy at the break-even point, you can immediately exit and not lose too much money, inflation notwithstanding.

Compare quotes and check eligibility

Buyers often look for relatively more profitable endowment plans that have a few years left before maturity. On top of that, there are currently several companies in Singapore which can buy over your plan so it’s good to compare quotes unless you’re in a great hurry for the money. In addition, these companies are looking for good returns after all so if your policy’s returns are too low, you have to brace yourself for rejection.

Furthermore, policies which were paid using CPF or SRS are not eligible. If it was, you’d have more people trying to sell their endowment plan to get CPF money out. Hahaha. No.

Look into insurance protection

Last but not least, after you sell your endowment plan, make sure you have adequate insurance coverage. Chances are, your product might have some protection component built in it. However, now that you’re going to sell it, it’s prudent to check if you need to make up for it in some other ways. You should talk to your financial adviser to discuss your next options. Otherwise, there’s always a handy platform online to ask financial planning questions (hint: it’s us).

Once all that is done, don’t forget to cancel any automatic premium payment if you set up any standing instructions with the banks. That’s all we have for now – all the best.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Is Time Really Money? The Real Cost of Excessive Spending

fundMyLife explores the opportunity cost of money

Written by Kartik Goyal, edited by Jackie Tan.  

Opportunity cost! Most of us know it, almost everyone has heard about it – that feeling of wasting money never sinks in completely. It all seems like a wild claim that an excessive spending of just $10 a month is really a $74,000 loss for your retirement fund. In this article, we find a new way to put things into perspective.

Let’s do some (simple) math!

An average person’s lifespan is 82 years in Singapore. On top of that, assume that an average person spends 22 years acquiring his/her education. Additionally, another simple assumption is that a person spends 8 hours a day sleeping, another 8 hours to themselves that do not account for working hours – meals, chores, entertainment, and other activities – and retire by the age of 65. 

After taking everything into account, we are left with just roughly 15 years’ worth of working hours in our entire lives. To put that number in perspective, it’s 5,475 days or 131,400 hours.

At this point, you are probably thinking that that’s a lot of time. Well, the answer is both yes and no. Ideally, the financial aim of an adult is to live at a similar lifestyle after retirement, if not more luxurious which unequivocally depends on your current lifestyle and the one you will adopt in the coming years. This also means you’ll require 17 years’ worth of cash and investments by the time you are 65 to live to the ripe old age of 82.

Let’s maths even more

Deriving from Singapore’s GDP per capita, 3% increment of salary per annum, and a significant promotion and salary bump every 5 years, we estimate that a person will make an average of $51 per hour throughout their career. That’s around $8 million in total (absolute value, not adjusted for inflation or interest). Reading the last sentence would have made you proud of yourself already. You are already tempted into a little celebratory splurge on yourself, with perhaps an ice-cream?

Say a tub of ice-cream tub costs $5 – that’s around 10 minutes of your working life. Now, if you estimate that you buy one such ice-cream every month throughout the course of your working life, the total would be $3,060. If you were to put all that money and its subsequent returns in savings each month, you would accumulate around $19,000 by the time you retire. To put that number in perspective, it’s almost 610 hours of your working life or around 25 days in ice-creams.

To put simply, a single $5 deposit will turn into $53 over 40 years; that’s 62 minutes worth of earnings (assuming 6% interest rate and biannual compound interval). It might not seem like a lot but, if you think about it, spending $5 might cost you 10 minutes but saving $5 dollars will salvage more than 60 minutes of your work time, by the time you retire.

mindblown

There’s more! A $30 dinner with friends each month eats roughly 3,600 hours or 153 days of your time. If you drink alcohol, especially in restaurants and spend $50 a month, you’re pouring away almost 6,000 hours (not including the hangovers). Love those $500 pair of Louboutins? Average price, ladies! Don’t shoot the messenger. That’s walking away from 36 weeks in total, assuming you’ll need a new pair of them every year.  

A graph showing the opportunity cost of buying unnecessary things

To appreciate the impact of purchases, we plotted common activities against two things: average cost of activity, and the number of working hours eaten away throughout your life. For example, if you look at the “Restaurant” example from the previous paragraph, it costs $30/meal and 3600 hours of working life.

We understand that scrimmaging expenses is tough, saving as little as a $100 a month can shave off 1.5 years of extra arduous work towards your retirement fund. By all means spend on yourself to stay motivated, happy and content, however a stitch in time saves nine.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Understanding How An Endowment Plan Works In Singapore

This article first appeared on DollarsAndSense.sg

Endowment plans are a common type of insurance marketed and sold by financial advisors. Some of our recent articles have discussed these policies. Previously, we also wrote an article about why Singaporeans can consider using the Singapore Savings Bonds rather putting money in an endowment plan for long-term savings.

Many people we have spoken to varying degrees of understanding about endowment plans. Some consider it a form of investing. Others see it as a savings plan or a hybrid between a saving and insurance plan. And there are those who don’t care what it is, because they have already sworn off these products completely.

Before you think about getting an endowment plan, perhaps it is best to first understand what an endowment plan actually is.

Endowment Plan For Saving

Most financial advisors market endowment plans as a form of savings. The term, “forced savings” is often used in the sales pitch.

When you buy an endowment plan, you can expect to contribute a regular amount to the plan for a designated time period. For example, you may opt to contribute $3,000 a year to a plan for 10 years. Alternatively, there are also single premium plans, where you put in a lump sum amount at the start of the policy.

The length of your contributions may not necessarily be the maturity of your endowment plan. You could be paying your premiums for 10 years and be expected to hold the policy for another 10 years before it matures, giving it a total duration of 20 years.

An endowment plan is frequently used when a policyholder intends to save up money towards some specific financial goals. For example, a 45-year old person who wants to save up for retirement may choose to buy a 20-year plan that matures when the person turns 65.

Endowment Plan As An Investment…

The main difference between an endowment plan and saving money in a bank account is the investment component of the plan.

The insurance company will use the premiums you contribute to invest in range of financial products. The objective of this is to earn higher returns on the money.

A typical endowment plan would usually consist of a guaranteed and a non-guaranteed return. You NEED to take note of this because a financial advisor may skim through the guaranteed portion and focus only on the non-guaranteed portion of the plan.

Guaranteed Return:

The guaranteed portion of the policy is what the insurance company is obliged to return to you, regardless of how badly the investment portfolio has performed.

Typically, if the guaranteed portion is higher, it also translates into the insurance company taking lower risks in their investments. It is also extremely important at this juncture to note that the guaranteed portion of certain policies may be lower than the premiums you have been putting in.

Non-Guaranteed Returns:

The non-guaranteed component of the policy is the additional returns you may receive if the portfolio performs well. The return rates that would be shown in the benefit illustration will be pegged at 3.25% and 4.75% respectively. This is standardised across the industry.

Two things to take note here.

Firstly, these two numbers do not necessarily represent what the insurance company is aiming for or hopes to get. It simply shows how much you will get if the participating fund achieve 3.25% or 4.75%. That’s all.

Secondly, if you do an excel table, you will quickly find that the actual returns shown in your benefit illustration does not tally with the 3.25% or 4.75% returns.

The table below shows the returns you should be getting if you put in $12,053 per year for a period of 5 years, and then hold on to the policy for another 5 years.

Table 1

Table 2 shows the actual return you will get if the fund achieves a 4.75% return in its portfolio.

Table 2

As you can see, the actual returns from this particular policy only gives an actual return of 1.8% per annum back to its policyholder, even though the portfolio gave a return of 4.75%. This is due to the “Effects Of Deduction”.

We won’t go into details of that today. The main thing you need to know is that the portfolio return does not equate to your actual returns, which are usually much lower.

Endowment Plan As Insurance…

Endowment plans may sometimes have an insurance component included. These plans would have a sum assured tag to the policy. This provides a payout in the event of death or permanent disability to the policyholder.

Due to the fact that endowment plans are mainly for the purpose of long-term savings, relying on them to provide coverage would usually be a costly option.

As with all insurance policies, cost of coverage will differ depending on the age, gender and health related issues of a policyholder.

DollarsAndSense.sg is a personal finance website that aim to help Singaporeans make better financial decision.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

3 Ways A Relationship Can Sour in Professional Financial Planning

Purchasing insurance can be quite a scary affair. After all, you’re putting a part of your hard-earned money into protecting yourself from an event that may or may not occur.

Given the fact that clients and their financial planners have to maintain this professional relationship over a long time, it is inevitable that there is a chance that the relationship can sour. How so? fundMyLife explores various ways how things can go awry in client-planner relationships.

Financial Planner Quits

It’s hard being a financial planner in Singapore. Turnover rates are extremely high because of the sales-oriented nature of the job. Apart from the general public’s wariness of financial planners, it’s also quite demoralising to see a low salary for the initial part of the career.

In our own data analysis of LinkedIn profiles and personal accounts from our network of friends, attrition rates are the highest in the first two years. What does this mean for the consumer? It’s a classic story for a client to purchase a policy from someone, e.g., a friend fresh in the industry, and the friend happens to quit afterwards.

In such a case, the client is then left hanging after the company assigns him/her random planner. It is understandable why adopter planners are hesitant to take up orphaned clients. There is little incentive in servicing clients whom you do not earn commissions from. However, it is also heartening to find that there are planners out there who choose to take these orphaned clients out of duty to their calling.

In addition, unless the adopted client makes the effort to contact the assigned planner, the next time he/she requires the help of a planner it’d most likely be when it’s time to make claims. It’s a pain for both the consumer and the financial planner as both would be meeting under times of crisis, e.g., an accident or illness.

Financial Planner Goes to Another Company

Good financial planners are hard to find, and talent recruitment can be quite aggressive. In June 2016, 200 out of 400 financial planners from the Peter Tan Organisation – one of Prudential’s largest group of agency units – resigned, with a group of them joining Aviva’s financial advisory firm. In Sept 2017, around 300 financial planners from Great Eastern joined AIA Financial Advisers.

Under such cases, either of the two things can occur. The first case is the same as a client’s personal financial planner quitting, i.e. be assigned another financial planner from the company. The second case – various government and consumer bodies have expressed this concern – is when the jumpshippers convincing their clients to drop their original plans from the old company and buy new ones from the jumpshippers in their new companies to fulfill their quota.

Bank-Insurer Relationship Ends

Ever received a call from your bank, asking if you were interested in their insurance? That’s bank insurance, or bancassurance, right there.

In theory, bancassurance is not a bad idea. After all, you get both banking and insurance done at the same time. However, what happens when the partnership ends? A member in the Insurance Discussion Group, Chan KH, commented that in these partnerships the bank acts as an agent. The banks work as distribution channels in this partnership, offering bank clients insurance products as well.

Once the partnership ends, the insurer will then take over the portfolio of business servicing from the banks and assign the client to an agency or a group of financial planners. He also recounted how his own client messaged him about a Prudential plan he bought via Maybank in the past; it was not performing, but since the partnership ended the client had to call Prudential itself to inquire more.

Is it all terrible? Not exactly. Especially if you don’t sweat the details and would like to get all of your finances done at the same time. In addition, banks like DBS are getting innovative; DBS incentivizes consumers to purchase/transact their insurance under the DBS Multiplier account to enjoy higher interest rates (we wrote an analysis on it, btw).

You just have to be prepared to be on your own after the bancassurance partnership ends.

What Should I Do As A Client?

If you find yourself under such cases, the best thing you can do is make sure you make contact with the person who is in charge of you as early as possible. Responsible planners, upon leaving the company or industry, will do a proper handoff to the assigned planners. However, in the case of sudden disappearance of planners, your best bet is to contact the main companies’ offices to find out who your assigned planner is.

Hindsight is 20/20, but for those who haven’t found a financial planner yet, it’s important to engage someone whom you know will stay in the industry for a long period of time. Where to find such responsible planners?

At the risk of tooting our own horns, fundMyLife takes pride in conducting numerous quality control measures to ensure that the financial planners that join us are capable, credible, and client-oriented.

If you find yourself in a rut or have a burning financial planning question, come to our site and ask away!

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

MINDEF/MHA Group Insurance: Here Are The 3 Things You Could Be Insured Against

For most local men, their first experience with insurance is during their National Service. Under the Core Scheme, the SAF group insurance is paid for by MINDEF and MHA.

But what happens after ORD? Should these fine young men fresh from NS continue to protect themselves with the Voluntary Scheme? fundMyLife is fond of financial questions and recently we are seeing an increasing number of questions on this scheme. As such, we take a quick look at the plan to see what you could be insured against!

Group Term Life – Death or Total and Permanent Disability

As the name suggests, the Group Term Life covers death, total and permanent disability, advance payment benefit, and daily hospital cash benefit daily for 11th–30th day of hospitalisation.

How much is it? Here’s one of the biggest draws for the plan – the price. When you’re 65 years old and below, you can be insured for $100,000 for $4.10/month and $1,000,000 for $41/month. How awesome is that?

However, the plan is much more expensive between 65 to 70 years old and you don’t get insured after that 70. In the case for $100,000 coverage, the premium jumps from $4.10/month to $70.90/month upon renewal when you’re 66 years old and $1,060/month when you are 70 years old.

Group Personal Accident

The second main plan covers you for accidental injuries, and deaths resulting from accidents. You can be insured for $100,000 for $1/month all the way to $600,000 for $6/month. That said, even though the plan does cover fractures, the limit is $5,000. It’s less for some body parts, where it’s 25% of $5,000 for an arm fracture and 50% for a leg fracture for example.

In addition, as with all TPDs, the requirements to qualify for TPD are very specific – you’d have to lose very specific parts of your body in order to qualify for the claim. It depends if you’re working in an occupation that can lead to such disabilities. Working in a factory with heavy machinery, yes; office work, probably not.

Riders

On top of the two main plans mentioned above, you can also add riders to either for critical illnesses, early critical illnesses, disability income, and/or outpatient Medicare.

On top of the Group Term Life Insurance, you can add a rider that covers critical illnesses using Living Care. Living Care’s cost increases as you age. We will spare you the numbers, but we observe a marked jump in premiums after the age of 45. To illustrate this, we plotted the percentage increase of premiums from one age group to another.

A chart that illustrates the difference of premiums between age groups. The values indicate the difference between adjacent age groups. For example, there is a 16% increase in premiums between the 21-25 y/o age group and 1-20 y/o age group.

That said, as a basic critical illness rider it’s as good as it gets since it covers the 37 critical illnesses out there. You might as well think of getting if you’re getting either of the main plans.

Living Care Plus covers early critical illnesses, but it’s relatively paltry since it covers 10 early critical illnesses compared to other insurers out there. It’s cheaper, but it covers less. In this case, it’s a matter of whether you can afford early critical ilness plans by other insurers out there.

Disability Income is a rider that covers 50% of your basic salary x 12 upon disability, to a maximum of $120,000/year till you’re 70 years old. It’s relatively lower than the usual 75% offered by other insurance companies, but the premiums are relatively lower as well. The premium depends on your age, e.g., $4.13/month/$10,000 sum insured when you’re under 26 years old. Again, like the main plans, it really depends on your occupation and lifestyle.

Outpatient Medicare is a rider that provides coverage for GP consultation expenses. It has two plans: Plan A (Superior) and Plan B (Deluxe) that covers a maximum of $1,000 and $500 per policy year respectively. The premiums depend on age, but is relatively simple. Plan A ranges from $296-376/year and Plan B ranges from $208-260/year.

Things to look out for

So cheap, so affordable! Does the suite of plans sound too good to be true? Well, yes and no. There are certain caveats to be mindful of if you choose this plan.

Firstly, as the name suggests, it is a group insurance plan. It means you don’t truly own the policy and you would lose it when you’re either kicked out or the group disbands. Fortunately, the probability of MINDEF, MHA, or SAF disbanding is highly unlikely. However, it doesn’t mean SAF might not switch the insurer from Aviva to another company and that the T&Cs won’t change suddenly.

Secondly, while the premiums are relatively low, the premiums are not guaranteed and increases with age for some of protection areas. Moreover, as a term insurance, the coverage is until you are 70 years old – what happens after then?

The average lifespan of a Singaporean is 82 years, which means you still need something to fill in the 12-year gap in between. The SAF plan can be an initial part of your portfolio when life is simpler, until when it makes more sense to get a proper insurance plan on top of it as you enter different life stages that requires more, or whole life protection.

Still feeling uncertain?

Unsure if you have enough cover at your age, or wondering if you need anything to complement your SAF insurance? We can definitely help you get some answers. Head on over to our site, ask them, and be connected to the right financial advisers who can answer them!

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Is An Integrated Shield Plan (Hospital Plan) All I Need?

Written by Jonathon Han, edited by Jackie Tan. The opinion series is dedicated to sharing our advisers’ thoughts and opinion on personal finances. Jonathon is a part of fundMyLife, the platform that connects financial planning questions to the right advisers. Interested to contribute? Drop us an email at jackie@fundmylife.co!

It is very Singaporean of us to have a KIASU or cost effective mindset when it comes to doing up our insurance. One of the most common questions that I am often asked is: Is just buying an integrated shield plan (ISP) sufficient?

After all, in the event of sickness, we Singaporeans always have one saying…can afford to die, cannot afford to get sick. So I presume as long as I have a Shield plan, I should be fine?

Yes it is true, hospital bills are usually the biggest INITIAL bill, however we have to factor in other unseen costs, which are often overlooked. It is not in my practice to be fear mongering, I prefer to take a rational approach to sickness while drawing from real life experiences.

What happens when we are sick?

[Seen Cost] We get hospitalized and require medical treatment (ISP covers this)

Yes, hospital bills will be covered by ISP. ISPs are designed to cover catastrophic hospital bills and costs of post-hospital treatment. Your medical bills and post-hospital treatment will be covered in according to the plan you purchased.

[Unseen Cost 1] We lose our ability to work, usually temporary (Immediate loss of income)

When we get sick, it is highly unlikely we would wish to go back to the same stressful environment that caused us to get sick in the first place. We would require a significant amount of time off based on the severity of our illness. The time ranges from 3-6 months of being out of the job for Early Critical Illnesses, to 6-24 months for advanced Critical Illnesses.

Most of us don’t get paid to stay at home to mend our bodies. Hence income replacement is important.

A critical illness plan will give a payout of a lump sum upon diagnosis of early critical illness or advanced critical illness. This money can be used as income replacement while we recover.

[Unseen Cost 2] Some of us will reprioritize our lives and choose to work at a different pace (Potential income loss)

After some of us recover from illness, we might wish to relook our lives and spend time more time with our loved ones, or spend more time enjoying and embracing life. This usually translates to committing short hours to work or changing jobs to something less intense. Most of the time, this will result in a drop in our income. Since a critical illness plan pays out a lump sum upon diagnosis of critical illness, the funds can be used to offset some of the potential loss of income when we choose to reprioritize our lives.

[Unseen Cost 3] Cost of eating healthy, with supplements and organic food (Nutrition and supplement)

Those going through illness will attest to a positive change in diet. Some of us will go to extremes as to only consume organic food while others increase their supplement intake. Adopting an organic diet and increasing our supplement intake will not come cheap. A lump sum from a critical illness payout will usually come in handy at such times.

After knowing all these hidden bills, what is the most cost-effective way to resolve it?

We should consider whole life insurance with critical illness and early critical illness coverage.

How does this complement my ISP?

In summary, the ISP is designed to cover hospitalization and medical cost, while critical illness plans are designed to pay out a lump sum to offset your unseen cost, i.e. immediate loss of income, potential income loss, & nutrition and supplement.

A small tip: I would suggest avoid using term insurance to cover against critical illness and early critical illness as the total outlay from term insurance often will be more expensive in the long run.

Jonathon Han
Professional Financial Adviser, not just another typical salesman

 

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.