Buy Term and Invest The Rest? Aspirational or Competence?

We often hear this being parroted:

Buy term (insurance policies) and invest the rest.



Is what you say backed up by competence as in actual track record of "earning more" in your investments?

Or is it just another "aspirational" statement like that "every school is a good school"?



If all you did is to voluntarily contribute to CPF, and/or transfer money from CPF OA to SA, eh... How is it any different from buying Wholelife and Endowment policies? Isn't it same same? A kind of "forced savings"?

(Snake oils out there, don't say I never support you people. Recognise me in the streets remember to buy me coffee OK?)



To be clear, there's nothing wrong with what doing you. However, if you like to "Indian Chief" your financially clueless, but happily living in the present friends, better pray they don't get serious and do a "trust but verify" act on you!



Face is what others give you; embarrassment is what you bring onto yourself.

Goal Posts Can Move Forward One!

ElderShield review committee proposes severe disability insurance scheme be made compulsory for future cohorts. 

Those of you who understood why CPF Life was introduced won't be surprised.

I mean you can see the trend in recent years. Not only in Singapore, but globally.

Personally, I believed the 60/40 event some years back did shock them to the core. Ever since, lots of "sacred cows" we thought will never be touched have been slaughtered...

Its interesting. Nothing is written in stone. 

The slow march towards collectivism continues...

We definitely need population growth!

Cancel Dependant's Protection Scheme

So embarrassing!

I should have cancelled my CPF Dependant's Protection Scheme when I came back at age 44.

I completely forgotten about it...

Talk about don't sweat the small stuffs!

I did cancel my Term insurance when I came back.

When the 20 years break-even for my remaining Wholelife policy was hit 2 years back, I cancelled it too.

I remembered because the annual premiums were in the thousands.

Yes, this proves the annual premiums for this CPF DPS policy were dirt cheap.

Highly recommended to get it when you hit age 21.

The annual premium for those age 34 and below is just $36 per annum! Cheap right?

$46K is not a lot, but when you have little or no savings in our 20s, at least its something for our parents to tide them over in the event we have to depart "abruptly".

But once we've reached our 40s, I think this CPF DPS policy would have out-lived its usefulness. Unless you tell me, in your 40s, you still don't have $46K to your name...

Most of us would have forgotten about it - just like me - as the annual premiums were frequently paid out from our annual CPF interests received.

However, this year different for me.

At age 50 and above, the annual premium will have a "big" jump in percentages. Although in dollar terms, they're still pretty modest.

If you want to keep it till age 60, also can.

It won't cost you an arm or leg - especially for those who like to voluntarily top-up your CPF - the increased CPF interests will be more than enough to offset the increased in annual premiums for DPS due to your higher age.

However, I prefer to take out my CPF; not put more in.

Just went down to NTUC Income as Bras Basah road to sign the opt-out form.

Then took the opportunity to say hello to Kwan Im Ma at Waterloo Street.

Wow! So crowded on a Wednesday afternoon?

Oh! Today is 初一!

  

  

I've gone naked! No more Life insurances!

I've just gone to my insurance company this afternoon and surrendered my remaining last whole life insurance. I ended my term life insurance policy 4 years ago when I returned back to Singapore.

Whole life insurance policies break even after 20 years. So had to patiently wait until today.

I bought this whole life policy just before my 28th birthday 20 years ago. Man! I'm now 48!?

Where did these 20 years go?

In case you forget, there's no estate duty in Singapore. If our net worth is several times the payout of our life insurance policies (doesn't matter term or whole life), pray tell why do we still need to have them?

The 2 main reasons we need to have life insurance when we are starting out in our careers are:

1) We have dependents we care about; and

2) our net worth are pretty dismal.

By buying life insurance, we create an instant "net worth" in the event of our early departure...

However, 2 things may happen to make our life policies redundant.

a) Our dependents have moved on - either through death, divorce, or acrimony.

b) Our net worth have caught up and now exceed the life insurance payouts. 

Ever wondered why we have millionaires that still need life insurance policies?

That's because they have insurance agents that can sell ice to Eskimos!

Aspirational and Keeping up with the Joneses Insurance

Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

Listening to some people, they talk as if they are treating insurance like a lottery ticket?

Let's take travel insurance. 

A friend of my sibling was caught in the Bali bomb blast several years ago. His medical flight evacuation from Bali to Singapore alone cost about $150,000 plus. Now that's the type of travel insurance one should look into if one is afraid of getting seriously sick or injured in a foreign country!

"Celebrating" you made a claim for a flight delay, lost luggage, or a medical claim for a minor ailment during or after the trip is not exactly the main purpose of travel insurance, is it?

I mean even if you had not bought travel insurance for these "good to have" claims, your lifestyle is not going to be meaningfully changed. A few hundreds or thousands out of pocket expenses are at most an annoyance, right? Just like getting the flu while travelling - a bummer - but it won't kill us. 

Have you checked your travel insurance covers medical repatriations? 

Too expensive? You wanted to "save" on the premium? You should listen to yourself...

Aspirational and keeping up with the Joneses Insurance

I guess this one of the main reasons why there's quite a large percentage of people who bought Integrated Shield Plans for stays at Private hospitals or higher class wards in Public hospitals - don't lose face to others - decide to downgrade themselves when the time comes for them to be hospitalised.

Aspirations are good; not when you extend beyond your means.

So what happens to the wasted higher premiums you have paid? 

Thank you very much! So say those who made the medical claims with glee!

They go in and out of hospital every other year, and its all free! So lucky of them they tell you!?

A perverse kind of lottery mentality? Did they say they were lucky again?

Notice what they focus on before buying Private hospital plans and after their hospital stay differs?

Before hospitalisation say in earnest its for less waiting time, can choose own doctor, good better best medical treatments, etc. 

After? Can only say the room very posh like 5 star hotel, food excellent, etc. You want to bet anyone took selfie and post in Facebook to show off?

You would think a staycation at a 5 star hotel or resort can easily be arranged. And the whole family can get to enjoy the facilities too!

So you buy medical insurance to cover the medical treatments or for sleeping in style?

Sell the printer cheap; make money on the ink cartridges

Just the other day, there's one interesting advertorial (nice fancy word to mean I'll only say nice things for my sponsor) on child insurance.

It started well. 

Medical insurance for child? Makes sense if you fear the rising medical costs in Singapore.

Education fund for child? Again makes a lot of sense especially if you do not have a good track record of DIY investment... Its basically a kind of forced savings to prevent you from blowing this money on money losing investments which some have already experienced! 

And then it has to happen.

Life insurance for the child!?

The comparison between term or whole life insurance is just what we call smoke and mirrors in the trade. 

It's just sleight of hand to prevent you from asking who is the dependent of your child? And if there are none, then duh! 

See: Dumbest Insurance - Life Insurance for Child

Now make a guess.

Medical insurance, Education fund, and Life insurance for child, which 2 are the printers, which one is the ink cartridge?

Same goes for eating out at the restaurants. 

The main courses are competitively priced. But the literary icing on the cake for the restaurant owners are on the desserts menu.

If you are thrifty you'll skip desserts right?

Strange? Yet when it comes to insurance, you just pile on the desserts!

Yummy!

Medishield Life and Integrated Plans

Last night, I attended this Medishield Life presentation given to Union leaders and activists at NTUC. 

At the reception and registration, I was a bit taken aback when everyone was calling each other "brother" and "sister"?

Is this how unionists call each other?

I would have preferred "comrade". That would put a left wing socialist vibe to the address which I think suits better. 

The presentation started at 7:03 pm when its stated on the programme 7:00 pm - not too bad. Can excuse with my clock and your clock not synchronised mah! I can live with that.

But participants were still strolling in by 7:10 pm... Union leaders? Hmm...

OK, I better stop trolling, least I won't be invited back for the free meals...



Everything you want to know about Medishield Life 

Here you go: Medishield Life 

What? You didn't expect me to spoon feed you, did you?

Don't you find it strange many retail investors like to rely on 2nd hand or 3rd party summaries - when they can go to the source directly?

Isn't it better to do your own homework, form your own opinions, then have a meaningful 2 way discussion with others (preferable just as informed as you), where needed?


  

You don't bitch about the increased premiums if you... 

Here's something to have fun with.

If you have colleagues or friends that like to bitch about the senior citizen cleaners at Changi airport, hawker centres; old folks collecting cartons and beer cans by the roadside, etc; see if they'll complain about the increased premiums for Medishield Life...

No, don't poke them.

Smile knowing they are "bleeding hearts" just as long as others pay. 



What you really cared about is what happens to your Integrated Plans right? 

Makes a lot of sense.

Especially when it was revealed in the Straits Times that 6 in 10 people with an IP for private hospitals opted for a public hospital when they needed hospitalisation!?

And this is even more depressing - 7 in 10 who bought IP for public hospitals A and B1 wards chose lower ward classes when seeking treatment!!!???

Now make a wild guess on these "downgraders" - did they purchase their IPs after doing their homework, or were these IPs sold to them?

Are you one of them?

Take this opportunity to press the reset button and start from zero-based.

Do your own homework on Medishield Life, reassess your needs and circumstances, and especially your financial situation. No one knows them better than you.

Of course I want to travel first class - who doesn't? But can you afford it?

Imagine paying premiums for first class tickets, but when the time comes for you to do the actual travel, you discover you can only afford budget airlines... All those past premiums paid down the drain...

Little lies we tell ourselves are one thing. But lying to yourself costs money when it comes to buying IPs we don't need!

Now armed with what you know, have a talk with your insurance agent.

It could be an opportune time to assess whether your agent is more interested in his own needs or yours.

"Investor" in Unit Trusts, ILPs, Wholelife, and Endowment Policies?

Hands up anyone who "bought" Unit Trusts, Investment-linked. Wholelife, and Endowment policies as their first "investment"?

Now after having 5 to 10 years of building up your financial literacy knowledge - putting hand to heart - how many of you will admit they were sold to you, and they were some of your worst financial "mistakes"?

Know any fellow investor who voluntarily knocks on the doors of land banking or MLM companies to buy their products or memberships? I don't think so!


Anyone in sales would know what I'm going to say is true:

If a product or service sells by itself, there is no or very little commission in it. Company not stupid. Salespersons reluctantly offer these products as part of their "service". At best, these products are "loss leaders" to draw customers in so we can trade them up.

If a product or service is very profitable to the company, the commission or incentive will be super juicy for the salesperson who can push these products out to customers. Why? Ask yourself how much you knew about Unit Trusts, ILPs and Wholelife policies when you first "bought" them?


Today's post is not about being sold to per se.

It's more to share my observation of what I see when an "investor" with the above products hit their epiphany, mind-flip, ah-ha, or sudden enlightenment moments....

  

Let sleeping dogs lie

Of course there will be rabid vested interests who will argue till their faces are blue that these product and services I've mentioned are the most suitable to people who do not have the time nor inclination to get themselves financially educated.  

Wait a minute.

I am in total agreement with you!

Next! (下一位！）



Cut-loss 

In the financial blogosphere, we have read quite a few sharings when "investors" realised their past follies with the above products, and how they were willing to undo their mistakes, often at a loss to their capital.

Their reasoning - a short term pain is better than a drawn out journey of bleed and misery. 



Fork in the road

These "born again investors" will now have a new mantra - Buy Term; invest the rest.

How invest the rest? That's where the fork in the road will separate the active from the passive investors.

Do you see any Financial bloggers sharing their journey of financial freedom showcasing Unit Trusts, ILPs, Wholelife, and Endowment policies as their main vehicle of choice?

OK, a tiny few may show Unit Trusts, but these are usually "investors" just starting their journeys; we cut them some slack. They can be nice goldfish test cases to observe when their fish bowls will "crack" and they start sharing their mind-flip moments.


 
Passive investor but active in living!

This group of people have searched within their hearts and found they value living a good life is way more important than monitoring the markets and constantly tracking how many beans they have in their pockets.

Investing is just a part of their lives. 

Time should be better spent building relationships; developing their careers or businesses; and enjoyment of their hobbies, sports, and other leisure activities.

Frequently, these investors will end up with Dollar Cost Averaging with low cost Passive Index Fund Investing.

Please note: Singapore does not have Passive Index Funds (yet). So please don't say you are into passive indexing when they are no such funds in Singapore! 

Unless you are using Passive Index Funds from US or other countries outside of Singapore. (But then, I doubt you are that sophisticated. Most would take the active route after having spent so much time on self-research, and research is very active in nature!)


Low cost ETFs are not the same as low cost Index Funds. I'll leave you to research the differences on your own. What? You didn't expect me to spoon-feed you did you? If you always going to be like that, go buy an ILP lah!

And if you are constantly "re-balancing" your low cost ETFs every month, hey you! Yes you!

You have taken the wrong turn. Walk back till you came to the fork and take the other road called "active".

And stop lying to yourself.


 
Active investor but are you living in the here and now?

Here the journey can be more exciting!

Must be, if not you would have gone to the passive route. Duh?


1.  Traders R' Us

Some may realise they are more into trading and they switch. Ladies can attest to this - no man is more attractive than a confident man who knows who he really is.

Traders have the most interesting stories to tell: 

"Limpeh lost 100K on that stupid Liongold trade!"

"I made 1 million on that short EUR/CHF trade last week. Who's your daddy now?

We can also be the most crass and obnoxious people - its' always about the money and having a bigger "one" than the next trader. We can be super competitive. 

And cut the crap it's a trading "community". It's a zero sum game and we are constantly trying to move the money in your pocket to my pocket. 

It's what Wrestling fans would call a Royal Rumble! 


2.  DIY investors

Here, we are more into country club territory. No breaking of keyboards or cussing at the PC monitors.

A little bit more refined. We can carry a conversation in full sentences and have a robust debate without sending regards to each others' family members.

This group have come to the conclusion that we can't "outsource" our financial freedom journey - no one have our own best interests other than ourselves.

So its to individual DIY stock pickings and our very own DIY asset allocations. 

And that's the nightmare of financial planners!!!  If the majority can DIY, what's the point of their roles again?

Thankfully, going by the millions that were lost to scams like landbanking, Brazilian properties, Gold trading, Fine Wine, questionable MLMs and what not, chill. There's still a big market out there!

Another interesting thing about DIY investors is that they like to form different Guilds.

One Guild for Value Investing, another for Income Investing, and another for Growth... The list is endless.

But looking at the Singapore financial blogosphere, I see 2 titans each with their own fan base.

One is the 10 bagger I tell you so; the other is the 6 digit annual dividend bleeding heart.

I guess this makes sense.

Aren't we forever debating whether capital gain comes first or should we prioritise yield?

Is net-worth more important or cash flow?

And naughty me is having fun watching one of them trying to bait the other into a fight. 

Give it up lah! Come sit down, have a sip of tea, and have a cha shao bao!


3.  You got a life?

Most of these DIY investor or traders have school to attend, a career or business to take care in the day.

I wonder where they find the time to invest and trade? 

Something has to give right?

All we need is 10 minutes a day what!?

Eh? If you want to be so passive, might as well be honest to yourself and join those passive indexing investors and focus on having a life! 

Go!

Life Insurance with No Commissions (coming soon at a theatre near you!)

I'm not a bleeding heart.

I'm not a Bodhisattva.

I'm more of a man-whore who believes in self-cultivation and walking our own way.

But then, sometimes man-whore also got passion.

So here goes:


Life Insurance with No Commissions 


Old news leh!

Want to bet? 

Those of you studying business finance courses at tertiary institutions, do you know about it? 

Have fun taking a survey on how many of your classmates knew about it? Do exclude the lecturers. Wait you embarrass them and they black-mark you, don't come crying to me!

If this is the reality for business finance students, what more for the common person out there in the workforce? 

What?

These insurance products are only available early 2015 next year....Cheh!

You mean you can make the choices all by yourself already?


For those of you who are still in school or National Service, and will be joining the workforce next year, the timing couldn't be better!

Now you have months to ask the questions you've always wanted to ask (not to me!), do all the research needed to discover what's the critical differences between Term and Whole-life policies. What actual illnesses do this Critical illness rider cover? What is a rider anyway? Etc, etc, etc.

"Free from commissions" means Do-It-Yourself. Which also means if you made the wrong choices, you have no one to blame but yourself!

Of course if you have no time, no interest, or you prefer to have someone tell you what's better for you (The man who wants to buy new shoes) it's perfectly alright to pay someone to make that decision for you, if you so  wished.

For eg, I prefer to buy breakfast from hawker centres in the morning than make one myself.


Now make a wild guess why did MAS only start with Term and Whole-life policies, and with only one Critical illness rider?

What about other insurance enhancements? Why they not included?

In the words of Pua Chu Kang: "Use your brain, use your brain!"


And while you are at it, do ponder on this point 7 from the MAS website (I added the bold fonts):

"7   The sub-limit of $200,000 for whole life products seeks to alleviate the risk of consumers buying whole life products beyond their means and protection needs.  This is because whole life products have higher premiums than term life products, and typically require a longer-term premium commitment.  Policyholders who surrender their whole life policies in the early years of the policy also stand to lose a significant portion of their premium outlay."


Is it because big daddy don't trust us (the consumers) to make our own decisions or they don't have much faith in paid agents to look after the interests of their clients?

Of course they are great professional agents out there; and in all industries, there will be black-sheep.

And there will be consumers who make bad decisions, no matter how much publicity out there :(

Dumbest Insurance - Life Insurance for Child

Life insurance for a child ranks to me as the dumbest Life insurance policy out there.

These policies are never bought; only sold to.

From one salesperson to another, must give a round of applause for these super salespersons - these are the ones who can sell ice to Eskimos!


Take a step back and press reset for a moment:


1. Are you a dependent of the child?

2. What is the coverage for? 

a) To benefit from your child's passing? 

b) To pay for an elaborate and grand burial for all to see?



If your motivation is fear that your child may catch an illness or accident, wouldn't a Critical Illness and/or Hospital and Surgical plan be better? 

Or perhaps you want to give your child a better future, wouldn't a Savings or Education Fund be better?


Of course you will never be sold Life insurance for a child by itself.

If you are a student of the recent sub-prime meltdown, you would understand the wonders of packaging and repackaging of financial products until everyone looses sight of the unsavoury bits.

What you really wanted were the medical benefits and savings plans for your child - your motivation is love. 

What you never bargained for was as part of a set menu, you got something you never needed in the first place - greed and ego were never part of your motivations...


If you knew what you knew now, you would have gone a la carte.
   

Why Buy Insurance?

My throat is dry.

For a change, I'll stop singing.


Those of you who have bought insurance (not sold to), what were your motivations?

It will be interesting to listen to beer buddies' viewpoints.

Term or Whole-life insurance?

There are lots of debates on this subject matter in many blogs.

The latest buzz is to buy term and invest the rest - skip whole-life.....

What do I think?  It depends.  Huh?  You don't blog when you don't have an opinion.  My answer is still, it's different strokes for different folks.  We are dealing with (irrational) people remember?

It all boils down to why we buy insurance in the first place?

1.  If it's purely to provide for love ones, then its term - maximum payout for the equivalent whole-life premium.

2.  If it's getting our premiums back and then some (at least that's what we think!) after X years, then it's whole-life.  It's more about me, me ,me; and not so much about our love ones. Look into the mirror - how long can our love ones survive on the whole-life policy we've bought?

3.  Now many "experts" tell us whole life is a "bad" investment - most of  the premiums go to commissions and profit to company (which is true).  The surrender payout yield is only 2 to 4%.

But 2 to 4% yield isn't so bad compared to fixed deposit interests today.  And buy term and invest the rest is on premise that we can earn a yield higher than 4%.  For those of us who has been investing for more than 10 years (why 10?  It's long enough to include both bull and bear market cycles), what's our CAGR?  2 to 4% don't look too bad compared to negative returns at all. 

It's our personal investment track record that should guide us.  We know ourselves best.  (How many got out before the 2008 credit crisis?  Even with the recent recovery, how many are still under water?)

For those who have yet to achieve consistent returns, then "invest the rest" is "promise".  Which is no different from the what whole-life promises - good year more bonus, bad year bonus can be cut to nil.

Whole life can also be a good "forced" savings if we are one of those people who can't stop spending once there's cash in our hands. I think having nagging wife works better.  Japanese wives are the best - they take all our take home pay!

It's also works well when we have the urge to gamble with our nest eggs - be it in casinos (opps! Should I say integrated resorts?) or stock markets.  Statistically, most retail investors lose money in stocks, but statistics lie big time!) 

4.  Maybe a better question is do we need insurance at all?  And what type?  We buy those that we need.  Financial literacy first, then know ourselves, then decision.

Ever wondered why multi-millionaires say in the papers they have X and Y amounts of insurance?  You mean their net worth or estate can't sustain their love ones if they were gone?  Can it be they have financial advisers that can sell ice to Eskimos?  Now that's million dollar round table for you!

5.  Me?  I bought insurance from a childhood friend when I was 27.  Glad he didn't screw me up.  It's 30% whole-life and 70% term.  Why be black or white?  Shades of grey is cool too. 

I will be cancelling all my policies when I hit 47 - whole-life breaks even after 20 years (OK, after inflation adjusted, it's still a loss).  My net worth will take over as the "insurance" payout if something unforseen happens - and that includes disability and critical illnesses.   Hospital and surgical?  I'll put Medisave and Medishield to the test! 

Insurance is: we win when we lose; we lose when we win.  I am confused now.....