To many of us, insurance may not be the best form of investment, but there are sufficient reasons making it a highly lucrative avenue to facilitate savings.
People often talk about yield on investment and tend to compare their values with those available on various insurance schemes. This is typical where one conveniently forgets the element of risk covered by life insurance. It is extremely unfair to compare the performance of insurance against other investments without considering the core features of insurance. The very essence of insurance is to protect us and our family from the uncertainties that happen in our lives. Hence it proves very logical to evaluate the costs involved towards this feature.
When we pay insurance premium for our car, do we get anything if fortunately no mishap happens? This means that we spent the amount to secure a valuable property. We must understand that out of the total amount paid for our life insurance, a certain amount is used for providing the risk cover and only the balance can be utilised as savings.In other words, the total premium paid less the amount evaluated as the cost of insurance must be considered as the amount invested to get the maturity amount.
We tend to think very unrealistically about our life. More than often, we compare the results after a tenor of an investment scheme, and we try to convince ourselves it is providing a better yield than an insurance policy. For instance, if you invest a certain amount and after 1 year our money will grow accruing a return. However, what if our death occurs in the first year itself? The premium paid can give us an insurance cover up to a certain sum (depending upon the plan, age, etc) and this amount shall become available to the nominee of the policyholder.
Now how do you compare the yields in such a situation?
"Not everything that counts can be counted, and not everything that can be counted counts." - Albert Einstein
Sunday, March 2, 2008
Friday, February 15, 2008
New Annuity Schemes for Singaporeans
Under the new CPF Life scheme, CPF members aged 50 and below will have their minimum sum cash balances divided into two portions when they turn 55. One part goes to the Retirement Account, which will be used for monthly annuity payouts, while the other, Refundable Premiums (RP) portion, will be used to pay for the premiums of the scheme.
Manpower Minister Ng Eng Hen assured Singaporeans that the new compulsory annuities scheme, administered by the Central Provident Fund (CPF) Board, which operates a more favourable interest rate structure than commercial annuity providers, will offer more attractive returns than similar products offered by the private sector. Those who opt for the scheme will enjoy payouts based on a minimum guaranteed interest rate of 3.5 per cent, which is higher than the 2 per cent rate of return that most commercial annuity providers guarantee.
From Jan 1, the Government has floated the interest rates for the Retirement, as well as the Special and Medisave accounts, and pegging them to 10-year Singapore Government Securities (SGS) rates. In order to help members adjust to the floating rate, the Government has guaranteed a minimum pay out of 4 per cent on such accounts for the next two years, after which all CPF accounts will attract a floor rate of 2.5 per cent. An additional 1 per cent interest will also be paid out on the first $60,000 of all accounts, with up to $20,000 in the Ordinary Account.
Other issues raised include the certainty that those who will live long enough will stand to receive the higher payouts. Singaporeans are free to sign up annuities plans with commercial providers and be exempted from the national scheme.
Manpower Minister Ng Eng Hen assured Singaporeans that the new compulsory annuities scheme, administered by the Central Provident Fund (CPF) Board, which operates a more favourable interest rate structure than commercial annuity providers, will offer more attractive returns than similar products offered by the private sector. Those who opt for the scheme will enjoy payouts based on a minimum guaranteed interest rate of 3.5 per cent, which is higher than the 2 per cent rate of return that most commercial annuity providers guarantee.
From Jan 1, the Government has floated the interest rates for the Retirement, as well as the Special and Medisave accounts, and pegging them to 10-year Singapore Government Securities (SGS) rates. In order to help members adjust to the floating rate, the Government has guaranteed a minimum pay out of 4 per cent on such accounts for the next two years, after which all CPF accounts will attract a floor rate of 2.5 per cent. An additional 1 per cent interest will also be paid out on the first $60,000 of all accounts, with up to $20,000 in the Ordinary Account.
Other issues raised include the certainty that those who will live long enough will stand to receive the higher payouts. Singaporeans are free to sign up annuities plans with commercial providers and be exempted from the national scheme.
Thursday, February 7, 2008
Financial Planning (1) – Meeting Your Financial Needs
Financial Planning is a way of devising strategies to achieve our financial goals. Meeting financial needs is an important part of our daily lives. It is an ever-ongoing process shaped around our financial life cycle. We are poised with challenges of meeting financial needs like our children's education, buying our dream home, supporting our ageing parents and preparations for our retirement…
Financial planning is a tedious process, involving the planning of our cash flow, insurance coverage, investments strategies, retirement plan, tax and estate planning. It all begins with focusing on specific needs first and gradually built into a comprehensive financial plan. The main focus of your financial plan should be setting realistic financial goals and objectives and achieving them. A comprehensive financial plan includes Cash Flow Planning, Personal Risk Management, Investment Management, Retirement Planning, Tax and Estate Planning.
Risk Management
Risk management involves protection against any unforeseen circumstance that may result in huge financial expenses. These unpredictable misfortunes such as major illness, disability, total permanent disability or death normally bring about drastic changes to our income and our ability to continue satisfying not only our personal financial needs but also those of our loved ones. Personal risk protection is a vital element in financial planning, minimising erosion of our net worth and protecting our family from the consequences of unfortunate events.
Asset Management
Planning ahead to prepare for our later life or retirement, it allows us to plan our retirement and lead an easy life thereafter. If you have children, the cost of their education must surely be a cause of concern.
Asset accumulation helps to provide for our future cash needs or prepare for our retirement by means of building our wealth through investments. Managing our assets carefully may provide us with passive income enabling us to achieve our financial objectives.
There are certain decisions in our life that are vital and which we have to make in advance of your death. Such decisions could involve the maintenance, disposal and use of your estate, cash, investments, business possessions and life insurance. Asset Distribution assures that your estate is distributed efficiently according to our desires.
"If you can count your money, you don't have a billion dollars." - J. Paul Getty
Financial planning is a tedious process, involving the planning of our cash flow, insurance coverage, investments strategies, retirement plan, tax and estate planning. It all begins with focusing on specific needs first and gradually built into a comprehensive financial plan. The main focus of your financial plan should be setting realistic financial goals and objectives and achieving them. A comprehensive financial plan includes Cash Flow Planning, Personal Risk Management, Investment Management, Retirement Planning, Tax and Estate Planning.
Risk Management
Risk management involves protection against any unforeseen circumstance that may result in huge financial expenses. These unpredictable misfortunes such as major illness, disability, total permanent disability or death normally bring about drastic changes to our income and our ability to continue satisfying not only our personal financial needs but also those of our loved ones. Personal risk protection is a vital element in financial planning, minimising erosion of our net worth and protecting our family from the consequences of unfortunate events.
Asset Management
Planning ahead to prepare for our later life or retirement, it allows us to plan our retirement and lead an easy life thereafter. If you have children, the cost of their education must surely be a cause of concern.
Asset accumulation helps to provide for our future cash needs or prepare for our retirement by means of building our wealth through investments. Managing our assets carefully may provide us with passive income enabling us to achieve our financial objectives.
There are certain decisions in our life that are vital and which we have to make in advance of your death. Such decisions could involve the maintenance, disposal and use of your estate, cash, investments, business possessions and life insurance. Asset Distribution assures that your estate is distributed efficiently according to our desires.
"If you can count your money, you don't have a billion dollars." - J. Paul Getty
Monday, January 28, 2008
Hold on to Stocks?
For long-term investors who have no equity investments, this may be a good time to accumulate some. Equity markets may have taken a turn for the worse, but as fear takes control, some private bank strategists are maintaining their overweight calls on equities.
Strategists are telling investors to hang in there, and for those who have been undecided whether to invest in equities, this may be a good time to buy. Among promising themes, as the strategists see it, are infrastructure, banks and emerging markets.
Despite the pessimism on the US economy, long-term investors who can stay the course for three to five years are unlikely to rue their stock investments. Risk appetite indicators are showing that people are now extremely risks averse. They are at crisis levels, but investor mood tends not to stay at that level for very long.
Though a short rebound even for technical reasons may take place, the big question is, will things get worse before they get better, or is it close to the bottom? Investors who are tempted to enter the market aggressively are advised to enter the market with caution while long-term investors who have not invested in equities thus far, this may be a time to accumulate stocks. However in doing so, investors ought to diversify their portfolios. The virtues of diversification are heavily under-estimated. In most cases it is better to diversify than just sticking to a handful of stocks.
Strategist believes that the patient, long-term investor will find fantastic opportunities in the equity market now. Weathering these first three or six months of the year, and very often, equity markets will rebound in the middle of a recession.
"If you are going through hell, keep going." - Sir Winston Churchill
Strategists are telling investors to hang in there, and for those who have been undecided whether to invest in equities, this may be a good time to buy. Among promising themes, as the strategists see it, are infrastructure, banks and emerging markets.
Despite the pessimism on the US economy, long-term investors who can stay the course for three to five years are unlikely to rue their stock investments. Risk appetite indicators are showing that people are now extremely risks averse. They are at crisis levels, but investor mood tends not to stay at that level for very long.
Though a short rebound even for technical reasons may take place, the big question is, will things get worse before they get better, or is it close to the bottom? Investors who are tempted to enter the market aggressively are advised to enter the market with caution while long-term investors who have not invested in equities thus far, this may be a time to accumulate stocks. However in doing so, investors ought to diversify their portfolios. The virtues of diversification are heavily under-estimated. In most cases it is better to diversify than just sticking to a handful of stocks.
Strategist believes that the patient, long-term investor will find fantastic opportunities in the equity market now. Weathering these first three or six months of the year, and very often, equity markets will rebound in the middle of a recession.
"If you are going through hell, keep going." - Sir Winston Churchill
Thursday, January 17, 2008
Life Insurance – A Booming Industry
Singaporeans of today are more conscious of how financial planning can benefit them, especially after retirement. More readily available is consumer information on life insurance, including on retirement planning, meeting protection needs and how to go about buying the appropriate life insurance plan in consultation with a financial adviser.
Up to the end of the third quarter of 2007, the local life insurance industry paid out a total of $4.42 billion to policyholders or beneficiaries, of which $248 million was in respect of death, critical illness and disability claims and $4.18 billion in respect of policies maturity.
The life insurance industry saw an outstanding performance over the first 3 quarters of 2007, sustained by a robust economy and a buoyant stock market. New business premiums totaled $1.18 billon, an estimated 31 per cent increase over the corresponding period in 2006.
As more and more people are utilizing their CPF accounts to acquired insurance policies, total CPF sector accounted sales amounted to approximately $4 billion, representing 63 per cent of single premium sales.
Over the first half of 2007, the life insurance industry was managing assets amounting to approximately $104.2 billion, an increase of 23 per cent compared to a year ago. This is the first time the industry’s assets exceeded the $100 billion dollar mark. As at 30 September 2007, the industry has 4,836 employees and 12,986 tied representatives.
“Great works are performed, not by strength, but by perseverance.” - Samuel Johnson
Up to the end of the third quarter of 2007, the local life insurance industry paid out a total of $4.42 billion to policyholders or beneficiaries, of which $248 million was in respect of death, critical illness and disability claims and $4.18 billion in respect of policies maturity.
The life insurance industry saw an outstanding performance over the first 3 quarters of 2007, sustained by a robust economy and a buoyant stock market. New business premiums totaled $1.18 billon, an estimated 31 per cent increase over the corresponding period in 2006.
As more and more people are utilizing their CPF accounts to acquired insurance policies, total CPF sector accounted sales amounted to approximately $4 billion, representing 63 per cent of single premium sales.
Over the first half of 2007, the life insurance industry was managing assets amounting to approximately $104.2 billion, an increase of 23 per cent compared to a year ago. This is the first time the industry’s assets exceeded the $100 billion dollar mark. As at 30 September 2007, the industry has 4,836 employees and 12,986 tied representatives.
“Great works are performed, not by strength, but by perseverance.” - Samuel Johnson
Friday, January 11, 2008
Annuities, Insurance, Retirement
The Silver Industry Conference and Exhibition (Sicex) that took place recently saw issues like financing longevity, CPF schemes and annuities that provide regular draw downs upon retirement hotly discussed.
It was noted that there have been innovations in variable and fixed annuities that provide long-term payment options retirees. Despite the fact that Asians are less receptive to these products, it is the solution to the inadequate draw down of state-mandated compulsory savings from the Central Provident Fund (CPF).
At present, a retiree accumulates a sum of money by retirement and draws down that sum to meet daily needs. This may seem adequate for life after retirement. However, enormous increase in longevity, which has reached the point where we have the expectancy of 20 to 25 years after retirement, has made this system totally inadequate. On top of this, most Singaporeans utilizes this accumulated amount on housing and insurance, due to this cultural climate here, there may be nothing left for the beneficiaries to draw down after retirement.
An annuity scheme is proposed with benefits that requires either higher premiums or lower drawdowns but that allows beneficiaries to receive the remaining payment should an elderly pass away before he reaches 85, as opposed to a pure annuity that stops payment upon early death.
Packaging annuities with medical insurance that pay for long-term care, as it makes economic sense for insurance companies since clients that require annuities would not require long-term care and vice versa. This package allows cost saving, instead of having to buy each scheme separately.
It was noted that there have been innovations in variable and fixed annuities that provide long-term payment options retirees. Despite the fact that Asians are less receptive to these products, it is the solution to the inadequate draw down of state-mandated compulsory savings from the Central Provident Fund (CPF).
At present, a retiree accumulates a sum of money by retirement and draws down that sum to meet daily needs. This may seem adequate for life after retirement. However, enormous increase in longevity, which has reached the point where we have the expectancy of 20 to 25 years after retirement, has made this system totally inadequate. On top of this, most Singaporeans utilizes this accumulated amount on housing and insurance, due to this cultural climate here, there may be nothing left for the beneficiaries to draw down after retirement.
An annuity scheme is proposed with benefits that requires either higher premiums or lower drawdowns but that allows beneficiaries to receive the remaining payment should an elderly pass away before he reaches 85, as opposed to a pure annuity that stops payment upon early death.
Packaging annuities with medical insurance that pay for long-term care, as it makes economic sense for insurance companies since clients that require annuities would not require long-term care and vice versa. This package allows cost saving, instead of having to buy each scheme separately.
Wednesday, January 9, 2008
Why invest?
In this world there are two ways to earn our income - one is to exchange labour for a salary and the other is to have our money earn more money for us.
We will eventually reach the age of retirement one day when we can no longer be part of the economically active group. How do we go on with life thinking that we are still financially independent? Will our savings in the bank be able to see us through?
Sometimes we think that money kept in a savings account and earning interest every year is investment, however, interest rates may not even keep pace with inflation. In order to beat inflation, we need to put our money in investments that earn a substantial amount of returns.
There is always risk in anything we do, investing in financial products, acquiring real estate properties, or even starting our own business establishments. Thus, we need to conduct market studies and research in order to understand the risks we are undertaking. Understanding the risks is the first step toward minimizing them.
Diversification is a commonly adopted strategy by most investors. We can do this by having investments in a range of products like stocks, investments in bonds mutual funds etc. An advantage of this is that we are able to spread our investments over a wide range of products without having to do a lot of research on different companies. This gives you diversification, and also has a professional taking care of the research end of that part of your investment portfolio.
We will eventually reach the age of retirement one day when we can no longer be part of the economically active group. How do we go on with life thinking that we are still financially independent? Will our savings in the bank be able to see us through?
Sometimes we think that money kept in a savings account and earning interest every year is investment, however, interest rates may not even keep pace with inflation. In order to beat inflation, we need to put our money in investments that earn a substantial amount of returns.
There is always risk in anything we do, investing in financial products, acquiring real estate properties, or even starting our own business establishments. Thus, we need to conduct market studies and research in order to understand the risks we are undertaking. Understanding the risks is the first step toward minimizing them.
Diversification is a commonly adopted strategy by most investors. We can do this by having investments in a range of products like stocks, investments in bonds mutual funds etc. An advantage of this is that we are able to spread our investments over a wide range of products without having to do a lot of research on different companies. This gives you diversification, and also has a professional taking care of the research end of that part of your investment portfolio.
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