New Insurance law addresses Pitfalls of Trusts (27-Sep-09)

Let me help those who are still confused with the new Insurance Nomination Law. I am quite sure some of you would have chuck this information aside because it is a bit too heavy to digest.

The thing is, do you have to do anything?

• If YES, what do you have to do?
• If NO, what would happen?
  

1. Is there a need to do a nomination?
- Making a nomination is NOT compulsory, but the new regime provides a simple avenue to ensure that your policy proceeds are paid out to the right person at the right time, and in the right amount. This is much cheaper than writing a will.
- In the absense of a valid nomination, the insurer may pay up to the first $150,000 of proceeds from a policy to a proper claimant. The balance will form part of the deceased's estate and will be distributed according to the interstate law or a will. This process will be quite lenghty.

2. Options for existing policyholder (bought before Sept 1 2009)
i) Had never made any nominations: You can now make a revocable or trust nomination under the new law.
ii) Had named your spouse or children as beneficiaries: You have created a statutory trust under Section 73 and your nominees will continue to be recognised. If you wish to make changes, it is possible.
iii) Had named people other than your spouse or children as beneficiaries: All these will not be legally binding. The new law will allow you to make fresh nominations in your plan
iv) Had named your spouse or children AND other people or relatives as beneficiaries: The ability to make new nominations under the new law will depend on the status of these nominations & the terms of the policy. You may have to seek legal advice.

3. Revocable vs. Trust Nominations
- Explaination as below:

If you wish to do a nomination, do approach me so that I can help you get the appropriate nomination forms from the respective insurance companies. At the same time, you may also wish to do a portfolio review of your existing insurance and investment policies to ensure your objectives are still in line when you bought these policies.

Are Homes Affordable? (27-Sep-09)

If you looked at the latest HDB ballot under 'Sale of Balance Flat, Oct-09', you can see that the demand for flats is still far-exceeding than that of the supply. The application is easily 10-folds or 20-folds to that of the flats available. Who's the one laughing all the way to the bank? Must be HDB...

3~4 years back, I was one of those who gave up on the balloting system after 3 failures.. and I din manage to strike 4D with the unlucky balloting 4-digit queue number either.

Going to the open market, are homes affordable? I snagged at the HDB's ruling of the decade-old $8,000 income ceiling, where this group of people cannot apply for new flats or enjoy housing grants in the resale market. They also find private homes too pricey now. (For those, who can well afford it, congratulations.)

As an IFA, I would advise my clients to buy a house within their purchasing means, meaning the debt-service to income ratio ideally less than 40%. The idea of financial independence is to have a fully paid home (or + even a fully paid car), and building a sufficient lump sum for your retirement needs WITHOUT the need to go to work. But the reality is that many people still end up buying BIG HOUSE, BIG HOME in pursuit of present luxury.... pay pay pay their present debts, and forgetting to build up their retirement funding.

Remember, your home is not a true asset if it's used purely for residential purposes. It's only when you generate income out of it then it becomes a valuable asset.

For those who are looking for their dream homes, do a wise calculation on how much you can afford and plan far away. Call me at 9876-0237 for a non-obligation good financial planning. I believe my role as an IFA and Real Estate Agent would assist you to make an informed decision.

Capital Guaranteed?

Next time you buy any product, read and ask.

What is capital guaranteed and what is not? For e.g. Do you know how much of your ILP is guaranteed? Do you know when is your breakeven year?

Financial Planning, Inc: lifting the veil (20-Sep-09)

When was the last time your financial adviser did a comprehensive financial review with you? Was the feeling like, "Aiyar... must be got new products to sell then find me"? I used to have that kind of feeling as well. From there, we will give all sorts of excuse of not meeting up our "advisers".

You see, true & quality financial planning entails a long & tedious process of understanding a client's need for certain investment returns, his ability to bear the risk because of the returns he needs, and finally how willing he is to bear the risks. This must be done before any recommendations are given.

But sometimes, it is not always the fault of the financial advisers not doing their jobs. It may also be that the consumers themselves prefer not to share too much personal financial details with their advisers. This is quite typical of an Asian's trademark.

To give reasonably sound financial advice, one should have at least a tertiary education, a professional certification like a Certified Financial Planner. But most importantly, I feel the personal trust must be established. Without this factor, it will be like a bank transaction of buying and selling a product.

Just like we expect our doctors, lawyers and accountants to be properly qualified, you should not expect something less from someone who will be managing your life savings and hard-earned income. A responsible financial adviser is someone who looks after your financial welfare like a financial doctor, and looks after your best interest. And not like a roadshow salesman trying to shove the product down you throat, and tempting you with a FREE GIFT!

Joining this industry as an Independent Financial Adviser, I am determined to serve my client in the truest professional manner. Do refer to my earlier blog entry on what are the advantages of engaging an IFA to look after your portfolio.

Cancer: The No.1 Killer

Recently, a series of events and articles prompted me to find out more about the typical medical cases that happens on Singaporean such as a cancer, hypertension, heart attack, etc. In this blog, I would like to highlight on Cancer, the number 1 killer in Singapore. It's going to be a bit dry and medically-technical, but read on for your own good.

Cancer: Genetic or Lifestyle Disease?

Certain cancers, such as breast and colon cancers, tend to run in families while others are believed to skip generations. In all, only 5 - 10% of cancers are hereditary.The main causes for the majority of cancers however, have to do with how we live. Hence, it is important to change your lifestyle to reduce cancer risks as much as possible.

Cancer Risk Factor 1: Body Weight

Risks: Cancers of the womb, kidney, colon, gallbladder, oesophagus and breast (post-menopausal)

Obesity has been found to be linked to an increased risk for cancer. Very overweight (obese) individuals are more likely to develop cancers of the womb, colon, gallbladder, kidney, oesophagus (gullet) and breast.

Research cited by Cancer Research UK, for instance, indicated that a high body mass index (BMI) increases likelihood for colon cancer, especially in cases where most of the body fat is accumulated in the abdominal area (abdominal obesity). The findings also showed that being overweight or obese can increase the risk of breast cancer in post-menopausal women, as well as kidney and oesophagus cancers.

Cancer Risk Factor 2: Diet

Risks: Cancers of the breast, stomach, prostate, and colon

Failure to eat a healthy, balanced diet is known to increase the risk of cancer. Bowel cancer incidence is generally lower in populations with high fibre, low fat diets compared to populations with westernized diets. Besides offering fibre content, fresh green foods such as fruits and vegetables are rich in antioxidants, which have cancer-fighting properties.

In addition, the way the food is prepared also affects the carcinogenicity of the food. According to American Institute for Cancer Research, cancer researchers have found that the high heat of grilling causes proteins in red meat, poultry and fish to produce cancer compounds. These compounds, called HCAs (heterocyclic amines), have been shown to increase the possible risk of breast, colon, stomach and prostate cancer in humans.

Another cancer-causing substance - polycyclic aromatic hydrocarbons (PAHs) - forms when fat from meat, poultry or fish drips onto the hot coals. When the smoke rises, the carcinogen can get deposited onto the surface of the meat.

Cancer Risk Factor 3: Lifestyle Habits

Risks: Cancers of the lung, liver, mouth, throat and oesophagus

Certain lifestyle habits contribute to the risk of cancers, such as alcoholism and tobacco smoking. Frequent drinkers of large amounts of alcohol are likely to develop liver cancer. They are also at risk of developing cancer of the mouth, throat and oesophagus.

Tobacco contains about 40 different carcinogens and can cause cancers of the lungs, mouth, throat, oesophagus, stomach, pancreas, kidney and bladder. In particular, cigarette smoke not only harms the smoker, but also puts people who are exposed to second-hand smoke at risk.

Cancer Risk Factor 4: Viruses

Risks: Cancers of the uterine cervix and liver

Some viruses have also been linked to cancer. Chronic infection with the Hepatitis B or Hepatitis C virus is a leading cause of primary liver cancer (hepatoma), while the Human Papilloma virus (HPV) has been identified as a major cause of cervical cancer.

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So, the underlying moral of the story is, do not take your good health for granted. It can happen to an adult, or even to a child, or anyone else. I guess you would have read articles of healthy sportsman with healthy diet also will kana cancer of some sort. Sometimes when crisis strikes, there is nowhere to hide. No full proof explaination is actually available.

As a professional IFA, I will tell my clients that the only thing you can prepare while you are healthy is to make sure your H&S and insurance plans are well in place so that there will not be a further financial strain on yourself and your family when the unexpected happens. Does it make sense to you?

Going back to my previous entry, cancer is curable if detected early. Start living healthy.

CPF Life (Sep-09)

Do you want to be 'financial independent'? Or to so called enjoy the fruits of 'financial freedom'.

Different people have different definitions of being F.I., but in general, the concept is to be able to stop working because there is not a need to. You would have a fully paid house and sufficient money to spend for the rest of your life. If you continue to work, it would hopefully is because you LOVE to work, and not you NEED to work.

The CPF LIFE Program was launched by the CPF Board because they realized that the old Minimum Sum Scheme system which gives only a 20yrs payment after retirement is not that ideal.

The CPF Lifelong Income For Elderly (CPF LIFE) is a scheme that will provide you with a monthly starting from your Draw Down Age (DDA), for as long as you live.

For e.g.

The difference between the 4 types of plans; Basic / Balanced / Plus / Income, is to strike a balance between your monthly payout and the bequest that would be left behind for your beneficiaries. Your choice would ultimately depends on your retirement needs. Do encourage your elderly parents above 55 to sign up for the program to enjoy the Life Bonus up to $4k.

This, no doubt is a good option for our retirement planning. But, think again, is this kind of payout sufficient to sustain your lifestyle? Say for e.g. you are now a working adult earning $3k a month, assuming that you spent a bare minimal on necessities of at least $1k a month, the CPF payment may not be sufficient (excluding the factoring in of inflation). If you want to have enjoy a good lifestyle of staying in a big house, driving a car, and going for regular holidays, do not depend on your CPF savings ONLY.

By having a proper financial planning, and using good financial tools to your advantage, it is giving you the options of how you want to retire. There are many good instruments in the market whose objective is to provide you with a well-built up retirement fund. What you need to put in is disciplined savings and time for it to grow.

For more information, pls contact me for a detailed discussion. 9876-0237

The value of Unit Trust

Before I became a professional full-time IFA, like a consumer, I was cursing and swearing on why my CPF money is going the opposite direction on where I want it to be... isn't it supposed to be making $$$???

Entering this line, I started to understand the true meaning of Unit Trust and how to help clients better manage their portfolios.

Under Wikipedia definition:

A unit trust is a form of collective investment constituted under a trust deed.

Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.

Bringing you backwards to the Investment Linked Policies, most of the insurance companies invest in Unit Trust in the form of ILPs. Features of the ILP is that the choices of unit trust funds are limited to that of the company, e.g. Company A can only use A funds.... Company B can only use B funds.. etc.

There's where independent platforms like iFast, Navigator, or even fundsupermart.com comes in to give consumer more choices. Why limit yourself to a small coffeeshop when you visit a hawker centre?

Next, to the performance of Unit Trust. If you are the ones who started investing in Unit Trust from 2007 onwards.. probably you would have suffered a heartache as your portfolio goes down to as much as 40~60% in 2008 financial crisis era. Right now, your funds should have breakeven or close to breakeven? Don't lose heart.

As an IFA, we still believe in the use of Unit Trust as one of our instruments to help our clients achieve their financial goals and objectives. If you look at the above picture, I gave the e.g. of a few random funds vs. the STI index:

i) Aberd**** Global Technologies

ii) Aberd*** Pacific Equitiy

iii) Fi*** State Bridge

iv) D** China Equity

Over a period of 5~10years, most of the funds would have outperformed the STI benchmark. And it can really make a big big difference.

To put it simply, Unit Trust is still a viable and good way to grow your wealth, subjected to the following factors below:

i) Time. (> 5yrs)

ii) Choice of funds. Go for champion funds.

iii) Switch of funds at required times. Dun expect miracles to happen by sticking to a single fund.

iv) Competency of the financial adviser and fund managers. i.e. Strategies.

Of course there is a long chain of argument of why other instruments like stocks, commodities, options could be better than unit trust. But ultimately, the key is to build up a good portfolio that is adjusted to your risk profile and other factors.

Do not hesitate to call me to review your insurance & investment portfolios. 9876-0237

The beginning of knowledge is the discovery of something we do not understand. - Frank Herbert

Investment Linked Policies?

In this topic, I would like to highlight on this policy type that most of you would have purchased, either using cash or your CPF $: Investment Linked Policy, or more commonly known as ILP. Many of my clients feedback that they have little idea on how does this policy works as insurance agents failed to point out to them the features of it.

What is an ILP?

An ILP is an insurance policy which provides a combination of protection and investment. Premiums buy life insurance protection and investment units in professionally managed investment-linked funds.

ILPs DO NOT GUARANTEED cash values. The value of the ILP depends on the price of the underlying units, which in turn depends on how the investments in the fund perform. Fees, expenses & insurance charges are paid for through a deduction of the premium and/or sale of purchased units.

Sounds chim? Layman words. A portion of your premium goes into insurance charges (which increases year by year), and the remaining portion goes into buying of units on a regular basis. Although for most cases, the premium paid is levelled throughout, your allocation between insurance:investment actually changes over the years. Do you realize this?

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If you deeply go and scrutise your personal ILP, do you often find the case that even though you had paid alot of premium, your coverage is still very little? In my previous blog entry, findings have shown that most Singaporeans are under-insured. One of my suspects is that many insurance agents in the past do not give proper advise to their clients during their selling of ILPs.
For e.g. taking the case of a 30years old healthy man. Do you know that for a $100/mth premium, his insurance coverage can stretch between a simple $10k to a high $200k coverage for Death/TPD/CI?

Pls do not get me wrong in saying the person who designed the $10k coverage is unethical. It ultimately boils down to what are the objectives of the client during the purchase of the policy... was in more for protection coverage... or was in more for investments.. or a combination of both? It is the duty of a professional adviser to understand the needs of the client and design out the allocation accordingly.

There are pros and cons to buying an ILP in which the details I shall not discuss here. For your reading pleasure, pls refer to the LIA link below.

http://www.lia.org.sg/ftpsite/guide/ILPguide(17Aug06).pdf

Do feel free to approach me for a review of your existing policies to make sure what you holding on is something that is aligned to your needs.