One In Three Singaporeans

I have experienced first hand how devastating the impact of having a loved one diagnosed with cancer can be. It can destroy a person's life physically, emotionally and financially. Fortunately, the potential financial disaster faced in this case was cushioned by having Critical Illness insurance. I cannot thank God enough for this. As we did not have to worry about being unable to afford the medical bills, we could focus our energies into staying positive as a family and getting the best possible treatment.

Often however, the diagnosis of cancer have wiped out the savings of many families who are not prepared and did not have Critical Illness protection in place. Many families even have to borrow to pay for the high costs of medical treatment.

Recently, I chanced upon an article originally published in the Straits Times on 23rd October 2005, exactly four months ago today.


In it, the writer expresses his concern regarding the increasingly-high price of financing the already-high cost of cancer treatment. This is a fact known to all, although many Singaporeans are still not ready to take the necessary steps to ensure that they are adequately prepared in the event that someone in the family suffers from cancer.

What really struck me about the article was this; that chances of someone being diagnosed with cancer in Singapore is one in 3. Sometimes, I would say to my clients and the prospects I meet that approximately one in 25 women would get breast cancer in their lifetime and they would dismiss me as axeggerating. In fact, I've read that the figure may be as high as one in 8 women. But one in 3 Singaporeans to be diagnosed with cancer in their lifetime?

This simply renews my resolve to speak to as many people as possible about financial protection for themselves and their loved ones. I cannot ensure that they do something, but at least I could help create awareness regarding an increasingly common illness and the financial burden it causes.

We might not be able to prevent cancer, but almost every single Singaporean can afford the insurance premium for Critical Illnesses insurance.

Understanding Variable Universal Life Insurance

The Straits Times of Singapore carried this article dated 3rd Febuary 2006 with the title Investment-Linked Plans Exceed Sales of Other Life Policies.

It is interesting to note that it was only a few weeks ago that the same newspaper correspondent co-authored a whole section in the Straits Times about difficulties and challenges faced by the Financial Services industry. In fact, the same reporter created significant negative publicity in early 2005 for Investment-Linked Products (ILPs). Obviously, the statistics have proven otherwise.

What exactly are ILPs and why are they the most popular form of life insurance policies in Singapore today? ILPs are also known as Variable Universal Life (VUL) Insurance plans in some countries. It combines permanent insurance protection with investment flexibility. They are available both as regular premium and single premium plans.

As with any life insurance product, ILP replaces the permanent premature loss of income to a person and his/her dependents. To illustrate this concept, I shall use the following diagram (Figure 1) taken from an official Million Dollar Round Table publication.

The premium a client pays can be likened to water coming out of the tap. Those premiums (i.e., the water) go into a bucket. Now, imagine a rusty hole at the bottom of the bucket, and that water is leaking out. The water leaking out of the bucket can be likened to the monthly deduction taken from the client's policy to keep the life insurance in force.

The tap can be set so that the amount of water coming out exactly equals the rate at which water leaks out at the bottom. This is the way a pure, term-to-age-100 policy works, assuming level cost of insurance. The only problem is that if a premium is missed, the coverage is lost.

However, the tap can be set so that more water goes into the bucket than is needed. This way the client builds up some reserve in the bucket. What happens to the reserve, or cash value, is up to the client.

In Singapore, these cash values are usually invested in various investment funds managed by the insurance companies offering these types of policies. These investments generate interest and capital appreciation, which is added to the water in the bucket (similar to water "raining" into the bucket, i.e. coming from somewhere other than the tap).

The client's objective in building up the amount of water in his/her bucket - through premium payment and investment earnings - is to get the water level to a point whereby the amount of rain equals the amount of water leaking out at the bottom. At this point, the client can suspend further premium payments, using investment income to pay for his/her life insurance.

Obviously, at the point of death or total-and-permanent disability, the insurance company pays out the guaranteed sum assured plus the full amount of water in the bucket. Another very important point is that in the event the client has more water in his/her bucket than is needed to carry the cost of insurance then, as with any good rain barrel, he or she can dip into the bucket and take some water out.

Simply put, ILP is life insurance with flexibility at its best! Do note however, that ILPs may not suit everyone, especially clients approaching their 50s and above.

Understanding Term Life Insurance

Life insurance comes in various forms. The simplest form of course is Term Insurance. But what exactly is Term Insurance? This post seeks to illustrate how Term Insurance work using some graphics taken from The Box: The Key To Understanding Life Insurance by Standel Publishing.

People die according to a very accurate and predictable pattern. This pattern is determined by actuaries based on historical records and is called the Mortality Table. This table is used to determine the price of life insurance.








Let's take the above Mortality Table as an example. Statistically, we know that out of every 1000 person aged 45 years old, one will die within that year. We don't know who will die, just how many.





Supposing these 45 years olds all wanted to purchase $1,000,000 worth of life insurance, we can determine exactly how much each person has to pay because we know exactly how many will die. This is called the Mortality Cost.







When the life assured is young, the mortality cost would be relatively low. This gives the immediate impression that Term Insurance is cheap. In this example, the mortality cost would be approximately $1000 in the first year. However, this cost would escalate as the insured gets older.






If a person keeps paying according to the Mortality Cost Curve, the total amount paid accumulatively would be very huge. In fact, at life expectancy (the age when half of the people in the group will be dead), the total amount paid would have amounted to 74% of the policy face value.



Now, let's say you were one of the those 45 year olds. Today, you have just reached your life expectancy birthday! Your insurer sends you your premium notice. Instead of it being only $1000, which was the amount you started with, the premium is now $150,000. Would anyone be willing to pay it?

Term Insurance is exactly what its name suggest. Life insurance cover for a limited term. Once the term cover has expired, the person would be left vulnerable without any coverage. While most life insurers have guaranteed renewable options attached to their term policies, it might prove too expensive for most people to renew their Term Life Insurance coverage by that time. Normally, this would be the time when life insurance is most important and needed.

The purpose of this post is not to show that Term Insurance is not good. In fact, Term Life Insurance is a very powerful form of financial protection cover for everyone, especially those who are extremely tight on budget or have great risk for a fixed amount of time.

However, we should really reconsider our options before making the seemingly no-brainer descision to only purchase Term Insurance. In fact, we should always strive to convert our term protection to Whole Life Protection to ensure that premiums remain affordable while we remain protected for as long as we live, especially when we need the protection the most.

$1 Million To Retire?

It was only very recently that the Straits Times of Singapore ran an article questioning the need to retire with a large sum of money. Today (15th November 2005), the Today (now into it's 5th year) paper ran a similar article entitled "Do We Really Need A Million Bucks To Retire?".

The article by the Straits Times seemed to promote stronger family ties to last a person through retirement rather than the accumulation of assets; at least that was my impression after reading it. Today's article asks the reader to reflect on his or her definition of a comfortable retirement before deciding how much is needed as a retirement fund.

Whatever it is, I trust most of us would not mind retiring with more rather than less. Retirement planning is not exactly rocket science. It takes mainly a commitment to one's own future and the discipline to save towards it.

After all, isn't living like this:

A whole lot better than living like this?:

So what are the key ideas of retirement planning? Below is an extract of the article by Today:

Not that difficult, is it? It's something we can all achieve if we would just make up our mind to do it.

Start Thinking NOW

This post is inspired by the message of success guru, Earl Nightingale. He's the person behind the widely heard audio recording called The Strangest Secret.

Some years ago, the late Nobel prize-winning Dr. Albert Schweitzer was asked by a reporter, “Doctor, what’s wrong with men today?; The great doctor was silent a moment, and then he said, “Men simply don’t think!”

~-~
This is so true especially when i talk to the people i meet about retirement funding or even disability and illness protection. The common responces are:

"Retirement is such a long time away, I have not thought about it yet. In fact, I don't even want to think about it!"

"There's no need to think about it. I don't think I'll get cancer" (As though it's up to the individual to choose whether or not to get cancer!)

~-~

My point here is this: Let's think about our future! And let's put our thoughts into action!

Earl Nightingale is famous for repeating this particular statistic:

If we take 100 individuals who start even at the age of 25, what will happen to those men and women by the time they’re 65? These are 100 people who believe they’re going to be successful. They are eager toward life, there is a certain sparkle in their eye, an erectness to their carriage, and life seems like a pretty interesting adventure to them. However, by the time they're 65, the statistic look like this:

Everyone started on the same footing but only 1 became rich. Only 4 can pay off all their loans and debts and finance their own retirement. 5 of these are still working at age 65 while 54 are totally broke and depend on others entirely for their daily living.

We learn to read by the time we’re seven. We learn to make a living by the time we’re 30. Often by that time we’re not only making a living, we’re supporting a family. And yet by the time we’re 65, we haven’t learned how to become financially independent given all the opportunities we had.

So let's start thinking about the future now! After all, planning is all about bringing the future into the present so that something can be done about it today. Cheers!

Time To Invest

For up to a month now, fund prices across Singapore has been seen to drop. This is hardly unexpected, what with the increase in oil prices, the series of hurricanes and earthquakes hitting many parts of the world recently. Could the avian flu have anything to do with the drop as well? Well, I really don't think so...

So is this a time for investors to panic? Of course not! We should always invest only with money we could spare and have a sufficient investment time horizon. This is simply one of the many downturn in a constantly fluctuating investment instrument. A downturn like this should not worry us too much.

There hasn't been major alarm bells ringing in the industry so the funds are generally expected to bounce back soon. Are there then any opportunities for us in this situation? Why, of course!

1) This is a great time to buy into the younger funds or funds that are currently looking very exciting and expected to have great upside potential. I won't say which sectors here but personally, there are a few sectors that definitely look promising. These funds are currently on great discounts due to the price drops!

2) Depending on the relative drop in more matured funds as compared to younger funds, it might also be a good time to exercise fund switches. For example, if across the industry, funds lost 20 cents over the same time period, matured funds would have lost less as compared to younger funds. As such, switching assets into younger funds would leave the investor with more units now as compared to switching 1 month ago. Some fund houses might offer free fund switch services so it might be a great idea to take advantage of this situation.

Bear in mind however that all forms of investments come with an expected risk. The descisions and risks are the individual investor's own and no one else can be held liable for any unfavourable investment move. So do think everything over first and find out more before taking any actions if you are not too informed about investment in these instruments.

Financial Security

A lot has been said about Wealth Accumulation, Financial Freedom, Financial Independence and so forth. In order to achieve true financial security, we must first and foremost ensure that our daily living practices are leading us in the right path towards Financial Security! Let me share the 4 Fundamental Ideas to Financial Security.

Someone who earns a big income may not be a rich man if he is heavily in debt and has poor cashflow. Instead someone else who is earning significantly lower income may be richer if that person has better cashflow, less liability and makes his money work harder for him.