Incomeshield upgrade (NO underwriting)

I received this piece of news on email from a fellow Financial Advisor that NTUC Income is offering policyholders to upgrade their Incomeshield plan to a higher plan with NO underwriting. You are eligible for the upgrade if you meet the following criteria:

a. Age of next birthday below 30 years old and with no past health insurance claim record
b. On standard Incomeshield plans (Plan Basic, Plan Advantage or Plan Preferred)
c. Covered as standard life with no exclusion and no special loading imposed due to pre-existing conditions

The dateline for the upgrading option is open till 5th June 2009. For existing policyholders with Assist or Plus riders who are opting for the upgrade, the same riders will be upgraded accordingly.

Buying an endowment plan

As much as possible I don’t usually recommend people taking up an endowment plan. In my opinion, you can achieve the same objectives if you do the saving yourself. To have an idea of the message that I am trying to relay across, I suggest you read my article on the Best endowment plan first.

Now if you are aware of the pitfalls of an endowment plan but still decided that such a forced saving plan is suitable for you, nobody can really stop you. Ultimately a lousy saving plan is still better than having no plan at all. In this article, I am going to share some of the factors that you need to look out for before deciding on a plan.

Endowment is supposed to be a saving plan. Therefore one should not rely on to it as a mean for protection. As such, I will ignore the protection portion in the rest of this article. Take the protection coverage as an added bonus but not as a requirement.

Before deciding on a regular premium endowment plan, you need to ask yourself how much you are willing to save each month. Of course it does not make sense to sign up for an expensive plan if you cannot afford it. With the amount that you are comfortable with, request an advisor to introduce you a plan and to generate you a Benefit Illustration (BI) of the plan. A typical BI will look something like the picture below.



There are two sections of a BI which are the death benefit and cash value. As I have said, I will skip the death benefit section which is too immaterial to consider. At the cash value section, there are three important columns that you should focus on. They are the age of policy, premiums paid and guaranteed amount. I think the first two columns are self explanatory. The guaranteed cash section is the most important part of a BI. It shows the minimum amount that you will receive upon termination or on maturity of your policy. Also from these three columns, you can know at what age your endowment plan can breakeven. For the above plan, the breakeven age is only after 20 years. The other sections are the non-guaranteed sections which are based on certain projections. One should ignore these sections as they are just estimates and are not guaranteed.

Finally when comparing endowment plans, one should compute the guaranteed Yield To Maturity (YTM) of the plan. YTM is the so called return on your premiums paid. Obviously the higher the guaranteed YTM for the same period, the better is the plan. Let me show two plans available in the market. Can you guess which plan is better in terms of guaranteed YTM?

Plan A
Period of premium payment: 15 years
Maturity year: 20 year
Annual premium: $2,801
Total premiums paid at end of 15 years: $42,015
Maturity value: $66,009
Components of maturity value: $65,000 (guaranteed) and $1,009 (non-guaranteed)

Plan B
Period of premium payment: 12 years
Maturity year: 21 year
Annual premium: $2,847
Total premiums paid at end of 12 years: $34,166
Maturity value: $64,558
Components of maturity value: $40,000 (guaranteed) and $24,558 (non-guaranteed)

At first glance Plan B looks better because you are paying lesser premiums and for a shorter period. But if you calculate their guaranteed YTM, Plan A has a much higher guaranteed yield than Plan B. If you can afford to pay $2800 per annum, why settle for a plan which gives you a lesser return? You can compute the YTM of both plans with MS Excel XIRR function. Take a look at my example on how to use the function.

Attached below is an illustration of calculating the YTM of those plans in MS Excel.



In conclusion, it is important that you look at the guaranteed portion of an endowment plan if you decide to take up one. Compare the YTM of other plans with similar maturing period and pick the one which gives a higher guaranteed rate. Of course you may want to compare with the yield of a risk free rate of similar maturity to see if it is worthwhile to sign up for such a plan.

Capital Plus policy from NTUC Income

I received an email from one of my Independent Financial Advisors (IFAs) regarding Capital Plus policy that is going to be launched by NTUC Income. Basically it is a single premium endowment plan with just a short term tenure but with high guaranteed return.

So if you guys are interested, please contact any FA or IFA from NTUC Income. Or you may choose to go to the nearest NTUC Income Business Center to apply. Remember the application is for a short term period only and NTUC Income may choose to stop taking in new applicants as soon as they reach their target.

Below are the features about this endowment plan:

• Single premium with two years maturity plan
• Guaranteed return of 2% pa if held till maturity
• Protection against death or TPD
• Non-participating policy
• Can use cash & SRS
• Minimum single premium is $30,000 (in the multiples of $5,000)
• Only open to existing NTUC Income policyholders

My insurance portfolio

This post is intended for discussion and reference purposes only especially for the benefits of my immediate family members if in the event anything is to happen to me in the future. No other person should mimic the same portfolio without understand their own financial needs first. If you need help, you may ask me or seek advice from qualified and licensed financial advisor.

Policy Name	Coverage	Remarks	Maturity date	Payment	Monthly premium
NTUC Enhanced Incomeshield Basic with Plus rider	Hospitalisation & Surgical	Nil	NA	Medisave & Cash	$13.58
NTUC Family Insurance	300K Death/TPD and 120K CI	Nil	21-Dec-26	Cash	$60.62
NTUC LUV Deluxe	100K Death/TPD/CI	Nil	30-Jun-48	Cash	$20.00
Great Eastern DPS	46K(Basic) + 7.85K(Bonus) Death	Nil	NA	Medisave	$3.00
UOB Hospital Income Protector	Daily $100(1st to 30th day) then $200 (up to 520 days)	Refund of 25% of premium if no claims made for every 3 years	NA	Cash	$13.86
HSBC TargetSaver	25K Death or 30K projected maturity benefits	18 years endowment plan for daughter	19-Aug-47	Cash	$114.44
				Total	$225.50

Attached above are all my existing policies. I started sourcing out for insurance immediately after completing my graduate studies. The first two policies that I bought were Prudential Prucash and HSBC TargetSaver. What a way to start one’s insurance portfolio with endowment plans. In my opinion, endowment is an expensive and non-predictable but useful saving product especially for the less savvy individuals only. You may want to read an article on the Best endowment plan written by me.

After reviewing my insurance portfolio, I have decided to terminate Prucash and keep TargetSaver. The main reason for terminating the former is because, I was too naive to believe that the policy was sufficient to cover my insurance and saving needs. I free up some cash and thus decided to sign term insurance with multifold of coverage than prior at even lower cost. In fact, my monthly premium for my entire insurance portfolio (excluding TargetSaver) is only $111.

I may need to do a review of my insurance portfolio again if ever my financial needs change in future. But right now, I am happy with my existing coverage and welcome any suggestions that could improve it or to make it more comprehensive.

Best endowment plan

I often hear people asking “What is the best endowment plan?” in forums. In a short answer let me say there is no such thing as the best endowment plan. Endowment like any other kind of investment instruments does not guarantee its future performance. An endowment plan that yield good return in the past may not yield the same return in the future.

What is an endowment policy? It is basically a saving plan bundled with insurance protection. Before getting an endowment policy, ask yourself what is the purpose of getting one? If your objective is to save up a certain some of funds for usage after twenty years, then I recommend you to get a pure saving plan. If your objective is to have an insurance coverage, then get a pure insurance plan. Mixing your objectives with this kind of combo plan does not equate a good plan. Let me give a few disadvantages of owning an endowment policy.

1. You will incur high distribution costs which include commission fees to agent during first few years of policy
2. Since a major portion of your premium goes into saving and a small portion goes into insurance, your sum assured is always pathetically low
3. As endowment policy is a long term plan, early termination will result in losses. That means you may not get back all your premiums paid depending on the year of surrender. In other words, your savings is locked for a number of years
4. An endowment policy always projected a high return per annum which is not guaranteed. The actual return is most of the time less than projection

Now the question is, “Is there an alternative solution to an endowment plan?” The answer is definitely a YES. However this method involves a little bit of do-it-yourself approach. Let me discuss your saving and insurance portion separately.

Savings
The money paid for the saving portion of an endowment is actually invested in bonds and equities by the insurance company. That is how the insurance company is able to generate returns for your savings. There is no secret about that. So why not invest the money yourself into bonds and equities? Depending on your risk appetite and investment horizon, you can set up a diversified portfolio consisting of global equities and bonds fund. I shall not dwell into bonds and equities as it requires a separate topic.

However for the less savvy individuals, I would recommend setting up a regular savings plan with a balanced fund. Visit Fundsupermart Funds Selector and select Balanced under main categories, you will see a whole list of available funds. I would recommend any of the following balanced funds:
DWS Premier Select Trust
First Sate Bridge
UOB GrowthPath series

Insurance
As for your insurance portion, you can set aside a small sum of money into a term insurance. You might want to read a business times article on "Good time to shop for term assurance plan" to assist you on your selection. Depending on your age group and length of coverage, you can get a $100,000 insurance protection for less than $20. I would recommend you check out the following term insurance:
NTUC i-Term
Aviva SAF Group Term

In conclusion, the alternative method I introduced eliminates the disadvantages of (1) and (2) of an endowment. You may choose to withdraw your investment early if you see them profitable and thus eliminates disadvantage (3) of an endowment. As for the item (4), you need to be aware that any forms of investment available out there are not able to guarantee you with good and positive returns. So why not invest yourself and control your own money.

PaySecure - IdealIncome comparison

I have done a comparison on two of the disability insurance plans available. The information is gathered from multiple sources and from respective agents themselves. For detail explanation, you are advised to seek the help from a professional insurance advisor.

Product Name	Great Eastern PaySecure	Aviva IdealIncome
Rider availability	Yes	No
Escalation option	Level only	Level or 3% per annum
Pre-benefit period (days)	60, 90 or 180	90 or 180
Benefit period	Up to age 55, 60 or 65	Up to age 55, 60 or 65
Total disability during employment	Receive insured monthly benefit	Receive insured monthly benefit
Total disability during non-employment	Receive monthly payment lesser of 50% of insured monthly benefit and $4000	Receive monthly payment of $500
Partial disability benefit during employment	Receive monthly a porportion of benefit if you return to work and earn 85% or less of your pre-disability earnings	Receive monthly a porportion of benefit if you return to work and earn 75% or less of your pre-disability earnings
Partial disability benefit during non-employment	Receive monthly a porportion lesser of 50% of insured monthly benefit and $4000 if you return to work and earn 85% or less of your pre-disability earnings	NA
Rehabilitation expenses benefit	Up to 3 times of insured monthly benefit	Up to 3 times of monthly total or partial disability benefit
Death benefit	6 times of insured monthly benefit	Receive lump sum $5000 only on death during total or partial disability

Importance of insurance

The road to a successful financial freedom can never be complete without taking care of one's insurance needs. Although you can be financially stable or wealthy all the while, if any major illness strikes you, that illness may cost you a fortune to recover and as a result reduce your total net worth. It is worser if you have to bear the costs of recovering for the rest of your life. Nobody wants to suffer such a financial burden.

Insurance is all about transferring of risks. Are you willing to take the risks of bearing all future medical costs if any illness strikes you? Certainly most financially savvy individuals are not willing to take that risk even if they are wealthy. By setting aside a portion of your savings in insurance, you can transfer most of those risks to insurers. Depending on the type of insurance that you sign up, any future medical costs or losses of income as a result of the illness can be compensated by insurers.

Now the next question is what type of insurance products should you take up? Let me just highlight what are the three most important type of products that should form part of one's insurance portfolio.

Hospitalisation and Surgical Insurance (H&S)
This is one type of insurance that allows payment to be made by medisave. This medical insurance plan is designed to help insured pay part of the large hospitalisation bills for treatment of serious illnesses or prolonged hospitalisation stay. Besides covering hospitalisation expenses, it also covers certain approved outpatient treatments, such as kidney dialysis, chemotherapy and radiotherapy for cancer treatment.

You need to note that even though this insurance covers all hospitalisation expenses resulted from illnesses, insured are subjected to pay co-insurance and deductibles portion of the whole bill. If you wish to have insurer pay for the co-insurance and deductibles as well, you need to sign up for a rider and pay additional premium in cash. With this enhanced coverage, insured do not need to worry about payment for hospitalisation expenses.

Overall the premium for this plan is cheap and is to be paid annually. It is advisable to sign up for the most expensive plan for bigger benefits limit and better option for class of hospitalisation stay. You can always downgrade in future if you think the premium gets expensive but any upgrading requires medical underwriting and subjected to approval.

Below I attached some of the plans available from various insurers:
AIA Healthshield Gold Prestige
Aviva MyShield
Great Eastern SupremeHealth
Manulife ManuCare
NTUC Enhanced Incomeshield
Prudential PruShield

Death / Total Permanent Disability (TPD) / Critical Illness (CI)
This is the most simplest form of insurance to understand but yet neglected by many. As the names suggest, you will receive lump sum payout in the event of death or TPD. You will also receive lump sum payout upon the diagnosis of one of the listed 30 CI like cancer, kidney failure, coma, stroke, etc.

All of the above coverage is attached when you sign up for term, whole life, endowment or investment linked policies insurances. However understanding each feature is essential before making a decision to sign up as they will affect your insurance portfolio in terms of cost, amount covered, duration of coverage, etc.

For example it is cheaper to get insured with term insurance which covers a period of lets say 20 years but you will not receive cash values at the end of the policy. For whole life you may need to pay higher premium for the same coverage but you may receive cash values when you surrender the policy.

You may want to read more on the following links to understand better.
Life Insurance Association(LIA) FAQ
LIA Glossary of Insurance Terms
LIA Insurance Protection Plans
Moneysense Guide to ILP

Disability Insurance (DI)
The purpose of disability insurance is to cover loss of income in the event of any illness or accident, in which a person is unable to perform his material duties for a continuous period defined by insurer. With this protection, insured will receive monthly payout if he/she becomes totally disabled. If insured is able to work but at a reduced capacity such that it leads to a reduction in pre-disability income, insured will receive a partial benefit depending on formula as stipulated by each insurer.

If you are struck with TPD, the advantage of this plan over receiving TPD lump sum payout is you are able to receive monthly income continuously until the policy expires. The total payout received can be substantial compared to the lump sum payout. For example, you may receive $2000 monthly for the next 20 years if you become totally disabled. That total amount is much higher than receiving a $100 000 payout.

Currently there are only 2 insurers in Singapore that provide this plan.
Great Eastern PaySecure
Aviva IdealIncome

Finally let me summarise the above write up in just a few statements. Wealth protection is essential and should come first before one tries to accumulate wealth. Without being insured when you are healthy at a younger age, you may regretfully realise the importance of insurance when you get older and ask why didn't I insure myself earlier? By then it is too late.