Lately, my phone has been bombarded with calls from strangers to promote financial products. I normally tell them "Sorry, I am not interested" and hang up the phone.
If the financial products are aggressively sold to me, I reject it outright. I do not want to spend any more time to learn about it.
If someone aggressively promotes a financial product, he is usually getting paid handsome commission for it. This commission comes out of your pocket when you buy the product. A good deal for the seller is usually a bad deal for the buyer. Good financial deals never come looking for you. You have to actively seek them out yourself. If somebody knows of a wonderful bargain, he is going to buy all that he can himself. The last thing he wants to do is to let the secret out. The next time you hear of a deal-you-can't-miss from a stranger, just walk away. He is somebody you better miss.
This is why I never buy products sold by the bank relationship managers. In fact, the sort of financial products they sell can be used as a contrarian indicator. In the early part of 2008, commodity investment funds were popularly sold by the banks. Commodity prices collapsed in the later part of 2008.
The next time you receive cold calls from strangers selling financial products, just hang up. Time is better spent hunting for the best deals yourself than expecting good deals from strangers.
Saturday, March 20, 2010
Saturday, March 6, 2010
When unsure, don't buy the cheapest
I am a cheapskate. I like to buy things on the cheap. However, this can be a dangerous practice if you do not know what you are doing, especially when it comes to insurance.
The risk of buying the cheapest insurance comes when you try to make claims but cannot because of certain clauses in the contract which the agent conveniently miss out to warn you. The cheaper the contract, the more exclusion clauses it includes and the more stringent are the conditions in which you can make claims. You do not want to buy an umbrella that cannot open when it starts to rain. In matters of life and death for your wallet, the consequences will be disastrous.
I have a general rule when it comes to buying things of vital importance to me. If you are not familiar with the merchandise but still insist on buying it because it is important to you, don't buy cheap. On the other hand, if you are familiar with the merchandise and able to gauge its quality on examination, go ahead to buy on the cheap.
The risk of buying the cheapest insurance comes when you try to make claims but cannot because of certain clauses in the contract which the agent conveniently miss out to warn you. The cheaper the contract, the more exclusion clauses it includes and the more stringent are the conditions in which you can make claims. You do not want to buy an umbrella that cannot open when it starts to rain. In matters of life and death for your wallet, the consequences will be disastrous.
I have a general rule when it comes to buying things of vital importance to me. If you are not familiar with the merchandise but still insist on buying it because it is important to you, don't buy cheap. On the other hand, if you are familiar with the merchandise and able to gauge its quality on examination, go ahead to buy on the cheap.
Thursday, March 4, 2010
Retirement nest-egg before children's college fees
It has been my experience that couples with kids will be aggressively sold financial products designed to help them pay for their children's education and college fees. My natural inclination as a parent is to buy these plans for my children out of love.
On second thoughts, I rejected these plans.
Firstly, I had to weigh my own retirement needs over my children's education fees. In developed countries, it is unlikely the child will lose the opportunity to get a degree because the parents cannot pay for it. There are many options in America that are cheaper for these children nowadays like taking college courses online or attending a community college. But if they want to go through a four-year university course, being young with decades ahead, he is a low-risk borrower to the bank. The bank will loan him money with little hesitation. I can be assured that there will be no lack of help from financial institutions to finance my kid's education.
However, what if I end up with little savings after sacrificing my retirement nest-egg to pay for my kids' education? No bank is going to help me. No bank is going to loan money to retirees with no income and no hope of paying back.
The reasoning is clear. If my children have no money for their education, they get help. If I have no money for my retirement, I get no help. Who should I help first? Myself, of course. I must build up a sufficiently large retirement nest egg before money is allocated for the children's education fees. Take note that once you pay for the first child's education, you got to do the same for the rest. Otherwise, the other kids will cry UNFAIR and this shall become a bone of contention within the family for decades to come. Therefore, if you want to pay for your children's education, then the money set aside must be enough to pay for ALL of them, not just the lucky first few.
Getting children to borrow to pay for their own education is not a bad idea too. A little debt teaches financial discipline. When totally unburdened, a young kid just starting out work may spend without restrain. He is like a teenage boy who just discovered sex. Some debt will check his spending habits.
On second thoughts, I rejected these plans.
Firstly, I had to weigh my own retirement needs over my children's education fees. In developed countries, it is unlikely the child will lose the opportunity to get a degree because the parents cannot pay for it. There are many options in America that are cheaper for these children nowadays like taking college courses online or attending a community college. But if they want to go through a four-year university course, being young with decades ahead, he is a low-risk borrower to the bank. The bank will loan him money with little hesitation. I can be assured that there will be no lack of help from financial institutions to finance my kid's education.
However, what if I end up with little savings after sacrificing my retirement nest-egg to pay for my kids' education? No bank is going to help me. No bank is going to loan money to retirees with no income and no hope of paying back.
The reasoning is clear. If my children have no money for their education, they get help. If I have no money for my retirement, I get no help. Who should I help first? Myself, of course. I must build up a sufficiently large retirement nest egg before money is allocated for the children's education fees. Take note that once you pay for the first child's education, you got to do the same for the rest. Otherwise, the other kids will cry UNFAIR and this shall become a bone of contention within the family for decades to come. Therefore, if you want to pay for your children's education, then the money set aside must be enough to pay for ALL of them, not just the lucky first few.
Getting children to borrow to pay for their own education is not a bad idea too. A little debt teaches financial discipline. When totally unburdened, a young kid just starting out work may spend without restrain. He is like a teenage boy who just discovered sex. Some debt will check his spending habits.
Friday, February 26, 2010
Family insurance
I felt good after buying all the basic insurance as mentioned in my previous posts. The comfort was dangerously misplaced. I am not protected until all my loved ones are protected. Out of love and duty, it is expected of me to fork out cash to pay for unexpected medical bills faced by my family members.
It was too late to raise insurance cover for my parents and parents-in-law. At their age, the health problems which they are genetically predisposed have surfaced. Pre-existing conditions are either not insurable or insurable at prohibitive cost.
The lessons learnt is to buy medical insurance early when you have a clean bill of health. Hence, I bought the best health insurance plans that I can afford for my children while they still have a clean health record. Make sure the health insurance policies are guaranteed renewable. Otherwise, the insurer can cancel it when health problems surface later. It will be terrible to lose cover at a time when you most need it. Like bankers who take away the umbrella when it starts raining, insurers may do the same in the name of profit. Don't give them the chance to do it.
By the way, travel insurance saved my family's finances. My father had a heart attack during a vacation in US when I was still in university. The operation would have severely damaged my parents' retirement fund had it not been for the insurance. So, don't forget to buy travel insurance on family vacation trip.
It was too late to raise insurance cover for my parents and parents-in-law. At their age, the health problems which they are genetically predisposed have surfaced. Pre-existing conditions are either not insurable or insurable at prohibitive cost.
The lessons learnt is to buy medical insurance early when you have a clean bill of health. Hence, I bought the best health insurance plans that I can afford for my children while they still have a clean health record. Make sure the health insurance policies are guaranteed renewable. Otherwise, the insurer can cancel it when health problems surface later. It will be terrible to lose cover at a time when you most need it. Like bankers who take away the umbrella when it starts raining, insurers may do the same in the name of profit. Don't give them the chance to do it.
By the way, travel insurance saved my family's finances. My father had a heart attack during a vacation in US when I was still in university. The operation would have severely damaged my parents' retirement fund had it not been for the insurance. So, don't forget to buy travel insurance on family vacation trip.
Saturday, February 20, 2010
Death insurance
Death is a risk that will not hit you when it happens, but it will hit your dependents. Buy death insurance if you are a breadwinner to protect your family. Do not buy death insurance for your children unless you intend to profit from their death. It is a waste of money for people without dependents to buy death insurance because nobody is worse off financially when they are dead.
Even if you have no children, do consider buying death insurance for the sake of your parents especially if they are highly dependent on your monthly allowances. After having children of my own, I realized that raising children for protection in old age is an almost sure-lose investment. I resolve to be at least a break-even investment for my parents in the worst case. Hopefully, I can be a multi-bagger investment to them. Hence, my interest in managing my own money
With the above considerations for my beloved ones, I maximized my death insurance coverage until I am worth more dead than alive. Too much death insurance can create new risks. However, I am lucky to have married a good woman. I have no fear that she will murder me. I believe my children love me enough not to rejoice by my coffin. I have absolutely no worries with my parents. Even very selfish people become selfless when it comes to their children.
Death insurance is the cheapest among all the kinds of insurance plans. So, it was not expensive for me to maximize my death coverage. You can even use them as a cheap form of insurance for family protection.
My subsequent paragraphs may be offensive to some. You are free to ignore if you disagree.
Death insurance can be used as a form of cheap disability/health plan to protect your family. If you are disabled at a young age or get diagnosed with a terminal illness that will cost a bomb to treat with low chances of survival, you may consider suicide but make sure your insurance covers suicide first! This way, not only do you avoid becoming a burden to your family, you can also provide a lump sum to support for their future living expenses. They sorely need it after losing a breadwinner. If it is honorable to die in war for your country (a group of strangers who can be unappreciative), then it is even more honorable to die for your family (people whom you love and love you back).
Even if you have no children, do consider buying death insurance for the sake of your parents especially if they are highly dependent on your monthly allowances. After having children of my own, I realized that raising children for protection in old age is an almost sure-lose investment. I resolve to be at least a break-even investment for my parents in the worst case. Hopefully, I can be a multi-bagger investment to them. Hence, my interest in managing my own money
With the above considerations for my beloved ones, I maximized my death insurance coverage until I am worth more dead than alive. Too much death insurance can create new risks. However, I am lucky to have married a good woman. I have no fear that she will murder me. I believe my children love me enough not to rejoice by my coffin. I have absolutely no worries with my parents. Even very selfish people become selfless when it comes to their children.
Death insurance is the cheapest among all the kinds of insurance plans. So, it was not expensive for me to maximize my death coverage. You can even use them as a cheap form of insurance for family protection.
My subsequent paragraphs may be offensive to some. You are free to ignore if you disagree.
Death insurance can be used as a form of cheap disability/health plan to protect your family. If you are disabled at a young age or get diagnosed with a terminal illness that will cost a bomb to treat with low chances of survival, you may consider suicide but make sure your insurance covers suicide first! This way, not only do you avoid becoming a burden to your family, you can also provide a lump sum to support for their future living expenses. They sorely need it after losing a breadwinner. If it is honorable to die in war for your country (a group of strangers who can be unappreciative), then it is even more honorable to die for your family (people whom you love and love you back).
Medical and income disability insurance
After I have decided on term insurance plans, I still have to think about what term plans to buy. A starting point is to think about the risks that can happen in your life.
The types of insurance plans discussed here applies to the Singapore context. Foreign readers can skip this post. I will not discuss about specific plans. Everyone has to analyze their personal situation on their own and choose the best-fit plan. I will talk in terms of broad principles to get readers started. I am also not an expert on insurance. Experts out there, please point out any errors or mis-information that I make.
Falling sick with an illness that requires hospitalization and surgery is a very scary thing because doctors are so expensive. There is no point in being saved by a doctor from a heart attack, then suffer another heart attack on seeing his bill. You might consider dying in the second round.
Protection can be obtained through a hospitalization plan and a normal health plan with a co-deductible component. The latter can be bought using Medisave and I bought the best plan (most expensive). Since you cannot touch CPF money until retirement, you might as well use it to buy the best insurance that money can buy. In this way, you use untouchable money(CPF) to protect touchable money(cash) because the chances of forking out cash is reduced by better coverage.
I know of many Singaporeans who are covered for the 30 critical illnesses but not covered for hospitalization. This is unsafe as the chances of getting hospitalized is much higher than getting the 30 critical illnesses. Buy this first, then consider critical illness protection.
As a working adult, my most valuable asset is my ability to earn a living. Therefore, it makes good sense to insure against losing it.
I bought an income-disability plan which will pay me a percentage of my salary should I be unable to work due to accidents or disease. Even if this money is not sufficient to allow my family to live as comfortably as before, at least I will not become a burden to them should a disaster hit.
The types of insurance plans discussed here applies to the Singapore context. Foreign readers can skip this post. I will not discuss about specific plans. Everyone has to analyze their personal situation on their own and choose the best-fit plan. I will talk in terms of broad principles to get readers started. I am also not an expert on insurance. Experts out there, please point out any errors or mis-information that I make.
Falling sick with an illness that requires hospitalization and surgery is a very scary thing because doctors are so expensive. There is no point in being saved by a doctor from a heart attack, then suffer another heart attack on seeing his bill. You might consider dying in the second round.
Protection can be obtained through a hospitalization plan and a normal health plan with a co-deductible component. The latter can be bought using Medisave and I bought the best plan (most expensive). Since you cannot touch CPF money until retirement, you might as well use it to buy the best insurance that money can buy. In this way, you use untouchable money(CPF) to protect touchable money(cash) because the chances of forking out cash is reduced by better coverage.
I know of many Singaporeans who are covered for the 30 critical illnesses but not covered for hospitalization. This is unsafe as the chances of getting hospitalized is much higher than getting the 30 critical illnesses. Buy this first, then consider critical illness protection.
As a working adult, my most valuable asset is my ability to earn a living. Therefore, it makes good sense to insure against losing it.
I bought an income-disability plan which will pay me a percentage of my salary should I be unable to work due to accidents or disease. Even if this money is not sufficient to allow my family to live as comfortably as before, at least I will not become a burden to them should a disaster hit.
Thursday, February 18, 2010
Insurance agents serve themselves first
Knowing the importance of insurance for protection is a start. Knowing what kinds of insurance to buy is the difficult part. The first insurance product I bought was a bad buy for me. Having zero knowledge, I was totally reliant on the insurance agent who was not incentivized to give good advice. He was paid on commission. Therefore, he will sell what pays him the most commission which may not be a suitable product for me. In fact, it probably will not be a good deal for me because the high commission will be priced into the insurance plan.
It is hard to blame the insurance agent. But I certainly blame the incentives that drove him to the bad behavior. He has to earn a living after all. I would have done the same if I were in his place.
My objective of buying insurance is purely protection. Insurance plans that mixes investment or saving with protection are not suitable buys for me because they substantially raise the premium. To maximize protection for each dollar spent, I should have bought term insurance plans instead of the whole-life plan (my first buy). Term insurance holds another advantage for a know-nothing like me then. If I had made the wrong choice (likely if one knows nothing), I can cancel the plan and go for another one without incurring penalty charges. Not so for the whole-life plan. I wanted to cancel that plan in 2008 when there was a "bank run" on AIA(subsidiary of AIG) in Singapore. I end up still paying for the whole-life plan to avoid heavy losses which I will incur upon cancellation.
I am not dismissing the whole-life or endowment plans. One thing bad about term plans is that they become more expensive when you grow old and stop at a certain age. Not so for the whole-life plans.
However, I will consider them if there is spare money left in my budget after I am covered with adequate protection from the term plans. This is especially important for people like me with limited budgets.
Based on my mistakes, this is how I would advise those who are getting started with insurance. Buy term plans to ensure adequate protection first. If there is spare money left in the budget, then consider the more expensive plans. Otherwise, you end up paying a lot and still suffer from inadequate protection. This is a not an uncommon problem given the combination of insurance agents without the right incentives to sell suitable policies and ignorant buyers who provide a ready pool of suckers (which I hope this post can reduce).
It is hard to blame the insurance agent. But I certainly blame the incentives that drove him to the bad behavior. He has to earn a living after all. I would have done the same if I were in his place.
My objective of buying insurance is purely protection. Insurance plans that mixes investment or saving with protection are not suitable buys for me because they substantially raise the premium. To maximize protection for each dollar spent, I should have bought term insurance plans instead of the whole-life plan (my first buy). Term insurance holds another advantage for a know-nothing like me then. If I had made the wrong choice (likely if one knows nothing), I can cancel the plan and go for another one without incurring penalty charges. Not so for the whole-life plan. I wanted to cancel that plan in 2008 when there was a "bank run" on AIA(subsidiary of AIG) in Singapore. I end up still paying for the whole-life plan to avoid heavy losses which I will incur upon cancellation.
I am not dismissing the whole-life or endowment plans. One thing bad about term plans is that they become more expensive when you grow old and stop at a certain age. Not so for the whole-life plans.
However, I will consider them if there is spare money left in my budget after I am covered with adequate protection from the term plans. This is especially important for people like me with limited budgets.
Based on my mistakes, this is how I would advise those who are getting started with insurance. Buy term plans to ensure adequate protection first. If there is spare money left in the budget, then consider the more expensive plans. Otherwise, you end up paying a lot and still suffer from inadequate protection. This is a not an uncommon problem given the combination of insurance agents without the right incentives to sell suitable policies and ignorant buyers who provide a ready pool of suckers (which I hope this post can reduce).
Subscribe to:
Posts (Atom)