Colin Tan
15 July 2011
TODAY (Singapore)
(c) 2011. MediaCorp Press Ltd.
Home loan rates are back in the news. In the latest move to maintain loan volumes in an uncertain
market, at least two Singapore banks have reportedly been dangling some of the lowest rates, currently
pegged at about 0.2 per cent to market benchmarks, on selected properties.
The offered mortgage rates are pegged against two commonly used benchmark interest rates. These
are the Singapore interbank lending rate (Sibor) and the swap offer rate (SOR). The three-month
Singapore dollar Sibor has been at a record low of 0.438 per cent since January, while the three-month
SOR has moved between 0.189 and 0.3 per cent since April. It now stands at 0.21 per cent.
The fact that these deals have not been offered to the rest of the market yet and with the marketing kept
low-profile, suggests that the banks themselves recognise that it would be counter-productive to engage
in an open mortgage war at this time.
However, it may not be too long before this happens, given the globaleconomic situation where at a
recent meeting of the United States Federal Reserve, policy-makers discussed “Quantitative Easing
Three”. And Fed chairman Ben Bernanke said on Wednesday that further stimulus might be needed to
help the US recovery.
Quantitative easing is a tool to try to revive the US economy by expanding the money supply via huge
purchases of government bonds. If this happens, foreign investors are likely to head back to our region
in a big way as they switch out of developed markets, such as the US and Europe, which have recently
been spooked by concerns of slowing growth.
The upsurge of fresh money seeking higher yields may trigger what one analyst calls the “mother of all
bubbles”.
At 0.2 per cent, the first step towards buying a home must be almost painless. It may be the reason for
some of the recent buying in some projects in an otherwise gloomy market.
Buying sentiment had been significantly affected by the ongoing euro zone debt crisis. The last time our
private housing market was similarly downcast was in April last year when the Greek crisis erupted.
So, it was not the “Khaw” effect as some have suggested, referring to the uncertainty that has clouded
the market since Mr Khaw Boon Wan took over as Minister of National Development. Nor was it the
anxiety felt by the industry arising from the frequent blog postings of the minister.
It was due to macro-economic events. You cannot help notice the strong correlation every time a major
economic crisis looms on the horizon. But why should macro events play such a big part in affecting
buying sentiment? After all, home purchases are for the long term and should not be derailed by short term
developments.
Perhaps it is because most buyers these days are investors rather than owner-occupiers. Investors
always have their eye on the stock markets and when regional equity markets are rattled, they become
ultra-cautious.
When it became clear to me about a year ago that there is a strong possibility that home loan rates may
remain low longer than anticipated, I sounded out to those around me that maybe we should
contemplate some official action to edge mortgage rates higher to reflect the longer term and to have
them at a more sustainable level. This would protect some of the naive home buyers or novice investors
from being seduced by the very low promotional rates for the initial loan period.
The first time I brought up the idea, many reacted in horror and dismissed it quickly without giving me a
chance to flesh out my suggestion. But as the months went by, each time I revisited the subject, I
noticed that the reaction, though still strong, was less vehement. Some were even beginning to be more
receptive to the idea.
More recently, I suggested that we change the rules by which the banks compete for home loans. All
loans should be on offered at a fixed rate for a fixed period, say, three or five years, but the banks
should be allowed to freely determine this rate. This means the banks can continue to offer 0.2 per cent
if they want to. However, the risk of assessing interest rate risks is passed onto the lenders.
Banks can protect themselves by hedging some of the risks by, say, offering better rates for fixed
deposit to cover themselves during this period.
Let me put it this way: Who is more able to gauge interest rate risks? As corporations with more
resources and being players in the financing industry themselves, banks are definitely better placed
than individuals to assess these risks.
The writer is head of research and consultancy at Chesterton Suntec International.
Saturday, July 16, 2011
Home sweet loan
Robin Chan & Magdalen Ng
12 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
Home loans for as low as 0.2% for a few new projects and for a limited time. Move may be driven by
slowing mortgage applications
AT LEAST two Singapore banks have been dangling some of the lowest ever home loan rates,
currently pegged at about 0.2 per cent, on selected properties.
Analysts say the moves by DBS Bank and United Overseas Bank (UOB) may reflect intensifying
competition to maintain loan volumes in an uncertain market. These loans may be more attractive to
short-term property investors.
The two banks confirmed to The Straits Times yesterday they have offered mortgage rates pegged at
two commonly used benchmark interest rates - and not a whisker more - in the initial period.
These are the Singapore interbank lending rate (Sibor) and swap offer rate (SOR). The three-month
Singdollar Sibor has been at a record low of 0.438 per cent since January; the three-month SOR has
moved between 0.3 and 0.189 per cent since April. It is now 0.21 per cent.
The SOR tends to be more sensitive to exchange rate movements.
Typically, when banks use the Sibor or SOR, they add their own profit margin.
These new rock bottom rates are usually for a promotional period such as the first year or even longer -
after that a higher rate, such as the usual benchmark plus a margin, is applied.
Mr Vinod Nair, chief executive of website Smartloans.sg, which offers home loan comparisons, said the
low rates are more suitable for short-term investors.
Compare a SOR plus zero package that rises to SOR plus1 per cent after three years, and a flat SOR
plus 0.7 per cent package, on a $1 million, 30-year loan.
A person pays $5,430 in total interest for the first three years under the first package, compared to
$25,557 over the same period for the second, he said.
But over the 30-year loan tenure, he would actually pay less using the second package.
Dr Chua Hak Bin, economist at Bank of America-Merrill Lynch, said the latest trend could be because mortgage applications have fallen, and there is 'intensified competition among banks to maintain mortgage loan volumes'.
He said lenders may also be anticipating more cooling measures which could hit loan volumes, and the
global slowdown may cause banks to focus more on mortgages and less on riskier corporate loans.
While home loans eased, total loans rose 24.2 per cent in May from a year earlier, the 'same highs seen
in mid-2008 before the global financial crisis hit', he added.
But Mr Tan Kok Keong, Orange Tee's head of research and consultancy, said mortgage packages with
zero spreads are not new, and he does not think lenders are about to engage in a price war as not every
bank can match the low rates.
'Neither will there be a spike in speculators entering the market because of the 16 per cent (sellers')
stamp duty,' he said, referring to one government cooling measure.
There have been at least three property launches since April featuring low-rate packages.
DBS is offering a Sibor plus zero package for Skyline Residences - a freehold condo in Telok Blangah
launched last week - till next Monday. The zero rate is for one year, then it rises.
At Woodhaven, a Far East Organization project launched last month in Woodlands, DBS is offering an
SOR plus zero package applying to the loan period until the property's completion, before the zero rating
also rises. The offer is set to end soon. A DBS spokesman said these are 'tactical offers... usually
available for a very short period and selectively offered at some launches'.
UOB said it had offered the SOR plus zero package for The Boutiq in Killiney Road, but it has ceased. A
UOB spokesman said: 'Apart from projects committed to previously, UOB will not be offering the SOR
plus zero home loan package.'
OCBC and Citibank have not offered similar deals this year. OCBC's head of consumer secured lending
Phang Lah Hwa said: 'It is not uncommon for players to revise offerings to stay competitive.'
chanckr@sph.com.sg
songyuan@sph.com.sg
12 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
Home loans for as low as 0.2% for a few new projects and for a limited time. Move may be driven by
slowing mortgage applications
AT LEAST two Singapore banks have been dangling some of the lowest ever home loan rates,
currently pegged at about 0.2 per cent, on selected properties.
Analysts say the moves by DBS Bank and United Overseas Bank (UOB) may reflect intensifying
competition to maintain loan volumes in an uncertain market. These loans may be more attractive to
short-term property investors.
The two banks confirmed to The Straits Times yesterday they have offered mortgage rates pegged at
two commonly used benchmark interest rates - and not a whisker more - in the initial period.
These are the Singapore interbank lending rate (Sibor) and swap offer rate (SOR). The three-month
Singdollar Sibor has been at a record low of 0.438 per cent since January; the three-month SOR has
moved between 0.3 and 0.189 per cent since April. It is now 0.21 per cent.
The SOR tends to be more sensitive to exchange rate movements.
Typically, when banks use the Sibor or SOR, they add their own profit margin.
These new rock bottom rates are usually for a promotional period such as the first year or even longer -
after that a higher rate, such as the usual benchmark plus a margin, is applied.
Mr Vinod Nair, chief executive of website Smartloans.sg, which offers home loan comparisons, said the
low rates are more suitable for short-term investors.
Compare a SOR plus zero package that rises to SOR plus1 per cent after three years, and a flat SOR
plus 0.7 per cent package, on a $1 million, 30-year loan.
A person pays $5,430 in total interest for the first three years under the first package, compared to
$25,557 over the same period for the second, he said.
But over the 30-year loan tenure, he would actually pay less using the second package.
Dr Chua Hak Bin, economist at Bank of America-Merrill Lynch, said the latest trend could be because mortgage applications have fallen, and there is 'intensified competition among banks to maintain mortgage loan volumes'.
He said lenders may also be anticipating more cooling measures which could hit loan volumes, and the
global slowdown may cause banks to focus more on mortgages and less on riskier corporate loans.
While home loans eased, total loans rose 24.2 per cent in May from a year earlier, the 'same highs seen
in mid-2008 before the global financial crisis hit', he added.
But Mr Tan Kok Keong, Orange Tee's head of research and consultancy, said mortgage packages with
zero spreads are not new, and he does not think lenders are about to engage in a price war as not every
bank can match the low rates.
'Neither will there be a spike in speculators entering the market because of the 16 per cent (sellers')
stamp duty,' he said, referring to one government cooling measure.
There have been at least three property launches since April featuring low-rate packages.
DBS is offering a Sibor plus zero package for Skyline Residences - a freehold condo in Telok Blangah
launched last week - till next Monday. The zero rate is for one year, then it rises.
At Woodhaven, a Far East Organization project launched last month in Woodlands, DBS is offering an
SOR plus zero package applying to the loan period until the property's completion, before the zero rating
also rises. The offer is set to end soon. A DBS spokesman said these are 'tactical offers... usually
available for a very short period and selectively offered at some launches'.
UOB said it had offered the SOR plus zero package for The Boutiq in Killiney Road, but it has ceased. A
UOB spokesman said: 'Apart from projects committed to previously, UOB will not be offering the SOR
plus zero home loan package.'
OCBC and Citibank have not offered similar deals this year. OCBC's head of consumer secured lending
Phang Lah Hwa said: 'It is not uncommon for players to revise offerings to stay competitive.'
chanckr@sph.com.sg
songyuan@sph.com.sg
Hefty deposit for hospitalising baby and refund takes too long
11 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
MY 21-MONTH-OLD daughter was recently hospitalised at the National University Hospital (NUH) due
to high fever.
The only available ward was Class A1, so we decided to take that. To our horror, we found out that a
deposit of $5,000 was required. We inquired about Class B1 and were told that would require a deposit
of $3,000.
We had no choice but to place the $5,000 deposit due to my daughter's condition. I asked the staff when
this deposit would be returned as I had used my credit card and was worried about the hefty interest
charges. The reply was that it would take two months.
I asked whether the time taken to return the deposit would be shorter if I paid my bill in full when my
daughter was discharged, and the answer was 'no'.
I have a few queries:
* Why does it take two months for the deposit to be credited back to the patient?
* What if the hospital does not have available beds in the lower-class wards and the family cannot afford
the hospital deposit?
* Why are hospitals allowed to take such a hefty deposit when so many of us have Medisave accounts
which should be there to protect and lessen the amount of cash we have to fork out for our medical
bills?
Shahnawaz Saleem
Straits Times
(c) 2011 Singapore Press Holdings Limited
MY 21-MONTH-OLD daughter was recently hospitalised at the National University Hospital (NUH) due
to high fever.
The only available ward was Class A1, so we decided to take that. To our horror, we found out that a
deposit of $5,000 was required. We inquired about Class B1 and were told that would require a deposit
of $3,000.
We had no choice but to place the $5,000 deposit due to my daughter's condition. I asked the staff when
this deposit would be returned as I had used my credit card and was worried about the hefty interest
charges. The reply was that it would take two months.
I asked whether the time taken to return the deposit would be shorter if I paid my bill in full when my
daughter was discharged, and the answer was 'no'.
I have a few queries:
* Why does it take two months for the deposit to be credited back to the patient?
* What if the hospital does not have available beds in the lower-class wards and the family cannot afford
the hospital deposit?
* Why are hospitals allowed to take such a hefty deposit when so many of us have Medisave accounts
which should be there to protect and lessen the amount of cash we have to fork out for our medical
bills?
Shahnawaz Saleem
No deposit needed if Medisave can be used: NUH
11 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
FROM our records, Mr Shahnawaz Saleem had requested the non-subsidised Class A1 ward for his child's admission, similar to a previous admission.
For patients who choose a non-subsidised ward, a deposit is usually required unless the patient's
insurance, employee benefits and Medisave (subject to withdrawal limits) are sufficient to cover the
estimated hospitalisation charges.
Mr Shahnawaz had indicated that he would not use Medisave for this admission. As we did not have
details of the quantum of his insurance coverage, to ascertain if it would cover the estimated
hospitalisation bill without the use of Medisave, Mr Shahnawaz was asked to furnish a deposit.
Our staff would generally advise that a refund may take up to two months if it involves Medisave or insuranc e claims which need to be processed. For a previous admission where Mr Shahnawaz had used
his Medisave, the refund was made three weeks after his child's discharge.
Mr Shahnawaz asked what would happen if the hospital does not have available beds in the lower-class
wards and a patient cannot afford the hospital deposit.
Patients who choose subsidised wards are not required to furnish a deposit unless the estimated
hospitalisation bill is higher than the Medisave withdrawal limits or if the funds in the Medisave account
are insufficient.
Despite this, patients needing emergency care and who have financial difficulty will still be admitted if
the medical condition warrants so. If the choice of ward type is temporarily unavailable, the patient will
be cared for at the accident and emergency department and admitted to the ward as soon as the
assigned bed is available.
On the rare occasion where waiting time for the bed is expected to be exceptionally long, such as when
there is a surge in demand due to the unpredictable nature of emergencies, we will make arrangements
for the patient to be transferred to another restructured hospital which can offer a bed in the chosen
ward type.
We thank Mr Shahnawaz for the opportunity to address his concerns and would like to apologise for any
misunderstanding that may have arisen from his interaction with our staff.
Ang Kwok Ann
Director, Finance
National University Hospital
Straits Times
(c) 2011 Singapore Press Holdings Limited
FROM our records, Mr Shahnawaz Saleem had requested the non-subsidised Class A1 ward for his child's admission, similar to a previous admission.
For patients who choose a non-subsidised ward, a deposit is usually required unless the patient's
insurance, employee benefits and Medisave (subject to withdrawal limits) are sufficient to cover the
estimated hospitalisation charges.
Mr Shahnawaz had indicated that he would not use Medisave for this admission. As we did not have
details of the quantum of his insurance coverage, to ascertain if it would cover the estimated
hospitalisation bill without the use of Medisave, Mr Shahnawaz was asked to furnish a deposit.
Our staff would generally advise that a refund may take up to two months if it involves Medisave or insuranc e claims which need to be processed. For a previous admission where Mr Shahnawaz had used
his Medisave, the refund was made three weeks after his child's discharge.
Mr Shahnawaz asked what would happen if the hospital does not have available beds in the lower-class
wards and a patient cannot afford the hospital deposit.
Patients who choose subsidised wards are not required to furnish a deposit unless the estimated
hospitalisation bill is higher than the Medisave withdrawal limits or if the funds in the Medisave account
are insufficient.
Despite this, patients needing emergency care and who have financial difficulty will still be admitted if
the medical condition warrants so. If the choice of ward type is temporarily unavailable, the patient will
be cared for at the accident and emergency department and admitted to the ward as soon as the
assigned bed is available.
On the rare occasion where waiting time for the bed is expected to be exceptionally long, such as when
there is a surge in demand due to the unpredictable nature of emergencies, we will make arrangements
for the patient to be transferred to another restructured hospital which can offer a bed in the chosen
ward type.
We thank Mr Shahnawaz for the opportunity to address his concerns and would like to apologise for any
misunderstanding that may have arisen from his interaction with our staff.
Ang Kwok Ann
Director, Finance
National University Hospital
Sunday, July 10, 2011
Not all hospitals allow Medisave for cancer tests
Salma Khalik, Health Correspondent
2 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
WHILE Medisave can now be used to pay for colorectal and breast cancer screenings, not all public
hospitals are on the approved list.
Tan Tock Seng Hospital and Changi General Hospital are not on the list for colorectal screening.
Alexandra Hospital is not approved for both breast and colorectal screenings.
These hospitals do provide the services but patients cannot use Medisave to pay for them.
The Straits Times understands that they missed the deadline for submitting applications to be included
in the list. They are now doing so and are likely to make it to the list in the coming weeks.
Polyclinics and private centres, such as Raffles Hospital, are also on the approved list. This can be
accessed at the Ministry of Health (MOH) website www.moh.gov.sg
Colorectal cancer is the top cancer here, with 1,500 new cases a year. Breast cancer is the top cancer
among women, with 1,400 cases each year.
Medisave can be used only at places that 'meet the quality assurance requirements for the scheme',
said MOH. The quality assurance takes into account 'patient safety, staff competency and clinical quality
requirements'.
A ministry spokesman said the ministry will work with more centres to reach the requirements for
inclusion on the list.
To encourage early diagnosis, which greatly improves the chances of beating the two cancers, the Heal
th Ministry decided to allow people to use Medisave to offset the high cost of screening.
They may draw up to $950 for a colonoscopy, though a higher limit of $1,250 applies if polyps are found.
On top of that, they may claim up to $300 for any additional charges, such as for medicine.
This test, which costs about $1,000, is recommended once every 10 years for adults from age 50.
There are also cheaper stool tests to check for colorectal cancer which can be done at most clinics.
These should be done annually.
Women can tap the $300 a year from Medisave that is set aside for outpatient use to pay for a
mammogram to detect breast cancer. A mammogram costs about $100. Women aged 50 to 69 are
urged to go for one once every two years.
2 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited
WHILE Medisave can now be used to pay for colorectal and breast cancer screenings, not all public
hospitals are on the approved list.
Tan Tock Seng Hospital and Changi General Hospital are not on the list for colorectal screening.
Alexandra Hospital is not approved for both breast and colorectal screenings.
These hospitals do provide the services but patients cannot use Medisave to pay for them.
The Straits Times understands that they missed the deadline for submitting applications to be included
in the list. They are now doing so and are likely to make it to the list in the coming weeks.
Polyclinics and private centres, such as Raffles Hospital, are also on the approved list. This can be
accessed at the Ministry of Health (MOH) website www.moh.gov.sg
Colorectal cancer is the top cancer here, with 1,500 new cases a year. Breast cancer is the top cancer
among women, with 1,400 cases each year.
Medisave can be used only at places that 'meet the quality assurance requirements for the scheme',
said MOH. The quality assurance takes into account 'patient safety, staff competency and clinical quality
requirements'.
A ministry spokesman said the ministry will work with more centres to reach the requirements for
inclusion on the list.
To encourage early diagnosis, which greatly improves the chances of beating the two cancers, the Heal
th Ministry decided to allow people to use Medisave to offset the high cost of screening.
They may draw up to $950 for a colonoscopy, though a higher limit of $1,250 applies if polyps are found.
On top of that, they may claim up to $300 for any additional charges, such as for medicine.
This test, which costs about $1,000, is recommended once every 10 years for adults from age 50.
There are also cheaper stool tests to check for colorectal cancer which can be done at most clinics.
These should be done annually.
Women can tap the $300 a year from Medisave that is set aside for outpatient use to pay for a
mammogram to detect breast cancer. A mammogram costs about $100. Women aged 50 to 69 are
urged to go for one once every two years.
Monday, July 4, 2011
Medisave can be used for mammograms & colonoscopies
Medisave can be used for mammograms & colonoscopies
123 words
30 June 2011
18:58
Channel NewsAsia
CNEWAS
English
(c) 2011 MediaCorp News Pte Ltd. All Rights Reserved
SINGAPORE : With effect from July 1, patients can use their Medisave for screening mammograms and
colonoscopies.
The Ministry of Health said this would make screening tests more affordable and accessible to
Singaporeans.
It said the change would benefit around 450,000 women for mammogram screening and one million
Singaporeans for colonoscopy screening.
Patients can withdraw up to S$300 from their Medisave account each year to offset the cost of their
mammograms.
On average, mammograms cost about S$100.
Subsidised mammograms are available for Singapore citizens and permanent residents at participating
BreastScreen Singapore centres.
The Medisave withdrawal limit for colonoscopy screening will be pegged at the prevailing withdrawal
limit for day surgery procedures.
- CNA/al
123 words
30 June 2011
18:58
Channel NewsAsia
CNEWAS
English
(c) 2011 MediaCorp News Pte Ltd. All Rights Reserved
SINGAPORE : With effect from July 1, patients can use their Medisave for screening mammograms and
colonoscopies.
The Ministry of Health said this would make screening tests more affordable and accessible to
Singaporeans.
It said the change would benefit around 450,000 women for mammogram screening and one million
Singaporeans for colonoscopy screening.
Patients can withdraw up to S$300 from their Medisave account each year to offset the cost of their
mammograms.
On average, mammograms cost about S$100.
Subsidised mammograms are available for Singapore citizens and permanent residents at participating
BreastScreen Singapore centres.
The Medisave withdrawal limit for colonoscopy screening will be pegged at the prevailing withdrawal
limit for day surgery procedures.
- CNA/al
Tuesday, November 9, 2010
Thursday, November 4, 2010
Wednesday, November 3, 2010
Tuesday, November 2, 2010
Monday, November 1, 2010
Fruitful decade for Singaporeans
The Business Times
By Roy Varghese
Foundation Adviser
IPAC Singapore
WITH less than 100 days to the end of 2010, it makes sense to take stock of the first decade of the new millennium. Baby boomers, those born between 1946 and 1964, have a special incentive to reflect on the past and take charge of the future to ensure that their quality of lifestyle in retirement is not permanently impaired as a result of the massive negative impact of global bear markets in the last 10 years.
The experience of investors and families in this decade will vary based on their circumstances and where they live and work. American baby boomers, especially those who are about to start their retirement, generally feel that they have made no progress in this miserable decade as the US stock market is now at the same level or below what it was on Jan 1, 2001.
Singapore's middle-class families, in contrast, have a lot to be grateful for in the same period. In 2001, the youngest cohort of baby boomers was probably starting families and living in their first homes. Now, in their mid-40s, most of them may be close to being mortgage-free unless they upgraded to private property.
Meanwhile, Singapore baby boomers in their mid-50s are dealing with funding children's tertiary education and building their retirement capital, which took a substantial hit two years ago if the portfolios were invested in higher-risk assets.
Finally, those in the early to mid-60s may be anxious about having enough resources to see them through retirement in the next two decades.
To understand the gripes of investors who are still under water as a result of the 2008 global financial crisis, I ran a series of simulations comparing lump-sum investing and regular savings plans in MSCI World Index, S&P 500 Index, Berkshire Hathaway-A (BRK-A) and the Straits Times Index (STI), all measured in US dollars.
There are some interesting conclusions for the serious-minded wealth accumulator.
MSCI World Index
If you invested US$100,000 into the MSCI World Index 10 years ago (through an exchange-traded fund or index fund if it existed in 2001), your portfolio would be worth US$80,000 today.
If you invested US$10,000 every year starting September 2000, your portfolio would be worth US$106,000 today.
In reality, it's unlikely anyone in the world would have chosen either of these two approaches exclusively.
The principle here is the application of basic diversification in global equities based on stocks from selected developed countries.
The exclusion of developing markets from this index is reason enough to question if the MSCI World Index is a relevant benchmark for retail investors in the new world order.
S&P 500
If you invested US$100,000 into the S&P 500 Index 10 years ago, the portfolio would be valued at US$78,000 today. This is slightly worse than the MSCI World Index lump-sum strategy.
On the other hand, if you had invested US$10,000 every year for 10 years as part of a regular investment programme, your portfolio would be worth US$99,000 today.
An American retail investor seeking exposure to large-cap domestic stocks might have included this index as part of a larger portfolio. This is why there is widespread unhappiness among Americans who feel that they were let down by their domestic stock market despite diligent regular investing over a 10-year period in a pension plan.
Berkshire Hathaway
As an American or international investor who is a fan of Warren Buffett, let's assume that you invested US$100,000 into the BRK-A stock 10 years ago.
You would own one share plus change of this legendary stock that would be worth US$194,000 today, up by 94 per cent.
If it were possible to buy fractional BRK-A as part of a regular savings plan, investing US$10,000 per year over 10 years would have created a single-stock portfolio with less than two shares of BRK-A worth US$ 146,000.
Mr Buffett's stock picks have proven superior to any diversified global or American equity market in this decade.
Straits Times Index
Finally, if you invested US$100,000 into the STI 10 years ago, your portfolio would be worth about US$198,000 today.
It would have almost doubled in 10 years and this works out to be an annual growth rate of 7 per cent in US dollar terms.
As a disciplined Singapore investor who invested US$10,000 equivalent per year over 10 years into the STI, presumably with manual construction of the index (which has changed its component stocks over time), your portfolio would be worth US$191,000 today .
The low base in Singapore stock prices in September 2000 gave the lump-sum approach a slight edge over regular investing.
In any case, it cannot be denied that the dazzling recovery from the two bear markets in this decade resulted in the STI being the clear winner of the four pairs of scenarios in our simulation.
Conclusions on the outcomes
Before we draw some over-arching conclusions, it is worth clarifying two points.
First, dividends from the underlying stocks are not reflected in the indexes, which measure only price changes. This means that at least 2 per cent per annum of dividend yield can be added to the annualised returns for all four scenarios to estimate total returns more accurately.
Second, we have not considered fees and charges for fund management, financial advice or income taxes. At the individual investor level, the actual results would not have been exactly the same as the simulated performance. Overall, we can be confident the general outcomes of the four scenarios can provide us some direction going forward.
In terms of the merits of anchoring a diversified portfolio to US domestic large caps, shadowing the MSCI World Index and the S&P 500 was detrimental to investment performance after 10 years.
The global financial crisis had a more severe impact on US stocks than either Singapore equities or Berkshire Hathaway.
There were two separate bear markets that impacted US equities this decade: the 2001 to 2003 global recession (-50 per cent) and the 2008 to 2009 global financial crisis (-45 per cent).
The Singapore stock market generally mimicked the declines of the S&P 500 but the ensuing bull markets in 2003 to 2007 (+200 per cent) and 2009 to the present (+100 per cent) have propelled the STI to a brilliant position compared to the start of the decade. BRK-A was more like the STI than the S&P 500 except that the Berkshire recovery was more stellar after the first recession compared to the post Wall Street meltdown of 2008.
Mr Buffett can afford the risk-concentrated holdings in the Berkshire conglomerate that includes insurance company Geico, railway Burlington Northern Santa Fe, Washington Post, Amex, Coke, Goldman Sachs and General Electric. This may not be appropriate for retail investors who need diversity in their portfolio.
Asset allocation, with asset classes outside equities, remains the cornerstone of sound investment strategies for individuals, especially those who are very close to retirement.
On the question of dollar-cost averaging versus lump-sum investing based on the four selected candidates, it is clear that adding to the portfolio after a steep market decline pays off in the future. Mechanical equal investing may not be optimal; a shrewd investor should be prepared to do ad-hoc top-ups to the portfolio when a correction is deemed substantial. Professional advice is strongly recommended when investors are confused, irrationally exuberant or nervous.
What now for Singaporeans?
Based on anecdotal evidence, Singaporean baby boomers who own private property did very well this decade if they measured growth in personal net worth. This is a simple exercise to do. Subtract liabilities from assets on Jan 1, 2001 and compare this figure with your net assets today. Private property values may have doubled or tripled over the decade.
If this is indeed the case, a compounded growth rate of 10 per cent per annum in personal net worth is entirely possible. That's a better growth rate than the STI of bluechip stocks held over the decade.
Even iconic Berkshire Hathaway delivered only 4 per cent per annum in Sing dollar terms over the decade owing to the massive depreciation of the US dollar in the last few years.
How can an investor justify a hypothetical benchmark of 10 per cent per annum compounded growth rate for his personal net worth? Add a risk premium of 3 per cent per annum to a risk-free yield of 3 per cent per annum and inflation of 3 per cent per annum over the long term and one per cent per annum currency impact for foreign currency assets and you get a rough benchmark of 10 per cent per annum nominal growth rate for personal net worth.
What this means is that a Singapore investor should not be bound to global indexes for personal net worth progress reporting. For a moderate-risk baby boomer, a globally diversified portfolio of equities, with no more than 20 per cent dedicated to US stocks, plus bonds, Reits, Singapore and Asian equities represents an ideal investment core. (Older baby boomers should have more bonds and defensive assets).
Private property underpins the liquid assets for long-term capital appreciation of retirement capital.
Baby boomers in Singapore received an excellent tutorial from The Lost Decade that never was.
These are the writer's personal views and not ipac's.
This article was first published in The Business Times.
By Roy Varghese
Foundation Adviser
IPAC Singapore
WITH less than 100 days to the end of 2010, it makes sense to take stock of the first decade of the new millennium. Baby boomers, those born between 1946 and 1964, have a special incentive to reflect on the past and take charge of the future to ensure that their quality of lifestyle in retirement is not permanently impaired as a result of the massive negative impact of global bear markets in the last 10 years.
The experience of investors and families in this decade will vary based on their circumstances and where they live and work. American baby boomers, especially those who are about to start their retirement, generally feel that they have made no progress in this miserable decade as the US stock market is now at the same level or below what it was on Jan 1, 2001.
Singapore's middle-class families, in contrast, have a lot to be grateful for in the same period. In 2001, the youngest cohort of baby boomers was probably starting families and living in their first homes. Now, in their mid-40s, most of them may be close to being mortgage-free unless they upgraded to private property.
Meanwhile, Singapore baby boomers in their mid-50s are dealing with funding children's tertiary education and building their retirement capital, which took a substantial hit two years ago if the portfolios were invested in higher-risk assets.
Finally, those in the early to mid-60s may be anxious about having enough resources to see them through retirement in the next two decades.
To understand the gripes of investors who are still under water as a result of the 2008 global financial crisis, I ran a series of simulations comparing lump-sum investing and regular savings plans in MSCI World Index, S&P 500 Index, Berkshire Hathaway-A (BRK-A) and the Straits Times Index (STI), all measured in US dollars.
There are some interesting conclusions for the serious-minded wealth accumulator.
MSCI World Index
If you invested US$100,000 into the MSCI World Index 10 years ago (through an exchange-traded fund or index fund if it existed in 2001), your portfolio would be worth US$80,000 today.
If you invested US$10,000 every year starting September 2000, your portfolio would be worth US$106,000 today.
In reality, it's unlikely anyone in the world would have chosen either of these two approaches exclusively.
The principle here is the application of basic diversification in global equities based on stocks from selected developed countries.
The exclusion of developing markets from this index is reason enough to question if the MSCI World Index is a relevant benchmark for retail investors in the new world order.
S&P 500
If you invested US$100,000 into the S&P 500 Index 10 years ago, the portfolio would be valued at US$78,000 today. This is slightly worse than the MSCI World Index lump-sum strategy.
On the other hand, if you had invested US$10,000 every year for 10 years as part of a regular investment programme, your portfolio would be worth US$99,000 today.
An American retail investor seeking exposure to large-cap domestic stocks might have included this index as part of a larger portfolio. This is why there is widespread unhappiness among Americans who feel that they were let down by their domestic stock market despite diligent regular investing over a 10-year period in a pension plan.
Berkshire Hathaway
As an American or international investor who is a fan of Warren Buffett, let's assume that you invested US$100,000 into the BRK-A stock 10 years ago.
You would own one share plus change of this legendary stock that would be worth US$194,000 today, up by 94 per cent.
If it were possible to buy fractional BRK-A as part of a regular savings plan, investing US$10,000 per year over 10 years would have created a single-stock portfolio with less than two shares of BRK-A worth US$ 146,000.
Mr Buffett's stock picks have proven superior to any diversified global or American equity market in this decade.
Straits Times Index
Finally, if you invested US$100,000 into the STI 10 years ago, your portfolio would be worth about US$198,000 today.
It would have almost doubled in 10 years and this works out to be an annual growth rate of 7 per cent in US dollar terms.
As a disciplined Singapore investor who invested US$10,000 equivalent per year over 10 years into the STI, presumably with manual construction of the index (which has changed its component stocks over time), your portfolio would be worth US$191,000 today .
The low base in Singapore stock prices in September 2000 gave the lump-sum approach a slight edge over regular investing.
In any case, it cannot be denied that the dazzling recovery from the two bear markets in this decade resulted in the STI being the clear winner of the four pairs of scenarios in our simulation.
Conclusions on the outcomes
Before we draw some over-arching conclusions, it is worth clarifying two points.
First, dividends from the underlying stocks are not reflected in the indexes, which measure only price changes. This means that at least 2 per cent per annum of dividend yield can be added to the annualised returns for all four scenarios to estimate total returns more accurately.
Second, we have not considered fees and charges for fund management, financial advice or income taxes. At the individual investor level, the actual results would not have been exactly the same as the simulated performance. Overall, we can be confident the general outcomes of the four scenarios can provide us some direction going forward.
In terms of the merits of anchoring a diversified portfolio to US domestic large caps, shadowing the MSCI World Index and the S&P 500 was detrimental to investment performance after 10 years.
The global financial crisis had a more severe impact on US stocks than either Singapore equities or Berkshire Hathaway.
There were two separate bear markets that impacted US equities this decade: the 2001 to 2003 global recession (-50 per cent) and the 2008 to 2009 global financial crisis (-45 per cent).
The Singapore stock market generally mimicked the declines of the S&P 500 but the ensuing bull markets in 2003 to 2007 (+200 per cent) and 2009 to the present (+100 per cent) have propelled the STI to a brilliant position compared to the start of the decade. BRK-A was more like the STI than the S&P 500 except that the Berkshire recovery was more stellar after the first recession compared to the post Wall Street meltdown of 2008.
Mr Buffett can afford the risk-concentrated holdings in the Berkshire conglomerate that includes insurance company Geico, railway Burlington Northern Santa Fe, Washington Post, Amex, Coke, Goldman Sachs and General Electric. This may not be appropriate for retail investors who need diversity in their portfolio.
Asset allocation, with asset classes outside equities, remains the cornerstone of sound investment strategies for individuals, especially those who are very close to retirement.
On the question of dollar-cost averaging versus lump-sum investing based on the four selected candidates, it is clear that adding to the portfolio after a steep market decline pays off in the future. Mechanical equal investing may not be optimal; a shrewd investor should be prepared to do ad-hoc top-ups to the portfolio when a correction is deemed substantial. Professional advice is strongly recommended when investors are confused, irrationally exuberant or nervous.
What now for Singaporeans?
Based on anecdotal evidence, Singaporean baby boomers who own private property did very well this decade if they measured growth in personal net worth. This is a simple exercise to do. Subtract liabilities from assets on Jan 1, 2001 and compare this figure with your net assets today. Private property values may have doubled or tripled over the decade.
If this is indeed the case, a compounded growth rate of 10 per cent per annum in personal net worth is entirely possible. That's a better growth rate than the STI of bluechip stocks held over the decade.
Even iconic Berkshire Hathaway delivered only 4 per cent per annum in Sing dollar terms over the decade owing to the massive depreciation of the US dollar in the last few years.
How can an investor justify a hypothetical benchmark of 10 per cent per annum compounded growth rate for his personal net worth? Add a risk premium of 3 per cent per annum to a risk-free yield of 3 per cent per annum and inflation of 3 per cent per annum over the long term and one per cent per annum currency impact for foreign currency assets and you get a rough benchmark of 10 per cent per annum nominal growth rate for personal net worth.
What this means is that a Singapore investor should not be bound to global indexes for personal net worth progress reporting. For a moderate-risk baby boomer, a globally diversified portfolio of equities, with no more than 20 per cent dedicated to US stocks, plus bonds, Reits, Singapore and Asian equities represents an ideal investment core. (Older baby boomers should have more bonds and defensive assets).
Private property underpins the liquid assets for long-term capital appreciation of retirement capital.
Baby boomers in Singapore received an excellent tutorial from The Lost Decade that never was.
These are the writer's personal views and not ipac's.
This article was first published in The Business Times.
Saturday, October 30, 2010
Thursday, October 28, 2010
Wednesday, October 27, 2010
How Health Minister Khaw paid $8 for his heart bypass ...
From iTODAY
Ng Jing Yng
SINGAPORE - Health Minister Khaw Boon Wan paid only $8 from his pocket for his heart bypass in May.
In order to reiterate the importance of adequate coverage, Mr Khaw said in his latest blog post yesterday that his operation, at the National Heart Centre Singapore (NHCS), was mostly paid for by MediShield and a private Shield supplement, while Medisave helped in the co-payment of the rest of his hospital bill.
According to figures on the Ministry of Health website, the bill for heart bypass surgery is less than $30,000 for nine in 10 patients staying in an A class ward in NHCS.
Those covered under MediShield - a basic insurance scheme for CPF members - can choose to top up their basic coverage by supplementing it with plans from private insurers, while Medisave allows members to dip into its accounts to pay for hospitalisation expenses.
Recounting a recent meeting with health insurers, Mr Khaw also flagged the possibility of extending MediShield to cover mental illness, congenital illness and neonatal treatment.
Mr Raymond Fernando, whose wife suffers from schizophrenia, told MediaCorp such a move would "greatly help in relieving my financial burden and, hopefully, lead to other insurers taking the cue". It could also reduce the stigma of mental illnes and encourage more patients to come forward, said Mr Fernando.
Another idea floated during Mr Khaw's meeting with the health insurers was to raise the MediShield claim limits on outpatient cancer care, which stand at $300 per weekly treatment cycle and up to $2,800 for radiotherapy treatment.
Mr Khaw added that there was also discussion on raising the monthly payout for ElderShield - a severe disability insurance scheme - to extend the monthly basic payout of $400 and to extend the payout period beyond six years.
Ng Jing Yng
SINGAPORE - Health Minister Khaw Boon Wan paid only $8 from his pocket for his heart bypass in May.
In order to reiterate the importance of adequate coverage, Mr Khaw said in his latest blog post yesterday that his operation, at the National Heart Centre Singapore (NHCS), was mostly paid for by MediShield and a private Shield supplement, while Medisave helped in the co-payment of the rest of his hospital bill.
According to figures on the Ministry of Health website, the bill for heart bypass surgery is less than $30,000 for nine in 10 patients staying in an A class ward in NHCS.
Those covered under MediShield - a basic insurance scheme for CPF members - can choose to top up their basic coverage by supplementing it with plans from private insurers, while Medisave allows members to dip into its accounts to pay for hospitalisation expenses.
Recounting a recent meeting with health insurers, Mr Khaw also flagged the possibility of extending MediShield to cover mental illness, congenital illness and neonatal treatment.
Mr Raymond Fernando, whose wife suffers from schizophrenia, told MediaCorp such a move would "greatly help in relieving my financial burden and, hopefully, lead to other insurers taking the cue". It could also reduce the stigma of mental illnes and encourage more patients to come forward, said Mr Fernando.
Another idea floated during Mr Khaw's meeting with the health insurers was to raise the MediShield claim limits on outpatient cancer care, which stand at $300 per weekly treatment cycle and up to $2,800 for radiotherapy treatment.
Mr Khaw added that there was also discussion on raising the monthly payout for ElderShield - a severe disability insurance scheme - to extend the monthly basic payout of $400 and to extend the payout period beyond six years.
Tuesday, October 26, 2010
Seek cover when you're young
my paper
By Reico Wong
MENTION the word "insurance" and most people tend to yawn, change the topic or, in some cases, literally vanish.
It is undeniable that the subject becomes unbearable when pesky insurance agents descend on you and try to shove different products down your throat.
However, the benefits of getting insured is apparent in the long term, as adequate insurance coverage is a necessity.
The time to seek cover is when one is young and healthy, as insurers grant full coverage and at a lower premium.
But, more importantly, insurance coverage is critical as one's future is unpredictable.
Individuals will also want to think about their dependants - parents, as they become older and unable to work; one's spouse, who may be tied down by financial obligations like home-mortgage and other personal loans; and one's children, to fund their education.
Besides death, other tragedies can occur. Then, hospitalisation and health-care bills will be an immense burden. You do not want to drain your loved ones' savings.
Life insurance is one of the most basic, yet critical, types of policies you should have.
Life insurance is a contract between an insurer and a policyholder, where the insurer agrees to pay a designated beneficiary a sum of money upon the contracted individual's death and, in some cases, if the individual becomes critically ill or suffers from a permanent disability.
In return, the policyholder pays a stipulated premium, either at regular intervals or in a lump sum.
According to the latest statistics from the Life Insurance Association of Singapore (LIA), the industry paid out a total of $1.85 billion to policyholders and beneficiaries as of end June.
Of this, $210 million was related to death, critical-illness or disability claims, while the remaining $1.64 billion went to policies that had matured.
With more than 140 registered insurers in Singapore offering a wide variety of life-insurance policies, it is no surprise that even those interested in the product may feel overwhelmed and not know where to start looking.
Issuers say a variety of factors determine the type of insurance policy and extent of coverage one should look for. These revolve around one's age and the stage of life one is at, including marital status, children, medical history, earning capacity, goals and anticipated financial needs.
For example, a person in his 20s to 30s who is unmarried would typically be focused on building his career and on asset accumulation.
With his financial resources in the foundation phase, his main concerns should be in the areas of accident and disability protection, as well as on investment.
On the other hand, a married couple in their mid-30s to early 40s with children should be more focused on wealth accumulation and enhancement. They should look towards family security and debt cancellation, focusing not only on the same aspects as those in their 20s to 30s, but also on the long-term care and welfare of dependants.
"A person's sum assured (or the insurance coverage needed) should be roughly 10 times of his annual income, as a rule of thumb," said insurer Great Eastern Holdings.
The company pointed out that term-insurance plans, the cheapest among the various types of life insurance, can cost less than $50 each month. Whole life-insurance policies, meanwhile, cost much more because they offer longer-term protection and have an investment component.
The LIA points out that individuals should expect to receive three documents from their financial advisers at the point of sale - a guide to life insurance, a product summary and a benefit illustration.
It also advises that individuals purchase insurance policies on a needs-driven basis, and always after conducting a cautious analysis of financial status and the ability to pay long-term regular premiums.
While individuals can choose to cancel or switch insurance policies, this must be done wisely as premiums paid will not be refundable, and there are typically penalties imposed on policyholders for early policy termination.
Individuals switching from one policy to another might also want to ensure that they do not cancel the original policy until the new one is in force - you do not want to be left without coverage, especially for a long period of time.
While there is no cap to the number of life-insurance policies an individual can buy, critical-illness and permanent-disability claims is subject to certain benefit caps. Multiple claims cannot be made if coverage is on a reimbursement basis.
Financial advisers' track record should be also evaluated, not just the range of products offered.
Other tips the LIA suggests include not taking up any policy if you are unsure of its scope and functions, as well as insisting on having all documents.
LIFE INSURANCE TYPES
WHOLE LIFE
ALSO known as ordinary, permanent or straight life insurance, this type of policy provides life-long protection that pays out a benefit to a contracted individual's beneficiaries upon the policyholder's death.
Such policies sometimes also cover critical illness and permanent disability.
It typically also has an investment component, which builds up cash value that the policyholder can withdraw or borrow against to meet future goals.
Note that the rate of returns here may not be as competitive as other investment alternatives.
Often, such policies allocate more money as one ages to the mortality component, while what goes into the investment portion is reduced over time.
TERM LIFE
This is a pure protection plan that covers a contracted individual for a fixed period of time.
The benefit is specific, and will be paid out only if a policyholder's death occurs within the specified time period.
Premiums for term insurance are usually lower than those for a wholelife policy, and such policies offer higher coverage for most people, except for those advanced in age.
This is due not only to the shorter time period of insurance coverage, but also because the policy does not have an investment component.
VARIABLE LIFE
Variable life policies are like whole life policies, except that they allow more flexibility in the investment component.
A contracted individual is able to choose from a range of investment options within an insurer's portfolio, such as stocks, bonds and certain types of funds. The insurer often manages these investment products itself, collecting a fee.
Financial planners, however, warn that such policies are only for riskoriented individuals and those unlikely to need to tap on their savings on a short notice.
Variable returns fluctuate with the direction of financial markets and, if the markets plunge, the cash value portion of the policy will be severely affected.
UNIVERSAL LIFE
Universal life policies allow a contracted individual to review and shift money between the mortality and investment components. The cash value of investments can thus grow at an adjusted variable rate.
Most of such policies also guarantee a minimum interest-crediting rate.
The policyholder can also adjust the premiums as his circumstances change.
Although highly flexible, universal life policies have certain drawbacks. If you choose to pay lower premiums at certain times, you might have to pay higher charges later on. The alternative is to drop the policy and withdraw the cash value you may have built up. But, if you drop the policy early, you will have to pay a surrender charge.
By Reico Wong
MENTION the word "insurance" and most people tend to yawn, change the topic or, in some cases, literally vanish.
It is undeniable that the subject becomes unbearable when pesky insurance agents descend on you and try to shove different products down your throat.
However, the benefits of getting insured is apparent in the long term, as adequate insurance coverage is a necessity.
The time to seek cover is when one is young and healthy, as insurers grant full coverage and at a lower premium.
But, more importantly, insurance coverage is critical as one's future is unpredictable.
Individuals will also want to think about their dependants - parents, as they become older and unable to work; one's spouse, who may be tied down by financial obligations like home-mortgage and other personal loans; and one's children, to fund their education.
Besides death, other tragedies can occur. Then, hospitalisation and health-care bills will be an immense burden. You do not want to drain your loved ones' savings.
Life insurance is one of the most basic, yet critical, types of policies you should have.
Life insurance is a contract between an insurer and a policyholder, where the insurer agrees to pay a designated beneficiary a sum of money upon the contracted individual's death and, in some cases, if the individual becomes critically ill or suffers from a permanent disability.
In return, the policyholder pays a stipulated premium, either at regular intervals or in a lump sum.
According to the latest statistics from the Life Insurance Association of Singapore (LIA), the industry paid out a total of $1.85 billion to policyholders and beneficiaries as of end June.
Of this, $210 million was related to death, critical-illness or disability claims, while the remaining $1.64 billion went to policies that had matured.
With more than 140 registered insurers in Singapore offering a wide variety of life-insurance policies, it is no surprise that even those interested in the product may feel overwhelmed and not know where to start looking.
Issuers say a variety of factors determine the type of insurance policy and extent of coverage one should look for. These revolve around one's age and the stage of life one is at, including marital status, children, medical history, earning capacity, goals and anticipated financial needs.
For example, a person in his 20s to 30s who is unmarried would typically be focused on building his career and on asset accumulation.
With his financial resources in the foundation phase, his main concerns should be in the areas of accident and disability protection, as well as on investment.
On the other hand, a married couple in their mid-30s to early 40s with children should be more focused on wealth accumulation and enhancement. They should look towards family security and debt cancellation, focusing not only on the same aspects as those in their 20s to 30s, but also on the long-term care and welfare of dependants.
"A person's sum assured (or the insurance coverage needed) should be roughly 10 times of his annual income, as a rule of thumb," said insurer Great Eastern Holdings.
The company pointed out that term-insurance plans, the cheapest among the various types of life insurance, can cost less than $50 each month. Whole life-insurance policies, meanwhile, cost much more because they offer longer-term protection and have an investment component.
The LIA points out that individuals should expect to receive three documents from their financial advisers at the point of sale - a guide to life insurance, a product summary and a benefit illustration.
It also advises that individuals purchase insurance policies on a needs-driven basis, and always after conducting a cautious analysis of financial status and the ability to pay long-term regular premiums.
While individuals can choose to cancel or switch insurance policies, this must be done wisely as premiums paid will not be refundable, and there are typically penalties imposed on policyholders for early policy termination.
Individuals switching from one policy to another might also want to ensure that they do not cancel the original policy until the new one is in force - you do not want to be left without coverage, especially for a long period of time.
While there is no cap to the number of life-insurance policies an individual can buy, critical-illness and permanent-disability claims is subject to certain benefit caps. Multiple claims cannot be made if coverage is on a reimbursement basis.
Financial advisers' track record should be also evaluated, not just the range of products offered.
Other tips the LIA suggests include not taking up any policy if you are unsure of its scope and functions, as well as insisting on having all documents.
LIFE INSURANCE TYPES
WHOLE LIFE
ALSO known as ordinary, permanent or straight life insurance, this type of policy provides life-long protection that pays out a benefit to a contracted individual's beneficiaries upon the policyholder's death.
Such policies sometimes also cover critical illness and permanent disability.
It typically also has an investment component, which builds up cash value that the policyholder can withdraw or borrow against to meet future goals.
Note that the rate of returns here may not be as competitive as other investment alternatives.
Often, such policies allocate more money as one ages to the mortality component, while what goes into the investment portion is reduced over time.
TERM LIFE
This is a pure protection plan that covers a contracted individual for a fixed period of time.
The benefit is specific, and will be paid out only if a policyholder's death occurs within the specified time period.
Premiums for term insurance are usually lower than those for a wholelife policy, and such policies offer higher coverage for most people, except for those advanced in age.
This is due not only to the shorter time period of insurance coverage, but also because the policy does not have an investment component.
VARIABLE LIFE
Variable life policies are like whole life policies, except that they allow more flexibility in the investment component.
A contracted individual is able to choose from a range of investment options within an insurer's portfolio, such as stocks, bonds and certain types of funds. The insurer often manages these investment products itself, collecting a fee.
Financial planners, however, warn that such policies are only for riskoriented individuals and those unlikely to need to tap on their savings on a short notice.
Variable returns fluctuate with the direction of financial markets and, if the markets plunge, the cash value portion of the policy will be severely affected.
UNIVERSAL LIFE
Universal life policies allow a contracted individual to review and shift money between the mortality and investment components. The cash value of investments can thus grow at an adjusted variable rate.
Most of such policies also guarantee a minimum interest-crediting rate.
The policyholder can also adjust the premiums as his circumstances change.
Although highly flexible, universal life policies have certain drawbacks. If you choose to pay lower premiums at certain times, you might have to pay higher charges later on. The alternative is to drop the policy and withdraw the cash value you may have built up. But, if you drop the policy early, you will have to pay a surrender charge.
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