Insurance Nominations

Parliament passed the Insurance Act (Amendment) Bill on 19 January 09. It contains a framework for nomination of beneficiaries in respect to insurance policy proceeds. Part of the Act came into operation on 1st March 09.

Prior to the amendment, the Insurance Act did not contain provisions for the nomination of beneficiaries. The new section 49L and 49M will introduce a new framework for nomination of beneficiaries in respect of Life, Accident or Health Insurance with Death Benefits. This Act has yet to come into force, but I believe changes should be on the way anytime soon.

Existing Framework
* When a policyowner names his spouse and/or children as beneficiaries of an insurance policy effected on his own life, section 73 of the Conveyancing and Law of Property Act will automatically create a statutory trust in favour of the beneficiaries.
* The creation of such a trust implies that the policy owner will irrevocably lose all rights and control over the insurance policy concerned, including payouts made when he is alive.
* For the trust to be effective, the policy must be bought after marriage and nomination made at point of inception.

New Framework
* Insurance policy owners will be able to choose whether or not to make nomiation. They can choose between a revocable or irrevocable (trust) nomiation.
* The new nomination framework shall not apply retrospectively. What this means is that insurance policies with existing nominations will continue to be subject to the laws in force at the time the nomination was made.

Revocable Nominations:
* The Policy owner can change his nomination at any time and be paid as per his nomination in event of death.
* Insurance policies paid for with CPF monies will be eligible only for revocable nominations.

Irrevocable (Trust) Nominations:
* An irrevocable nomination will create a statutory trust in favour of the Beneficiaries. This feature is similar to the Section 73 of the CLPA.
* Once such nomination was made, the Policy owner lost all rights and control over the policy

NTUC Income Policies
* NTUC Income is the only Insurance Cooperative in Singapore. They have provision under Section 45 of the Cooperatives' Societies Act that allows their policyholders to make a nomination.
* However, do note that the rightful beneficiaries still have the rights to contest their nomination in court. Just that we probably have not heard of such contest before.

Why make things difficult for us?

I received a call on Sunday night. Conversation as follows:

Mr Chan: Is this Adrian!!!
Adrian: Yes?
Mr Chan: I received a letter from NTUC Income. Tell me what is it?
Adrian: I'm sorry. I don't know what letter they sent. Can you describe a bit more on what was written on it?
Mr Chan: I don't understand what they sent. Can you go find out what letter was that?
Adrian: Can you read a bit on the heading of the letter?
Mr Chan: I tell you to go find out from NTUC Income!!! (Shouting at me). Why ask me so much? Adrian: How about allowing me to drop by your place this week and take a look at this letter?
Mr Chan: I don't have the letter now. You just go find out!

Monday Morning:
I sent a email to NTUC Income CS Dept, trying to find out what it is. So far no reply from them.

Monday evening:
Mr Chan: Adrian Khiat!!! Have you found out what NTUC Income sent me?
Adrian: I still have no idea what NTUC Income sent you. Can I drop by your place this Thurs or Fri evening. I will explain every detail of that letter NTUC Income sent you.
Mr Chan: I had given you a day to find out what they sent me. What sort of agent are you? Can't even do such a simple thing?
Adrian: Pls don't shout at me. Can I offer to drop by your place on Thurs or Fri night? I shall explain on that letter.
Mr Chan: I have no time for you. You call me few days later. I see if I'll free to meet you.
(From beginning to end, he was practically shouting at me)

* Mr Chan purchased an Incomeshield from me in Jan 07, he purchased an annuity and Living Policy from another agent previously. I have no idea if this letter pertains to the bonus issue for his annuity but he refuse to give me info.
* Its a difficult client. He was very rude to me. He took me for granted, he makes things difficult for me on purpose. I felt terrible and lousy but I will keep my promise to see through this letter. Still have to wait if he wants to me meet for such a personalised service. Keep you guys posted.

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I met Mr Chan on 5th May from 9:30pm to 11pm. NTUC Income actually sent him a 3 page endorsement to reflect recent changes in the plan. The endorsement looks quite messy to me and hence I had requested a whole new policy to be printed out for him.

I brought that policy to his place, I spent half a day translating a large part of that policy into Chinese and I use it to explain paragraph by paragraph. It was very stressful because my Mandarin is pretty lousy and he scrutinises on every word that I'd said.
He insisted that I must go to his place and update him every year whether there are changes or not.

My feeling was mixed if I should have gotten such client in the first place. Its a difficult client and I'm sure there will be more problems in future. But sometimes, it because of these difficult clients that we learnt the most.

Why so many letters on Eldershield???

In my course of work, I noticed that many people have no idea what Eldershield is all about and confused with all the letters their respective insurers sent over the years. I hope this posting is able to help some of these people.

I often have to spend considerable time explaining about the plan and to go through all the letters they received.

I had written about this 1 year ago and just a recap
http://akhiat.blogspot.com/2008/04/eldershield-keep-or-dont-keep.html

I like to also add on a few items which I did not mention previously...

What is Eldershield?

* A severe disability insurance scheme which provides basic financial protection to those who need long-term care, especially during old age. There are currently 2 schemes.

1) Eldershield 300 - It provides a monthly cash payout of $300 for a maximum of 60 months. It was for those who are already in the scheme before Sep2007.

2) Eldershield 400 - It provides a monthl cash payout of $400 for a maximum of 72 months. It was for those who reaches 40 after Sep2007.

When was it implemented?

* Commenced in September 2002 and a reform from September 2007

* As it is an auto-cover scheme, you do not have to sign up to join ElderShield, or go for medical assessment

Who are affected?
1) All Singapore Citizen and PRs between age 40 and 69, with Medisave accounts, as at 30 Sep 2002
2) Singapore Citizens PRs with Medisave accounts, who reaches the age of 40 thereafter are automatically covered

Who are my likely insurer?
NTUC Income or Great Eastern for those already in the scheme before Sep07.
NTUC Income, Great Eastern or Aviva for those reaching 40 after Sep07.

What letter did my insurers probably sent me?
1) Renewal Notices yearly
2) Notification on Eldershield Reforms and Premium Rabates
3) Proposal form for upgrade from Eldershield300 to Eldershield400
4) Marketing Leaflets encouraging you to sign up for their respectively Eldershield Supplements

If you ignore all these marketing leaflets, they will keep sending you these letters year after year to ask you upgrade and why you should upgrade.
* Hope you have a better idea of the letters your Eldershield Insurers are sending you now **

For more info on Eldershield, you may refer to my previous post as above.

Happy Easter Day

My Lovely and Melody to wish all of you a Very Happy Easter Day. Easter Eggs and Rabbits are commonly associated with Easter Day. I wrote about it last year.
http://akhiat.blogspot.com/2008/03/easter-bunny.html
Take a look if you still have no idea on the origin of Easter Rabbits.

Its been another year my 2 rabbits can come out and greet you guys... Its hard to get both of them posing a picture together...

About Easter Day
On Easter Sunday, Christians celebrate the resurrection of the Lord, Jesus Christ. It is typically the most well-attended Sunday service of the year for Christian churches.

Christians believe according to Scripture, that Jesus came back to life, or was raised from the dead, three days after his death on the cross. As part of the Easter season, the death of Jesus Christ by crucifixion, is commemorated on Good Friday, always the Friday just before Easter. Through his death, burial and resurrection, Jesus paid the penalty for sin, thus purchasing for all who believe in him, eternal life in Christ Jesus.

Participating Policies in Economic Recession

MAS has stipulated in March 08 that insurers have to make known the performance of their par funds for the last three years in the benefits illustration. The investment expense ratio and asset allocation of these par funds shall also be indicated in it. I'd posted some info about Par Fund in my previous blog link below:

http://akhiat.blogspot.com/2008/07/what-is-life-participating-fund.html

http://akhiat.blogspot.com/2008/08/insurers-participating-fund-returns.html

Just to summarise. The money from these par funds normally comes from par policies which are typically sold as Whole Life or Endowment Plans. The premiums from these policyholders are then pooled and invested collectively in a diversified portfolio, which can include government and corporate bonds, equities, fixed income, properties and other assets.

Policyholders will then beneft through a combination of guaranteed and non-guaranteed bonuses, which provide them with medium to long-term returns. Bonuses are usually determined on an annual basis and are an additional to the guaranteed benefits.

From the media release by LIA on 26th March, we can expect several insurers to revise their bonuses for 2008 due to the poor investment climate. This revision will affect the non-guaranteed benefits in the Benefit Illustrations as projected in your policy document.

From the past 2 weeks, I know that NTUC Income and TM Asia Life are not cutting their bonuses and HSBC Life will be. In the latest Benefit Illustrations I seen from NTUC Income, they declared their Life Participating Fund performance to be -11.1%. It seems quite commendable considering that global equities dropped as much as 40% and bonds ~10% in 2008.

As far as possible, Insurers will certainly be reluctant to cut bonuses and try apply smoothing of Returns to ensure that they are able to maintain bonuses in good and bad times. However, in my opinion, those insurers whose par funds did not perform during the economic boom shall have a higher chance of bonus reduction in 2008 because they probably have lesser profits held back in reserve during good times from 2004 to 2007.

The insurers who did not perform well are AIA, Aviva, UOB Life and HSBC Life. HSBC Life is the first one to cut bonuses. Who shall we see next?

Bad Habits of Retail Investors

I was referred by one of my client to his friend recently to help him with a financial plan. I went through his friend's needs, insurance and investments just like any of my other prospects. He is a single professional in the mid 40s. He believes in accumulating his wealth towards retirement and to take care of his aging parents.

When we started to touch on investments, he opened up and told me that he was rather depressed over the investments he made over the last 2 years when he had lost more than 60% of his life savings. He was a saver until the period from Sep06 to Apr08 when he invested into Shares and Unit Trusts.

When he passed his pile of investment statements to me, I nearly fainted. I can understand why he was depressed.

1) Accmulated too much cash

* For 20 years, he saved all his money in fixed deposits and structured products from the bank. He accumulated quite a large amount till he was frustrated with the low interest rate and was tempted with the rising equity market.

* He followed his colleagues into buying shares and purchased Unit Trusts from banks and Fundsupermart, all over a short span of 1.5 years. Nearly all his 20 years savings are put for investment over that 18 months.

2) Over and Under Diversification

* For his shares portfolio, he was under diversified. He owns many China based shares because China Shares are so strong and volatile then. The rest are penny stocks which I barely heard of.

* For his Unit Trust portfolio, he was over diversified. He purchased at least 20 different Unit Trusts from Banks and Fundsupermart. Out of the 20, he has 12 asia funds, 2 commodities funds, 2 property funds, 1 middle east and the rest theme funds. He was confused over what he purchased and knows that many of the funds are duplicative. He said that he has no time to look through his overall portfolio and just watch how his funds lost value.

3) Buying into Flavour of the month

* He walked into the bank one day and was convinced by a lady banker. From then, that banker always called him to update him on "Flavour of the month". He invested into several property funds and China India funds. He believe that new funds are always better just because it start with $1.

* He was excited with his inital profits and started to invest more of his savings.

* He later invested into Middle-east, Latin America, Commodities and all sort of funds like climate change, which many of them are new launches.

4) Surrender and stop investing

* His last purchased was into Commodities, Middle East and Financials in Apr08 when he heard many comments on how these sectors will outperform the rest of the world. The value dropped by 50% since then. He surrendered after that and swore that he will never invest again. He insisted that investments are not for him and became very pessimistic towards it.

3 things I like to highlight here:

a) Look for a trusted adviser earlier to help manage your funds if you have no idea how to do it. They can show you how to diversify your funds correctly and to avoid fundamental investment mistakes. Some bankers or FAs are just interested in selling either a new, hot, or top performing fund.

b) Try to invest part of your cash on a regular basis. Adopt dollar-cost averaging for part of your investments. Too much cash can be a headache and you may take higher risk unknowningly.

c) Don't give up and stop investing during bad times. Greed is what make one invest during boom period. Fear is the one stopping you now. Understand your investment objectives and risk profiling. remove your fear and continue to invest if you are able to.