What Financially Independent People Do

Admin executive paid yearly insurance premiums higher than annual pay

PUBLISHED

OCT 5, 2015, 5:00 AM SGT
http://str.sg/Z6MZ

Administrative executive's policy requires her to fork out $40,000 a year

Lorna Tan  Senior Correspondent

An endowment insurance plan bought two years ago by Madam Corinne Han has proved a costly mistake.

The Prudential policy, which Madam Han, 57, bought at United Overseas Bank (UOB), requires her to pay yearly premiums higher than her annual pay.

She told The Straits Times that her intention in visiting UOB in 2013 was to open an account and inquire about fixed deposits. Instead, she ended up purchasing the policy that came with freebies like an air-fryer and a steamer.

Madam Han, an administrative executive with O-level education, earns about $30,000 a year, but the policy requires her to fork out an annual premium of $40,000 for five years, translating to total premiums of $200,000. So far, she has paid $80,000.

Back in 2013, when she visited UOB, she had $350,000 on hand due to a divorce settlement.

But after accounting for legal fees and loan payments, she would be left with about $100,000, insufficient to pay for the total premiums of $200,000.

As she was staying with her mother at the time, she rented out three rooms in her HDB flat. This gave her a combined monthly rental income of $2,000 in 2013. It has since dropped to about $1,000.

This is how the PruSave Max Limited Pay plan works.

At the end of the 10-year maturity period, Madam Han is projected to receive a maturity benefit of $236,000 - that is, a potential gain of $36,000 - if Prudential can earn 4.75 per cent on its investments.

By then, the value of the accumulated premiums, based on the illustrated rate of 4.75 per cent, would have grown to $291,172.

However, the "Effect of Deduction" (EOD) would amount to about $55,000, which leaves a non-guaranteed maturity sum of $236,000 to Madam Han. The EOD - which is due to Prudential - includes the cost of insurance, distribution cost, expenses and surrender charge.

If Prudential's investment return is 3.25 per cent, the maturity benefit is projected to be $217,768.

However, both the projected maturity figures of $236,000 and $217,768 are non-guaranteed.

The figures are used by the insurer for illustrative purposes, something that may be the source of confusion as the maturity benefits may be misconstrued to be between these two rates of returns.

The figure that is guaranteed, as indicated in the policy's benefit illustration, is actually $181,000 - a sum that is lower than the total premiums Madam Han would have coughed up for the plan.

The plan she has comes with a death benefit of 105 per cent, which means the policy provides negligible protection.

Endowment plans typically are savings plans that come with insurance protection which, in this case, is nominal. Customers pay premiums over a fixed period and, typically, a small portion of the premiums is deducted to pay for insurance cover. The rest is invested. So most customers would expect to get their money back, plus interest, when the endowment policy expires.

"I didn't know that I may get back less than $236,000, which I believed was guaranteed," says Madam Han.

The policy documents state that it is not a savings account and that the actual benefits are not guaranteed.

There is still the question of how Madam Han ended up buying this plan.

After paying for two years, she now faces financial difficulty in paying future premiums. UOB has informed her that the annual premiums could be reduced, but she would have to forgo the excess premiums that were paid in the first two years.

This means that if she pays a reduced annual premium of, say, $20,000 for the remaining three years, she will forgo the excess $40,000 that was paid in the first two years.

Madam Han has complained to UOB and wants to surrender the policy and recover her premiums.

A UOB spokesman told The Straits Times: "We will be arranging a meeting with Madam Han to clarify and address the matter with her."

Madam Han has four children, aged 20 to 27. Two of them have not completed their formal education.

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Comments from Investment Moats

Source: http://www.investmentmoats.com/budgeting/admin-exec-overextended-40000yr-premium-payment-evaluation-system-flawed/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+InvestmentMoats+%28Investment+Moats%29

The Admin Exec overextended her $40,000/yr premium payment. Evaluation system was flawed Posted: 06 Oct 2015 06:30 AM PDT There was a post by Ms Lorna Tan on Monday on a 57 year old Admin Executive plight when she thought what she put into the bank with UOB is guaranteed and that she has problems pulling it out. The article sought to create awareness of this specific case so that readers can learn from it. I have my own take away, hence this post. You can read the article here. Here are some of the facts from the article: The product is an insurance savings endowment PRUsave Max Limited Pay Pay for 5 years $40,000/yr, total premiums $200,000 Policy will mature in 10 years with a Maturity Benefit The Maturity Benefit is part guaranteed and non guaranteed The guaranteed portion will eventually be less than the total premiums paid The distribution cost in total, or the amount paid to the agents and the insurance company comes up to $55,000 If Prudential Investment Return is 3.25%, the maturity benefit is projected to be $217,768. If 4.75%, the maturity benefit is projected to be $236,000 She earns $30,000/yr and have 4 children aged 20 to 27 years old Her original intention was to put in as a time deposit During that time, she got $350,000 in divorce proceeds but after legal fees and loan payment, she was left with $100,000 which cannot pay for all the premiums She has paid $80,000 out of the $200,000 premium The policy was purchased with freebies of a steamer and an airfryer She purchased this thinking it is with the bank and it is guaranteed Insurance Savings Endowment rarely lose Money The experience folks may hold a different view, but based on my research, and how these plans are structured, they rarely end up poorer. This is even when some of my friends says so, but when I look at their statements, it proves otherwise. In my aggregation of some of my readers and friends matured or soon to matured policies they end up being positive or at least 2.5% in the past. (Post here) While the coupon rates on bonds these days are much lower, they shouldn’t lose money. That should not construe to be equal to guaranteed. If the maturity benefit is projected to be $217,768, the internal rate of return is 1.22%. Its not the best, and if you put it next to the Singapore Savings Bonds of 2.78%, this looks bad. If the maturity benefit is projected to be $236,000 the internal rate of return is 2.38%. These are projected which means it might be less. If the sales person feels this PRUSave is a better product, then it should at least yield more than time deposit. With the XIRR of the former, I wondered if it is indeed better. In any case, this is still a way to build wealth, for the risk adverse. This product in most scenarios should at least reach the buyer’s expectation of not losing money. Jumping into a lion’s den The problem for her is that she jumped into a situation where the sales person have an economic bias to up sell her products that earn the sales person a better commission. With a commission structure, people have a propensity to be pushy. There will be imaginary false promises being put out, such as that when is the last time 6 blue chip companies every collapse (when one of them happen to be a bank called Lehman Brothers) There are also incentives to tempt the person to act more irrationally, pushing them closer to buying. In this case, the steamer and air fryer. We all need a good evaluation system or process The biggest problem here is that, she could always say no if the product is risky and not good enough. Or that she does not know enough of it. She seem to have a problem seeing that $40,000 per year is a lot of money. Not just that, but did not think thoroughly whether she is able to pay for the full premium. This problem is not constraint to her alone. I have seen many peers and family members making the same mistake. It can be better overcome by a better evaluation system: When being marketed a product, don’t give the answer immediately if you are not familiar with it, or it have much moving parts Sit on it for a period, to see if you still want it Always have folks trusted, and with competency to act as a sounding board Have a habit or system to read widely, even if its not a lot Have a system of doing research Have a trigger that any big sum of commitment, needs a more thorough evaluation Sales Persons are genuinely motivated to sell and cannot be trusted These are rather general pointers and for some of you would know about them, but honestly if I don’t put them out, most would not do. I find these rule of thumb rather useful even for myself. Due to my condition, I have been marketed much MLM health products, and each of them seem to think they are the end result to solving my auto immune skin conditions. So I have also expanded much energy, and money in this area. In all health solutions, I derive on certain triggers in my system to save me from calamity: try your best to make sure the products do not have adverse health effects, check the sources do your own research on it have a budgeted amount monthly and annually for medical supplementation. If it exceeds this amount too much, just forget about it Summary My dad have a time deposit with UOB, thus I am rather disappointed that UOB was in this equation. I can see my dad in her shoes and this becomes my problem. I somehow think that there is more to this story than meets the eye. Its important to have a system or process of evaluation. We cannot be an expert in every areas, but we can try to be as adequate as possible, or network well to know folks who supplement us where we are deficient. This is applicable for legal advice, financial advice, medical, wellness and career.

How to Become a Millionaire by Age 30

http://www.entrepreneur.com/article/234454

JUNE 04, 2014 

Getting rich and becoming a millionaire is a taboo topic. Saying it can be done by the age of 30 seems like a fantasy.

It shouldn’t be taboo and it is possible. At the age of 21, I got out of college, broke and in debt, and by the time I was 30, I was a millionaire.

Here are the 10 steps that will guarantee you will become a millionaire by 30.

1. Follow the money. In today’s economic environment you cannot save your way to millionaire status. The first step is to focus on increasing your income in increments and repeating that. My income was $3,000 a month and nine years later it was $20,000 a month. Start following the money and it will force you to control revenue and see opportunities.

2. Don’t show off -- show up! I didn’t buy my first luxury watch or car until my businesses and investments were producing multiple secure flows of income. I was still driving a Toyota Camry when I had become a millionaire. Be known for your work ethic, not the trinkets that you buy.

3. Save to invest, don’t save to save. The only reason to save money is to invest it.  Put your saved money into secured, sacred (untouchable) accounts. Never use these accounts for anything, not even an emergency. This will force you to continue to follow step one (increase income). To this day, at least twice a year, I am broke because I always invest my surpluses into ventures I cannot access.

4. Avoid debt that doesn’t pay you. Make it a rule that you never use debt that won’t make you money. I borrowed money for a car only because I knew it could increase my income. Rich people use debt to leverage investments and grow cash flows. Poor people use debt to buy things that make rich people richer.

5. Treat money like a jealous lover. Millions wish for financial freedom, but only those that make it a priority have millions. To get rich and stay rich you will have to make it a priority. Money is like a jealous lover. Ignore it and it will ignore you, or worse, it will leave you for someone who makes it a priority.

6. Money doesn’t sleep. Money doesn’t know about clocks, schedules or holidays, and you shouldn’t either. Money loves people that have a great work ethic. When I was 26 years old, I was in retail and the store I worked at closed at 7 p.m. Most times you could find me there at 11 p.m. making an extra sale. Never try to be the smartest or luckiest person -- just make sure you outwork everyone.

7. Poor makes no sense. I have been poor, and it sucks. I have had just enough and that sucks almost as bad. Eliminate any and all ideas that being poor is somehow OK. Bill Gates has said, "If you’re born poor, it’s not your mistake. But if you die poor, it is your mistake."

8. Get a millionaire mentor. Most of us were brought up middle class or poor and then hold ourselves to the limits and ideas of that group. I have been studying millionaires to duplicate what they did. Get your own personal millionaire mentor and study them. Most rich people are extremely generous with their knowledge and their resources.

9. Get your money to do the heavy lifting. Investing is the Holy Grail in becoming a millionaire and you should make more money off your investments than your work. If you don’t have surplus money you won’t make investments. The second company I started required a $50,000 investment. That company has paid me back that $50,000 every month for the last 10 years. My third investment was in real estate, where I started with $350,000, a large part of my net worth at the time. I still own that property today and it continues to provide me with income. Investing is the only reason to do the other steps, and your money must work for you and do your heavy lifting.

10. Shoot for $10 million, not $1 million. The single biggest financial mistake I’ve made was not thinking big enough. I encourage you to go for more than a million. There is no shortage of money on this planet, only a shortage of people thinking big enough.

Apply these 10 steps and they will make you rich. Steer clear of people that suggest your financial dreams are born of greed. Avoid get-rich-quick schemes, be ethical, never give up, and once you make it, be willing to help others get there too.

GRANT CARDONE

CONTRIBUTOR

International Sales Expert

How to avoid the debt trap: Here are 5 rules to follow

The Straits Times

www.straitstimes.com

Published on Apr 07, 2015

How to avoid the debt trap: Here are 5 rules to follow

By Ariel Lim

SINGAPORE - The Monetary Authority of Singapore is clamping down on consumer debt, announcing on Monday tighter limits on the amount of unsecured debt that borrowers can hold. Unsecured debt is borrowing not backed by any collateral, such as credit card debt and personal loans.

At the same time, the Association of Banks in Singapore and Credit Counselling Singapore unveiled a new repayment assistance scheme to help those over the limit to cut their debt by allowing them to repay the excess debt at a lower interest rate.

But how can we avoid the debt trap in the first place?

The Straits Times spoke to Mr Alfred Chia, chief executive at financial advisory firm SingCapital Pte Ltd, who gave these ofive rules to follow:

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1. Distinguish needs from wants

In Mr Chia's experience, many people incur excess credit card debt through overspending because of their inability to tell needs from wants. He raised the example of a handbag, pointing out that while one may need a bag for daily usage, one only wants a luxury bag costing thousands of dollars.

2. Prepare for emergencies

Mr Chia noted that while some people fell into debt through overspending, others had been trapped by emergency needs such as medical bills, particularly those without appropriate insurance coverage.

3. Invest wisely

Still others had lost money to poor investment choices and found themselves indebted, said Mr Chia.

He warned investors against using their credit cards for investments as it is risking borrowed money. Also, he advised investors to gain a good understanding of the investment product and of the risks they were willing to take before making any investment.

4. Don't count your chickens before they hatch

Mr Chia pointed out that many people fell into the trap of "spending future money". They relied on expected sources of income such as bonuses and pay increments to finance future repayments, only to find themselves deep in debt when those sources were unexpectedly cut off.

He also noted that even debts that initially seem manageable may rapidly "snowball" because of compounding interest, which he said was at an average of 25 per cent.

5. Use the 4321 formula

Mr Chia prescribes a formula of 4321, which he also abbreviates as LESS:

- Loans, including housing, car and credit card loans, should not exceed 40 per cent of one's income.

- Expenses should not exceed 30 per cent of one's income. They can be covered with credit cards, but these should be paid off every month.

- One should save around 20 per cent of one's income on long-term financial goals such as marriage and retirement planning.

- One should save around 10 per cent of one's income for insurance coverage for oneself and one's loved ones.

Copyright © 2015 Singapore Press Holdings. All rights reserved.

Part 2 – My Vision Of The Future

I have gone through a life pattern. A pattern which consists of Schooling, Working, Paying Debt and Investment. Probably many people have also gone through this similar pattern. Can our lives go on with such a pattern? Of course we can. This pattern of life has existed for many years. The main motivation for people to work hard, to study hard, to sacrifice more time in the bid to acquire more money so as to lead a better lifestyle. Whether you are into a job or into your own business, the primary motivation is still similar. The above statement is meant generally for most people. Your motivation factor may be different though.

Before I can create the vision, I have to first know and understand what I have gone through.

School Days
I worked hard during my school days to achieve good grades. Good grades for what? Mainly to satisfy the expectation of my parents (initially) and also in the hope for a good job and good salary.

Working Life
I applied for jobs, went through interviews and secured a job. Worked hard and get annual increment.

Life Transition, Debts, Loans and Savings
I got married and established a home with my wonderful wife. The monthly salary is used to pay for bills, mortgage loans and other types of expenses. Of course, there is also money set aside for savings. These savings are used mainly for investments.

Investment Journey
During my investment journey, like many of you, I have started with unit trusts, singapore stock markets and HK stock market. I learnt fundamental analysis and technical analysis. I had my ups and downs in the investment arena as well. At a later stage, I have also gone into US stock market, Forex and all the way to stock options, ETF options, index options, index futures and commodities futures options etc.

 I would not want my future generations
to go through the same cycle that I have gone through.

I can visualise a lot of competition and stress starting from schooling up to retirement for our future generations. The stress and pressure from the society will get bigger and bigger over the years. The working hours will increase for sure.  The time for family will be lesser. The overall lifestyle will not be good.  Will all these come true?

Parents want children to excel (Higher Expectation)
The education will create a great pressure to children in the future generation. Parents will continue to exercise their thinking of having great children who will excel well in their studies so as to ‘shine’ in front of other students. There will be more tuitions for the students and higher expectation from the parents. Not only the parents want their children to excel in their studies, they also want them to excel in other areas such as music, sports and other activities. As this society gets tougher, parents will put more pressure on their children so that they can excel well and survive well in this harsh society. This will create enormous pressure and competition on the children.

More Competition For Placement And Recognition
Children of future generations will continue to compete with one another and with foreign talents to fight for a placing and recognition in the academic arena. In order to compete, they have to study very hard in order to stay in this competition.

Greater Number Of Graduates And Post Graduates
There will be more graduates and post graduates (masters and above). In my generation, there are already so many graduates around. Just ‘throw a stone’ across the street and it will hit a graduate any time. The numbers will be much greater in the future. The bigger the number, the more competitive life will be.

Future Generations Will Face Great Stress In Their Journey Of Studying.

They have to get very good grades, fulfill parent’s high expectations, compete with local and foreign students and to get a high level of qualification in order to ‘get a good job’.
Lots of time spent in the studying and competition.

People in general, without good qualifications will not be able to “survive well” in the future society.

Joining the workforce with high expectation
After school, most students will join the working force. There will be a lot of graduates in the future who will be competing for the same kind of job – the best kind that gives recognition and prestige with good salary. The best candidate wins. How many best candidates will we have?

Expecting a high salary (may create disappointment)
After studying for so long and getting a good qualification, future generations would want to have a good salary as well. Most may not compromise for a lower one because they have “good qualifications”. Greater salary expectation will yield greater competition and may also create greater disappointments if they did not manage to find one. Unless the expectation is lowered, the future generation may find it tough to get a job within the 1^st few years of their working life.  

Competition with Foreign Workers/Talents
The influx of foreign talents and workers will reduce the number of jobs for the locals. This in terms will yield more competition for the same number of jobs. Will the same amount of salary be attractive to local people or overseas people?

Working harder to sustain their job
Future generations will need to work hard in their jobs in order to ‘keep’ their jobs and prevent from being replaced by other candidates. More time is being exchange for the sustaining of their jobs. The rat race gets longer and they have to run faster and longer.

Self-Employed (The numbers will increase)
The numbers of self-employed personnel will increase. People wants to attain great wealth fast and to retire early. Or maybe to create huge wealth for their family. With people dropping out from the “employee” status and into the self-employed circle, the competition will increase in the self-employed sector too. Do you see many self-employed personnel in the market now? There will be many more in the future. It is going to get more competitive. The strongest survive. Or shall I phrase it as “the most hardworking” will survive. To me, hardworking means sacrificing more time to earn the dough.

 Future Generations May Face Disappointments and ‘Hardships’.

Will our future generation lower their expectation despite studying so hard?
Are they able to accept a job that only pays them “reasonable salary”?

Stress and Competition will definitely be much higher

 

High Property Price

Yes. In the long run, property prices will go higher. When property prices go higher, married couples will need to pay more as down payment and borrow more in their mortgage loan. I believe that the government will place in sufficient policies to slow down the increase in the prices. However, salary increment will not be able to catch up with the price increases.

High Property Prices Will Mean Less Savings And High Commitments
For The Future Generations
Most of the cash will be sunk into the property (mainly the first property).

High Qualification and Better Jobs Create High Complacency.
Future generations will have better qualifications and better jobs. They will also start to create bigger debt. They believe that they will get high paying jobs and they can afford to have more luxury items. Luxury cars will soon become a necessity for them and they will need to have one to show that they have done well in life. High complacency creates high bad debt.

Mountains Of Bad Debt Create Mountains Of Stress. 
Our future generations will be burdened with lots of debts due
to their ‘ability’ to be able to borrow bigger loans to service both the car and the property.

Once bad debt has reached a certain high level, life will become very stressful.

Huge Commitments and Debts

As I have mentioned before, a heavy body needs very strong arms to lift it up the bar. Having such a heavy body(High debt), the lifestyle will definitely be ‘heavy’ as well. It will not allow one to move freely. The lifestyle will be filled with many commitments and the future generation will have to keep working and finding higher paying jobs to pay the debt. They will be exchanging lots of time to work and earn the money. 

Future Generations will have Huge Commitments and Heavy Stress for Many Years.

Much of their time will be used to earn the money and pay the debts.

 

  - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - -

Using Most Of Our Time To Earn Money and Pay For The Debts That We Have Created.
Is Our Life Meant To Be Lived In This Manner?

- See more at: http://www.smartpassivecashflow.com/smartpassivecashflow-my-vision-of-the-future/#sthash.oRYc6tqW.dpuf

Part 1 – My Commitment To Break Through the Rat Race Generation Flow

For decades, generations before me (my parents, my grandparents..) have been working hard but still trapped in the rat race. They have worked hard in their 8-5 jobs, receive their salary, bring food to the table and pay their bills. Once all the money is used up, they will wait for the income in the next month. Months after months, years after years, income is made in such a manner.

Rat Race (Definition)
Using our time to work for money. We keep working hard for money and for survival. If without a job, financial security may be compromised and we may suffer from financial difficulties. 

This is part 1 of a 3-part Series
“My Commitment to Break Through The Rat Race Generation Flow”, “My Vision of the Future”,
“ How Am I Going to Achieve This Break Through”

 

Staying In The Default Generation FlowIf I leave things to move by itself and not gearing up for any action, I will end up earning my income in my job and join in the rat race as in my past generations. Very likely that my future generations(my children and grand children) will also follow the same footsteps and trapped in the same rat race. 

I am earning a reasonable income now with no problem of surviving through to my retirement age. However, this never ending cycle of working day in day out does not really make sense to me. Our ability to earn a survival in the current harsh society does not mean that our children will also possess the same ability to do the same. Of course we always hope that our children will do better than us and excel well. Think again. We want them to excel well for what reason? So that they can survive well in this society and earn more money?

It is no longer enough to be academically smart.  Being street smart and having good networks will be required in the society now and even more in the future. The competition will get stronger and stronger. Surviving should not be an issue but how about surviving well? Does it mean using more time to study and to work harder to join in this never ending cycle of competition? In the end, you will only exchange more time to get the money. 

I believe life can be greatly enhanced and our time can be placed into much better use. Being on the job for 8 hours a day to earn the monthly salary just does not tally with my current mindset. We have 24 hours a day; 8 hours of sleep and 16 hours of life. Guess what, we place 8 hours or more in a job. This is more than half of our life. Half of our life slogging for money? Does it make sense? Not to me. I need to put an end to this cycle.  

I believe in commitments and actions. I believe that things can change if you take the right actions and be persistent in it. Learning and enhancing along the way are keys to improvements.

If I do not even attempt to break through,
The Default Generation Flow will keep
 my current generation and future generations in the Rat Race.

Breaking Through the Default Generation Flow
Yes. Currently I am also in the rat race. Having a job and working for financial security and for survival. I am determined to change the course of the default flow in my current generation. That is, to get out of the rat race. No more using time to exchange for money. I would expect my future generation to use their time more meaningfully rather than chasing after money to make ends meet.

 

I am committed to
Break Through the Default Generation Flow And Change The Course Of Life

My future generations will have cash flow machines that will generate passive cash flow for them. It will no longer be compulsory for them to get a job, work for 8 hours a day, endure the working stress and office politics just to earn the monthly salary for survival and to make ends meet. Instead, they will have time to pursue their hobbies, help the unfortunate and to learn more of the world that they live in.  

In Part 2 ”My Vision Of The Future”, I will state down the compelling reasons on why I need to break through this Default Generation Flow. Stay Tuned. For your information, it is possible to break through this default generation flow and it is best to do it early. In the meantime, start being aware of running continously in the never ending cycle of life (the rat race) and create a more meaningful life for you and your family. And also to extend a helping hand to people who require assistance. 

 No Matter How Slowly You May Move, Do Not Stop.
And You Will Reach Your Destination Eventually

Do share on your opinions and experiences on the life as an employee or being self-employed.

- See more at: http://www.smartpassivecashflow.com/my-commitment-to-break-through-the-rat-race-generation-flow/#sthash.FYnlpZqS.dpuf