More flexibility with new insurance law

More flexibility with new insurance law

Policyholders can now change nominees, but law not retrospective. -ST

Source: Thu, Sep 10, 2009
The Straits Times

By Lorna Tan, Senior Correspondent

INSURANCE policyholders can name beneficiaries and change them when the need arises, thanks to the introduction of a new nomination regime.

The long-awaited Insurance Nomination Law provides policyholders of life, accident and health policies with more flexibility and control over how to distribute policy proceeds.

The new law came into effect on Sept 1 and is seen as a vast improvement on the arrangement it replaces, which did not allow policyholders to change beneficiaries even after a divorce.

This meant that if a policyholder named his spouse or children as policy beneficiaries, he effectively created a statutory trust even if he did not want to.

Policyholders were prevented from changing their beneficiaries, or cashing in their policies without the consent of beneficiaries.

Many policyholders learnt of this only during divorce proceedings when they discovered that their former spouses still had a claim on their policies, or when an insured person's death sparked a bitter family dispute.

Some did not realise that if they named other parties as beneficiaries, such as grandparents, siblings, aunts and friends, they had no legal claim to policy proceeds.

The controversies surrounding such trusts prompted the insurance industry to do away with nominating beneficiaries in life policies in 2002.

The exception is NTUC Income because its policy proceeds are paid to nominees under a different law - the Cooperative Societies Act - allowing a cooperative member to make a nomination, which can include spouse, children, relatives and friends.

Under the Insurance Nomination Law, customers have two choices - to either make a trust nomination, or a revocable nomination.

With a trust nomination, the policyholder relinquishes all rights to the policy. This means that while he is still obliged to pay premiums, all policy benefits - living and death - belong to the nominees. An advantage is that policy proceeds are protected from creditors in the event of bankruptcy.

The policyholder can regain his rights to own the policy benefits only with the consent of all nominees. And only the spouse or a child of the policyholder is eligible to become a nominee.

With a revocable nomination, the policyholder continues to retain full ownership over the policy. He retains the right to change, add or remove nominees at any time without the consent of nominees.

The policyholder will receive living benefits and only death benefits will be paid to the nominees.

Unfortunately, the new law does not apply retrospectively to existing policies with previous nominations, but existing policies with no previous nominations are eligible.

Although the new framework applies to personal accident plans, general or non-life insurers who sell such cover would not be keen to offer their customers the option to nominate.

The General Insurance Association said that this was due to the fact that such policies are renewable either annually or on a monthly basis.

'Hence any nomination by a policyholder will be valid for the period of insurance only, which can be as short as one month,' it added.

Nevertheless, the new law has been welcomed by many.

Mr Darren Thomson, president of the Life Insurance Association (LIA), said: 'For estate planning, the new framework provides all-important clarity and hence peace of mind.

'It gives policyholders legal options in naming their beneficiaries, and a choice of control over the policy - whether they wish to relinquish or retain their rights during their lifetime.'

LIA added that the nomination process is straightforward with forms that are easy to complete.

To help consumers, a guide is available on its website www.lia.org.sg

what you should know about CPF Life

Source: Straits Times 13 Sept 2009

What you should know about CPF Life

By Lorna Tan, Senior Correspondent

In the coming weeks, about 700,000 Central Provident Fund (CPF) members aged 55 and above will be invited to join the CPF Lifelong Income Scheme For The Elderly (CPF Life). The annuity scheme offers a choice of four plans that pay a monthly income for as long as you live.

These plans offer various combinations of two key elements that are traded off: monthly payouts and refund amounts upon death or withdrawal from the scheme

In other words, if you want higher monthly payouts, that will reduce any final payout to your beneficiaries.

The initiative has been widely welcomed as being superior to the current CPF Minimum Sum (MS) scheme, which gives monthly payouts for about 20 years, but not necessarily for as long as you live.

The MS is the amount you are required to set aside at age 55 for retirement needs in your Retirement Account. The Retirement Account is set up when you turn 55 with savings coming from your Ordinary and Special accounts. CPF Life payouts come from the Retirement Account.

With rising life expectancy, it is prudent to ensure that your retirement savings will last for all your days.

The opt-in system began on Sept 5 and is open to older CPF members who wish to join the annuity scheme ahead of 2013, when it will be implemented for those turning 55 then. For older CPF members, the monthly payouts will start as early as next January.

While many are still undecided, some, like Madam Wong Kwai Sim, 55, have taken the plunge. She has opted for the CPF Life Balanced Plan, which will give her an estimated monthly payout of $856 to $948 when she hits 65.

Madam Wong, who works part-time as a clerk, currently has $117,000 in her Retirement Account, which is also the prevailing MS.

'By the time I can get the monthly payout, my children will be independent. I can get some from CPF Life and keep some for them when I pass away,' she said.

The Life Balanced Plan gives a moderate payout and a moderate refund. If she had stayed on the current MS scheme, her monthly payout would be some $910 for about 20 years.

Storeman Tay Lee Kheng, 61, said it was his son Benjamin, 32, who helped him choose the Life Plus Plan, estimated to pay $463 to $492 monthly when he turns 62 next year. He has about $80,000 in his Retirement Account.

'I'm not looking to get anything from him when he passes away. It is better that he gets a higher payout...All the money is his anyway,' said Mr Benjamin Tay. The Life Plus Plan provides for higher monthly payouts and a lower refund.

For those who have not decided, here are some things you should know about CPF Life. You must choose the most suitable plan as you cannot change it after you join the scheme. You cannot withdraw either, except under certain conditions.

Q Who can join CPF Life?

You can join CPF Life if you are a Singapore citizen or permanent resident aged between 55 and 80, with savings in your Retirement Account.

Those aged 55 to 79 have up to the time they reach age 80 to sign up for CPF Life. But those aged 80 and above have to do so by December next year.

A bonus of up to $4,000 is given to Singapore citizens who do so by December next year. To qualify, your annual income and the annual value of your property must not exceed $54,000 and $11,000 respectively.

Q What is the monthly payout?

Your monthly payout depends on your Retirement Account savings used to join CPF Life.

There is no minimum amount required, but note that members with lower balances will receive correspondingly lower monthly payouts.

Other factors that will affect the monthly payout include your gender, the age at which you join the scheme and the CPF Life plan chosen. Generally, females will receive lower payouts as they tend to live longer.

If you wish to have a higher payout, you may make cash and/or CPF top-ups to your Retirement Account up to the prevailing MS.

You can use the CPF Life Payout Estimator at the CPF website www.cpf.gov.sg to find out how the monthly payout varies with your Retirement Account balance.

Q Is the monthly payout fixed?

No, the monthly payout may be adjusted every year to take into account factors such as CPF interest rates and mortality experience.

The adjustments will usually be small so that payouts are stable.

The current estimated payout range is based on CPF interest rates of between 3.75 per cent and 4.25 per cent and do not necessarily represent the lower and upper limits of the payout.

Q When will I start receiving my monthly payouts?

If you join before your drawdown age (DDA), you will start to receive your monthly payout from your DDA.

If you join after your DDA, you will start to receive the monthly payout from the following month after you are included in the scheme.

If you were born in 1943 or earlier, your DDA is 60. For those born between 1944 and 1949, their DDA is 62. If you were born in 1950 or 1951, your DDA is 63 and if you were born in 1952 or 1953, your DDA is 64. For those born in 1954 or later, your DDA is 65.

Q Can I change my plan after I join?

No, you can't. This is because changing your plan will affect other members who are already in the scheme.

Q Can I withdraw after I join?

No, except on the following grounds:

• Medical grounds of shortened life expectancy;
• Leaving Singapore and West Malaysia permanently with no intention of returning to either country.

If you are on one of the three CPF Life plans with a refund feature, you will receive a discounted refund of the savings used to join the scheme less the monthly payouts that you have received prior to your withdrawal. There may not be a refund if your savings have been fully paid out in monthly payouts.

If you are on the Life Income Plan, which is a non-refund plan, you will not receive any refund if you withdraw from the scheme.

Q What happens when I die?

Let's assume you have opted for a CPF Life plan with a refund feature. If you die before any payout is made, the full savings will be refunded. If you die after monthly payouts have started, the savings less monthly payouts will be refunded.

Do note that there may not be a refund if you die after the savings used to join CPF Life have been fully paid out in monthly payouts.

Any refund will be made to your CPF account and paid to your beneficiaries, together with the rest of your CPF savings.

If you had chosen the CPF Life plan without a refund feature, that is, the Life Income Plan, there is no refund upon death even if monthly payouts have not started.

Q How do I choose the most suitable CPF Life plan?

The four plans differ in the level of monthly payout and the refund amount that may be left to your beneficiaries. The refund, also known as the bequest, is based on the savings used to join CPF Life less monthly payouts already received.

Alpha Financial Advisers' business unit director, Mr Tan Siak Lim, says that a CPF member should try to strike a balance between his retirement lifestyle and the bequest amount.

'You should consider the effect inflation will have on the payouts over your life. As these are level payouts, the value of payouts will shrink over time as prices of goods rise.'

Here are the four plans:

• Life Basic Plan

This plan gives a lower payout than the Balanced Plan, but leaves more for your beneficiaries. It is recommended if you are in the pink of health or have sufficient savings outside your CPF, says Mr Patrick Lim, associate director at financial advisory firm PromiseLand Independent.

• Life Balanced Plan

If you wish to strike a balance between your monthly payout and the bequest, the Life Balanced Plan may be more suitable for you. This is also the default plan for members who are automatically included under the scheme from 2013, if they do not choose a particular plan.

Mr Thio Eng Huat, vice-president at ipac financial planning Singapore, believes that those who are fortunate to have supplementary income in their retirement may find the Life Basic or Balanced plans more suitable.

• Life Plus Plan

This plan provides a higher payout than the Balanced Plan, but leaves less for your beneficiaries.

Mr Lim says this will appeal more to individuals with chronic medical conditions who want the higher payouts to cope with the cost of living, and yet wish to leave something behind for their beneficiaries.

• Life Income Plan

This plan gives the highest payout, but does not leave anything for your beneficiaries. Although it is logical to conclude that this plan may be more suitable for those who do not have beneficiaries, Mr Lim does not recommend this for anyone. This is in case the member changes his mind or if his personal circumstances change. Another reason is that there is no refund upon withdrawal from the scheme.

Q What else should I consider?

You should not depend on CPF Life to meet all your retirement needs as the payouts may be insufficient.

Start saving more and plan your retirement early. To bridge the gap, you can consider additional income plans like annuities from insurers, says Mr Tan.

Mr Lim recommends NTUC Income's annuity, which comes with a guaranteed monthly or annual payout, with a potential to receive higher payouts the longer the policyholder lives.

Also, ensure that you have funds set aside for medical expenses and insurance, says Mr Thio.

This article was first published in The Straits Times.

Dollar at multi-month lows

Source: Straits Times Sep 11, 2009

Dollar at multi-month lows

The dollar fell to the lowest levels for months against the euro and the yen on Friday as upbeat economic data reduced demand for the safe-haven greenback. -- PHOTO: AFP

LONDON - THE dollar fell to the lowest levels for months against the euro and the yen on Friday as upbeat economic data reduced demand for the safe-haven greenback, dealers said.

The euro rose to a near nine-month high of 1.4627 dollars in early London trading. The dollar dropped to 90.98 yen - the lowest level since mid-February.

In later London trade, the European single currency stood at 1.4591 dollars compared with 1.4583 dollars in New York late on Thursday. Against the Japanese currency, the dollar fell to 91.04 yen from 91.74 yen on Thursday.

Gold headed back towards 1,000 dollars an ounce as the weak US unit made the metal cheaper for buyers holding rival currencies, pushing up demand, dealers said.

'The dollar continues to move lower setting a new low for the year against the euro... while the dollar has fallen more sharply against the yen,' said Mr Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ in London. 'Risk appetite has been supported by mostly positive economic data from China,' he added.

Chinese economic numbers fuelled dollar weakness on Friday and investor risk appetite, underlining hopes of a global economic recovery, said Rabobank International economist Jeremy Stretch.

China said industrial activity expanded by 12.3 per cent last month and retail sales jumped 15.4 per cent, while urban fixed asset investment rose 33 per cent in January-August due to massive government spending on construction.

Traders snapped up the currencies of countries exporting commodities to the Asian powerhouse, notably the Australian dollar.

In contrast to the upbeat Chinese data, Japan revised down its estimate of second-quarter growth to 0.6 per cent, from an initial estimate of 0.9 per cent.

Most analysts meanwhile expect the dollar to weaken further amid a growing sense that recovery from the worst global economic crisis in decades is taking root.

With the economic outlook brightening, traders tend to shun the dollar in favour of riskier currencies that appeared more profitable, like the euro. -- AFP

a blog on: Financial Planning Advice - Christopher Pua

Name your own Beneficiaries

Source: Straits Times Sep 7, 2009

Policy rules eased

By Lorna Tan

POLICYHOLDERS are now allowed to name beneficiaries and change them when the need arises under a new nomination framework which kicked in on Sep 1. The long-awaited-for Insurance Nomination law provides policyholders of life, accident and health policies, more flexibility and control over how they wish to distribute the policy proceeds. Customers have two choices, to either make a trust nomination or a revocable nomination. This is a vast improvement from previously as the law did not allow a policyholder to change his beneficiary, even after a divorce. Back then, if you have named your spouse or children as policy beneficiaries, you have effectively created a statutory trust. This is even if you did not explicitly want to. It means that you cannot change your beneficiaries, or cash in your policy without the consent of the beneficiaries. Many policyholders learn of this only during divorce proceedings when, to their horror, they find that their ex-spouses may still have claims on their policies. Or it comes to light only when the insured person dies, often sparking bitter family disputes. Many policyholders also do not realise that if they name other parties such as grandparents, siblings, aunts and friends as beneficiaries, these people have no legal claim to policy proceeds. The controversies surrounding such trusts prompted the insurance industry to do away with nominating beneficiaries in life policies since 2002. The exception is NTUC Income because its policy proceeds are paid to nominees under a different law - the Cooperative Societies Act - and this Act allows a cooperative member to make a nomination, which can include spouse, kids, relatives and friends. This is how the new framework operates. With a trust nomination, the policyholder relinquishes all rights to the policy. This means that while he is still obliged to pay the premiums, all policy benefits - living and death - belong to the nominees. An advantage of this is that the policy proceeds are protected from creditors in the event of bankruptcy. He can only regain his rights to own the policy benefits with the consent of all nominees. Only the spouse, or a child, of the policyholder is eligible to become a nominee under a trust nomination. With a revocable nomination, the policyholder continue to retain full ownership over the policy. He also retains the ability to change, add or remove nominees at any time without the consent of the nominees. The policyholder will receive living benefits and only death benefits will be paid to the nominees.

Company Travel insurance

source: Straits Times 8 Sept 09

Travel insurance

My husband's boss replied that half the claim would go to the company. It does not make sense.'

MADAM GERTRUDE TAN: 'Recently, my husband flew to Paris. On the return trip, the plane was delayed by six hours due to a technical fault. My husband's company had bought travel insurance for him, so his boss asked him to claim for the delay from the insurance company. Great Eastern Life was very efficient, and a cheque for $200 was made payable to my husband in due course. However, my husband's boss told him to return the cheque. My husband argued with her that what if there was a plane crash and I could not claim insurance. My husband's boss replied that half the claim would go to the company for the loss of an employee. I sought advice from the Ministry of Manpower, but the labour relations officer said the Employment Act did not cover this insurance rule. It does not make sense that an insurance claim is paid to the company. If there was a claim for lost luggage and it was paid to the company, it would not be fair to the employee who lost the luggage.'

New rules on products

Source: Straits Times Sep 8, 2009

New rules on products

By Gabriel Chen MAS announced its decision as part of its response to feedback it has received on a slew of changes proposed in the wake of the collapse of Lehman-linked structured products. -- ST PHOTO: RICHARD CHNG

FROM now on, retail investors can expect financial products to fall clearly into two categories.

Products that fully protect an investor's principal sum are labelled 'capital guaranteed' - anything else carries the possibility of a loss.

That's because the Singapore's financial regulators have decided to ban a puzzling in-between category of investments that currently carry the monikers 'capital protected' or 'principal protected'.

There are no agreed definition for these terms, which are not easily understood by investors, said the Monetary Authority of Singapore (MAS) on Tuesday.

MAS announced its decision as part of its response to feedback it has received on a slew of changes proposed in the wake of the collapse of Lehman-linked structured products.

These proposals, first released in March, were mooted in response to controversy over the way complex investment instruments were sold to people, including many elderly and lowly educated folk.

Some of the key changes require financial institutions to provide customers with simple, user-friendly 'product highlights sheets' and provide 'health warnings' on complex investments in appropriately large font.

MAS has also proposed that bank tellers should not sell investments and there should be a seven-day 'cooling off' period during which an investor could change his mind and pull out of his investment.

In a 19-page document on Tuesday, the financial regulator outlined public responses it had received, and said that it would adopt most of the proposals.

The ban on the use of the term 'capital protected' will apply to mass-market products familiar to retail investors, including structured deposits, unit trusts and investment-linked life insurance policies.

Some investors have previously raised concerns that they had difficulty understanding what those terms meant, MAS said.

A 'capital protected' product is where the principal sum is ploughed into investments like bonds which, on maturity, are expected to provide the 100 per cent capital protection.

But this is not a certainty.

'The bonds could turn sour and affect the value of the investment, and people may not get back 100 per cent,' said First Principal Financial's chief executive Mohamed Salim.

a blog on: Financial Planning Advice - Christopher Pua

Shipwreck survivor dies

Source: Straits Times Sep 3, 2009

Shipwreck survivor dies

By Serene Luo This picture was taken last year in happier times at the Singapore Cricket Club. In foreground, Mrs Wendy Goh and Mr William Goh Lye Guan, in back row, from left to right, Ryan, Russell, Reuben, and Rachel. -- PHOTO: COURTESY OF THE GOH FAMILY

A CLOSE shave with death when a cruise ship sank made a Singapore money broker steer a new course in life, making family his priority.

Mr William Goh Lye Guan was one of the survivors of the sinking of the Royal Pacific, a Singapore-based cruise liner that collided with a Taiwanese trawler in the Malacca Straits in 1992.

Following the tragedy, which claimed the life of a family member, Mr Goh cut back on his work and even became a stay-home dad, a notion virtually unheard of even today.

He took pride in running a tight ship with his brood of four, ferrying them to and from school, tuition and ballet classes.

But on Monday, this devoted and loving father died following a year-long battle with oral cancer. He was 52.

The ill-fated Royal Pacific had been on its maiden voyage in 1992, a three-day cruise to nowhere.

Mr Goh was on the ship with his wife Wendy, now 52, and his first-born and only daughter Rachel, now 19. His wife's sister and husband were travelling with them.

Of the nine missing or dead, six were Singaporeans, including Mr Goh's brother-in-law, architect Charles Law, who died while trying to escape.

Mr Goh and Mr Law were good friends, said Mr Goh's brother Steven, 47, and the tragedy probably made him take stock of his life. Mrs Goh started her childcare business in 1995, and the couple decided around then that 'Daddy would stay home to take care of the kids'.

a blog on: Financial Planning Advice - Christopher Pua