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Singapores 1st Life Insurance Comparison Web Portal

The Case of Term vs Whole Life Insurance:


A Comprehensive Consumer Guide

Contents
Page

Credits

Page

Prologue

Page

13

Chapter 1

Insurance Philosophy

Page

25

Chapter 2

How Long Do We Need Insurance Converage For?

Page

33

Chapter 3

How Much Insurance Do We Need?

Page

37

Chapter 4

Which Type Of Insurance Is Suitable To Cover Our Needs?

Page

46

Chapter 5

Why Are More Whole Life Plans Sold Rather than Term Plans?

Page

54

Chapter 6

The Story of Providend and The birth of DIYInsurance

Page

59

Epilogue

Page

64

Appendix

Credits
Writing a book can never be an individual effort, especially for a book of such nature.
As such, I am grateful to the following people for helping and supporting me, in the
completion of this endeavour in just 2 weeks.

1. Eddy Cheong, Executive Director, Providend Ltd and Head of DIYInsurance


2. Catherine Lum - Financial Planning Specialist, Providend Ltd
3. Sean Cheng - Investment Analyst, Providend Ltd
4. Shawn Lee - Brand Executive, Providend Ltd
5. Alexis Burgos - Brand Executive, Providend Ltd
6. Germaine Lay - Web Developer, Providend Ltd
7. Cynthia Khor - My wife of 21 years, whom I ignored for 2 weeks (in the evenings and
weekends) when I had to write this book.

And to all the staff at DIYInsurance - Thank you for serving our clients and by always
putting their interest first.
And to all our clients at DIYInsurance -Thank you for believing in us and making our
mission of making DIYInsurance the safest place to buy insurance possible.

Christopher Tan
CEO of Providend and Founder of DIYInsurance

3
Credits

Prologue

4
Prologue

t all started one evening on 16 June 2016, with a Facebook post on our DIYInsurance page by Marq Siew.
He read an article (Term vs Whole Life) that we posted and disagreed with what we have said.

The following is the actual Facebook exchanges between us that spanned a few days. A few other financial
adviser/insurance advisers subsequently joined in, sharing similar sentiments.

THE FACEBOOK EXCHANGE - UNDERSTANDING THE CONTEXT


Marq Siew
Why is DIYinsurance product-oriented instead of customer-oriented? Why not focus on how to get
the most appropriate protection instrument-type for the particular person?
Why is there a need to have an obsession with arguing about which instrument is better than the
other?
Is DIYinsurance advocating a one-size-fits-all approach? Or a one-type-fits-all approach?
If there is a minimal understanding of insurance, one would know that all types of policies are
created and designed with a different reason and purpose: to be suitable for different people.
If there is a basic understanding of how market forces work, DIYinsurance should know that if
there is really only 1 type of protection instrument that makes sense, how long will it take for the
public to find out? Why is there not a massive landslide of market share to only that instrument
even after 50 years? Was term insurance invented 5 years ago?
The analogy that was given in this video is not similar but close to telling us why we should always
rent a home (no cash value) and never buy a home (with cash value).
There is no best financial instrument. Only the Most Suitable. Just like your spouse. (If not everyone
will only insist on marrying Fan Bingbing.)

5
Prologue

DIYInsurance.com.sg
Dear Marq Siew, thank you for watching this space and your comment. You are indeed right to say
that we should not be product-oriented but customer-oriented. It is precisely because of this that we
have since 2003, been educating the consumers on why using Term insurances might be a better
option. It is well known in the industry that selling Whole Life plans pay better. We would be selfserving if we have advocated it but instead, we chose to advocate a lower cost but better suited
product to consumers. This is our way of putting our clients interest, always first.after 50 years? Was
term insurance invented 5 years ago?
We are passionate about doing this, not because we believe in a one-size fit all solution. We do
so because if you understand the use of insurance in one's financial plan, you will see that this is
a fundamental issue: Insurance is for protection and not investment for returns. And for the large
majority, and we emphasise large majority, this need for replacement of income due to death is a
temporary need. There will come a time when there is no longer a need because we are no longer
earning an income. Also, using Term insurance is the only way to be fully covered. For the minority
that may need Whole Life, and really there aren't many in our almost 2 decades of experience, when
they pass through Diyinsurance.com.sg, we will certainly advise them accordingly.
You are also right to point out that after 50 years, most people in Singapore continues to buy Whole
Life Plans. This is because in the earlier days, we do not have many well-designed Term Insurances
available and also the lack of financial literacy education. This is why we are doing this since
2003. We are gratified that more and more consumers and insurance agents are understanding this
and buying Term Insurances. We have also known of many insurance advisers selling Term despite
earning them a lower commission. This tis indeed laudable. You may also be encouraged to know
that in more developed financial markets such as Australia, US and UK, the use of Whole Life Plans
are almost non-existent. We are far way from being there but we hope Diyinsurance.com.sg will be
able to play a small part to help us reach there one day.
Unfortunately, we feel that the use of renting versus buying a house is not an apt analogy here
to compare Term to Whole Life Plans. Due to the lack of space, we will leave that conversation to
another day.
But Marq Siew, thank you for your interest and comment. We appreciate it because such friendly
debate provides consumers with more understanding. I am sure we all just want to do the right thing
for the consumers.

6
Prologue

On a separate post
Marq Siew
A comparison within 1 instrument type is ok. Term insurance is a comparable instrument anyway.
DIYinsurance, do NOT try and blast the industry with nonsense and try to tell us which instrument is
the most suitable without understanding each individual person.
Read my post to see why I said this.
Spruyt Darren
Seems like they deleted your other comment...
Marq Siew
It's still there bro. Under "Term VS Whole Life insurance" posted as of 8th June. Get ready to see
more information you have never seen, if DIYinsurance dares to show the rates, which I doubt they
will.
DIYInsurance.com.sg
Dear Spruyt Darren, we normally do not delete comments unless there are expletives involved which
in this case, Marq Siew was very pleasant in his explanation earlier. Thank you for your comment in
any case.
DIYInsurance.com.sg
Dear Marq Siew, while we make reasonable comparison within and across each type of insurance,
we would like to assure that every client that has come through Diyinsurance.com.sg has gone
through customised advice as required by regulators. Since 2003, we can understand why some
industry advisers are upset with us advocating Term Insurances But we are also gratified that this is
changing. Financial advisers in Singapore and other parts of the world who really understand the
use of insurance are beginning to see the better alternative to whole life plans. This also explains why
more and more insurers are coming out with really good and competitive term plans. Once again,
thank you for your interest in this space and your comment. Have a good weekend, Marq Siew.

7
Prologue

DIYInsurance.com.sg
Dear Marq Siew, thank you for your comment. Would you elaborate on the rates you would like
Diyinsurance.com.sg to show? Thank you one again for watching this space.
Marq Siew
Thank you DIYinsurance. I am glad we share the same philosophy of providing tailored and customized
solutions for each unique individual.
I would like to finally and immediately, put a Full-Stop to a well heard rumor: that it is well known
in the industry that recommending Term Policies gives financial planners Lower commissions, and
thus financial planners/consultants/advisers don't recommend them. This is supposed to be the
distinguishing difference for DIYinsurance, because DIYinsurance champions Term insurance.
For transparency and comparison, let's reveal this once and for all since DIYinsurance is adamant
that Term polices definitely give Lower commision rates.
I hereby request for an Evidence of a commision rate table of Term and Whole Life products:
(I) to prove that the commision rates from pure Term instruments are lower, and for apple-to-apple
comparisons, use both products of same coverage tenure till age of 99 or 100.
(II) the commission % you show in (I) should be the exact % which Insurance Manufacturers (such as
Tokiomarine, AXA, AVIVA) give DIYinsurance via the Distribution Agreements your IFA have signed
with them.
(III) I would like to ensure for fairness sake of the whole Singapore market, that as an IFA, although
DIYinsurance likely may not have the right to sell for certain companies, please also provide in the
same table of point (I), PRU, AIA and GE commission rates for Term and Whole Life policies as well.
Same method, for apple-to-apple comparisons, use both products of same coverage duration till age
of 99 or 100.
Let's allow the whole world to see which Insurance company/manufacturer is so bold as to give lower
Commissions for recommending Term coverage/policies.

8
Prologue

The blame should go to the particular insurance company, instead of going after the anonymous
financial consultants whom DIYinsurance often speak about.
Marq Siew
By the way, regulators have indicated before that they do not wish to see product-type pushing (Term
policies are a product-type), by expressing that Incentives should not be given for any particular
product-type.
One might argue that Term cover need not be until the age of 99 or 100, but since it is impossible
to structure a Whole Life instrument into a shorter number of years, but there is the existence of Term
policies which can cover until the age of 99 and 100, let's use that as an apple-to-apple comparison.
If anyone wants to insist that Every human being requires protection cover only until an exact certain
age, that is a broadstroke technique, which shows zero understanding of providing customized
tailoring for each unique individual.
One might also say that it is sensitive to publish commision rates, or that the insurance companies/
manufacturers do not allow you to do so.
If that it the case, I would request DIYinsurance to stop publishing articles which insinuates that
Singapore financial planners/consultants/advisers get Lower commission rates for recommending
Term policies, and make a public apology, because that is an accusation by DIYinsurance, which
has not been backed by DIYinsurance's disclosure of factual figures to the public.
DIYInsurance.com.sg
Thank you Marq Siew for your request. Since this would be a very long post. We will do a write up
and post it accordingly. Once again. Have a blessed weekend.
Follow up posts
Marq Siew
Yes Kel Goh.
I'm waiting for the evidence to be provided, to see if the Comm rate is the same for Term and Whole
9
Prologue

Life policies. If the Comm rate happens to be the same, then whether the nominal commission is lower,
will actually depend on the size of the Term policy, and the blame should not be on the instrument
type.
Nobody can guarantee that a larger Term policy with no cash value will definitely have lower
Commissions, compared to a smaller instrument with cash value.
Why demonize the cash value of a policy when the actual issue is about customization and tailoring?
A needs-based approach is based on a full understanding of the unique individual, not based on the
glorification /worship of a particular product-type.
Is it even correct to assume that all Singaporeans do Not require coverage after exactly 65 years
old? That is what I read from another DIYinsurance article, "Singapore's Term Life Insurance
Comparison Table (June 2016)".
On what basis can anyone insinuate/suggest that when a financial adviser did not recommend a
Term policy, it is definitely because of lower Commissions and not because of a need-based and
priority-based recommendation?
It is as audacious as suggesting that every adviser who recommends a CPF Investment instrument, is
preparing to commit Churning.
Advocating the appropriate Term cover for suitable people is a noble act, but not by insinuating that
all other recommendations are wrong.

END OF THE FACEBOOK EXCHANGE

Just in case you do not have the time to read the detail, this is in summary Marqs points of contention:
1. That in advocating Term insurance, we are not being customer-oriented but product-oriented.
2. That we are obsessed with arguing which instrument is better. He feels that all products are created to
meet a certain need. If DIYInsurance advocates the use of Term insurance against Whole Life plans, we are
advocating a one-size fits all approach. We should instead customise each plan to customers needs.
10
Prologue

3. That regulators have indicated before that they do not wish to see product-type pushing (Term policies are
a product-type), by expressing that incentives should not be given for any particular product-type. As such,
by advocating Term insurance, What DIYInsurance is doing is akin to product pushing.
4. That If Term insurance is so good, like what DIYInsurance is saying, there should be a massive landslide
of market share to Term plans. But this is currently not the case. Marq is alluding that good products will lead
to huge market share or simply put, a huge market share means that the product must be good.
5. That Providend/DIYInsurance is saying that Term insurance commission rates are lower than Whole Life
commission rate. And as such, we should publish a table on commission rates to the public.
6. That DIYInsurance is insinuating Singapore financial planners/consultants/advisers because we allude
to them getting lower commission rates for recommending Term policies and so most prefer to recommend
Whole Life plans.
7. That DIYInsurance should make a public apology for point 6.
8. That we assumed that all Singaporeans do not require coverage after exactly aged 65 years old.
We want to thank Marq (and many other insurance & financial advisers) for following us at DIYInsurance and
sharing their thoughts on how they view insurance as advisers. Through these discussions, we realise that after
more than a decade of writing about insurance, there are still many misconceptions that need to be clarified.
So, instead of answering Marqs questions/pointers one by one, what we will do is to first provide a thorough
understanding on this subject of insurance. By doing so, we achieve the following objectives:
a. Provide a context, and a basis for answering Marqs questions/pointers
b. Give a better understanding to other advisers on our professional views about insurance
c. Consumers through this book will also be able to discuss more systematically and clearly with their advisers,
before making their insurance decisions going forward.
But since insurance is a very wide topic, to cover every area and type of insurance in one book will not only
be too much but also make this book unreadable. And since this book is really about the Term vs Whole Life
debate we will limit our discussion to:
1. Insurance that replaces your income loss due to death, total and permanent disability and dread
disease (critical illness)

11
Prologue

2. Insurance that provides money for alternative medicine and care


At DIYInsurance, we believe in empowering our clients to make wise financial decisions. We are thankful that
we have a chance to do this via this platform. In many ways, all of us have Mr Marq Siew to thank for the birth
of this book. Without him sharing his views on insurance, the idea of this book would never have materialised.
Note: In the course of writing this book, more Facebook posts from Mr. Siew and others (many who are
advisers) flooded in. We have shared these post in appendix 6 of this book.

12
Prologue

Chapter 1

Insurance Philosophy

13
Chapter 1

hether in investment or insurance planning, there is great importance to establish a philosophy. The
purpose of the philosophy is to set forth a belief, a conviction, a doctrine, a theory behind the practice.
The philosophy becomes a basis where all planning and execution start. It also ensures consistency in a
professional service firm.
However, philosophies are not cast in stones. But by large, they hold true for most scenarios. Outliers are
always there, but they should be taken care of separately, after being sure that they are really, outliers. And
we will not know, unless we have already a philosophy that we can anchor on.
As the saying goes, "if you stand for nothing, you will fall for anything." The philosophy and in this case,
insurance philosophy, is where we can stand upon when we plan our insurance needs.

PROVIDEND AND DIYINSURANCES INSURANCE POLICY


The primary purpose of insurance is for protection and not savings and investments. For if we want to save
and invest, there are plenty of options (see below for the many options available to investors). There is no
need to use insurance. Insurance (less annuities) is not the best instrument for savings and investments. This is
because, for the low returns, the lack of liquidity and flexibility just do not justify it.
And if insurance is primarily for protection, we should buy as much as we need but spend as little as we can
on it. This is because, insurance is a risk management tool. We really dont want to use it. As such, we
should minimise this expense so that the cost (premiums) vs benefits (coverage, sum assured) is reasonable
and justifiable. In minimising expenses spent on a risk management tool, we also free up financial resources
to achieve our other life goals, such as accumulating for retirement, funding childrens tertiary education and
also, live an enjoyable life now.
In executing this philosophy, we make the following reasonable assumptions:
1. If we are financially savvy, we may make financial and investment decisions without an adviser
2. If we are not financially savvy, or we dont have time, we should work with a trusted adviser
3. We have limited financial resources but unlimited wants & many needs
But before we go and talk about protection, lets look at some of the possible savings and investment options
for investors.
14
Chapter 1

SOME SAVINGS AND INVESTMENT OPTIONS


Here are some of the broad asset classes investors can invest into:
Investment
Options
Cash
(e.g. Fixed
Deposits)

Estimated
Expected
Returns

0.05% - 1.8% p.a.

Estimated
Volatility

N.A.

Advantages

Disadvantages

1. Very low risk of


capital loss

1. Very low returns and


are unlikely to keep up
with inflation over the long
term, so the real returns
(which take inflation into
account) are likely to be
negative

1. Regular fixed income

Bonds
(e.g.
investmentgrade SGD
issues)

1.8% - 4.5% p.a.


(assume tenure of up to
Relatively low
10 years)

Equities
4.5%-7% p.a.
(e.g. Global)

Relatively high

1. Returns are relatively


low (compared to equities)

2. Maintain capital upon 2. Issuers of perpetual


maturity (for bonds) or bonds have the option not
call by issuer (for perpetual to pay coupons
bonds)
3. In the event of a
3.
Less
risky/volatile default, the investor could
(compared to equities)
potentially lose all his
capital
1. Potential high returns
on capital
1. Risk of capital loss is
relatively high
2. Dividend income
2. Price movements can
3. Transparent prices
be very volatile
4. Good liquidity

Commodities
3% p.a.
(e.g. Gold)

Relatively high

1.
Correlation
with
1. Commodities are nonother asset classes is
income-producing
relatively low, making it
a suitable asset class for
2. Price movements are
diversification of risk
generally speculative in
nature
2. Inflation hedge

Table 1.1: Broad asset classes that investors can invest in (cont in the next page)

15
Chapter 1

Investment
Options

Property
(e.g.
Singapore)

Estimated
Expected
Returns

5%-7% p.a.

Estimated
Volatility

Relatively
moderate

low

Advantages

Disadvantages

1. Subject to Government
intervention
measures
1. Potentially high returns (e.g.
restrictions
on
on capital
borrowing/high taxes on
buying and selling)
2. Rental income
2. Generally requires a
to
3.
Correlation
with large investment capital
other asset classes is (unlike other asset classes)
relatively low, making it 3. Relatively illiquid
a suitable asset class for
diversification of risk
4. Requires maintenance
5. Subject to taxes (e.g.
property tax)

Alternative
Investments
(e.g. Hedge
Funds/
Private
Equity/Art
and Wine
etc)

1. Potential high returns


1. Returns can be very
on capital
unpredictable and volatile
5%-10% p.a.

Relatively high

2.
Correlation
with
2. It can be difficult to
other asset classes is
value
the
investment
relatively low, making it
holdings
a suitable asset class for
diversification of risk
3. Liquidity may be
restricted

Table 1.1: Broad asset classes that investors can invest in (cont)

Here are some of the investment options in greater detail:


Investment
Options
Savings
Account

Minimum
Investment Amount

N.A.

Minimum
RSP
Amount
N.A.

Table 1.2: Investment options (cont in the next page)

16
Chapter 1

Advantages

Disadvantages

1. No loss of capital

1. Returns will not


keep up with long-term
inflation, so capital is
eroded when inflation is
taken into account

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Advantages

1. No loss of capital

Fixed Deposit $1000

N.A.

Disadvantages
1. Returns will not
keep up with long-term
inflation, so capital is
eroded when inflation is
taken into account

2. Returns generally higher


than most savings accounts 2. Generally less liquid
than a savings account
3. Good liquidity
because if the depositor
withdraws
before
maturity, the yield will
be reduced
1. Returns will not keep up
with long-term inflation,
so capital is eroded when
inflation is taken into
account

Singapore
Government
Bonds

$500

N.A.

2. Generally less liquid than


a savings account because
if the depositor withdraws
before maturity, the yield
will be reduced1. Returns
will not keep up with longterm inflation, so capital is
eroded when inflation is
taken into account
2. Generally less liquid
than a savings account
because if the depositor
withdraws before maturity,
the yield will be reduced

Table 1.2: Investment options (cont)

17
Chapter 1

1. Returns are unlikely to


keep up with long-term
inflation
2. If the investor
withdraws
before
maturity, the yield will
be reduced

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Advantages

Disadvantages

1. Regular fixed income

1. Returns are relatively


low
(compared
to
equities)

Individual
Bonds or
Perpetual
Bonds
(Perpetuals)
Note: The above
assumes investmentgrade issues.
Non-investment
grade issues will
have higher returns
compared to
investment-grade
issues, but with
higher risk of noncoupon payment
and default, which
would lead to
capital loss.

$250,000

N.A.

2. Maintain capital upon 2. Issuers of perpetuals


maturity (for bonds) or call have the option not to
by issuer (for perpetuals)
pay coupons
3.
Less
risky/volatile 3. In the event of a
(compared to equities)
default, the investor
could potentially lose all
his capital

Bond Mutual
Funds
Note: The above
assumes bond
mutual funds which
are comprised
mostly of short-term
investment-grade
issues. Longer-term,
non-investmentgrade (high yield)
bond mutual funds
will have higher
income payments,
but with higher
volatility and risk of
capital loss.

1. Regular income

$1,000

$100

1. The amount of the


income payments are
usually
inconsistent
and based on the net
asset value (NAV) of the
fund, not on the capital
invested

2.
Less
risky/volatile
(compared to equities)
2. Unlike bonds, bond
mutual funds have no
3.
More
diversified maturity date. Hence
holdings mean that even if volatility and the risk of
an issuer were to default, capital loss is potentially
an issuer were to default, higher for bond mutual
the investor will not lose funds (compared to
his entire capital (unlike bonds)
buying a single bond or
perpetual)
3. Returns are relatively
low
(compared
to
equities)
4. Costs are generally
higher than Bond ETFs

Table 1.2: Investment options (cont)

18
Chapter 1

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Bond
Exchange
Traded Funds
(ETFs)
Note: The above
assumes bond
ETFs which are
comprised mostly
of short-term
investment-grade
issues. Longer-term,
non-investmentgrade (high yield)
bond mutual funds
will have higher
income payments,
but with higher
volatility and risk of
capital loss.

Advantages

1. Regular income
2.
Less
risky/volatile
(compared to equities)

Depends on the relevant


market; as low as the price of N.A.
1 share (U.S. market)

3.
More
diversified
holdings mean that even if
an issuer were to default,
the investor will not lose
his entire capital (unlike
buying an individual bond
or perpetual)
4. Generally lower costs
compared to bond mutual
funds

Disadvantages
1. The amount of the
income payments are
usually
inconsistent
and based on the net
asset value (NAV) of the
fund, not on the capital
invested
2. Unlike individual
bonds, bond ETFs have
no maturity date. Hence
volatility and the risk of
capital loss is potentially
higher for bond ETFs
(compared to individual
bonds)
3. Returns are relatively
low
(compared
to
equities)

Individual
Equities
Note: The above
assumes mid
to large market
capitalisation
companies in
exchanges with
good liquidity.
Small market
capitalisation
companies and/
or exchanges with
poor liquidity may
have wide bid-ask
spreads or little to
no liquidity.

1. Potential high returns on 1. Risk of capital loss is


capital
relatively high
Depends on the relevant
market; as low as the price of N.A.
1 share (U.S. market)

2. Dividend income
3. Transparent prices
4. Good liquidity

Table 1.2: Investment options (cont)

19
Chapter 1

2. Price movements can


be very volatile
3. Can be stressful and
time-consuming

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Advantages

Disadvantages
1. Fees are relatively
high
(compared
to
exchange-traded funds)

1. Potential high returns on


2. Fund performance
capital
can be inconsistent

Equities
Mutual Funds
Note: The above
assumes traditional,
long-only equities
funds.

$1,000

$100

2. Some equity funds pay


3.
Most
funds
a regular dividend income
underperform
their
benchmarks in the long
3. Diversified holdings
run
mean that even if a few
companies in the portfolio
4.
Fund
manager
were to do very badly,
may engage in 'style
the overall impact to the
drift', meaning that
portfolio will not be too
he manages in a way
significant
that differs from the
investment purpose of
a portfolio, which may
cause difficulties in asset
allocation
1. Potential high returns on
capital
2. Some equity funds pay
a regular dividend income

Equities ETFs
Note: The above
assumes traditional,
unleveraged, longonly equities ETFs.

Depends on the relevant


market; as low as the price of N.A.
1 share (U.S. market)

3. Diversified holdings
mean that even if a few
companies in the portfolio
were to do very badly,
the overall impact to the
portfolio will not be too
significant

1. More risky/volatile
than cash/fixed income
asset classes
2. Will not outperform
the benchmark

4. Lower costs compared to


a equities mutual fund
5.
Consistent
performance

Gold and
silver coins/
Less than $100
certificates/
bars/savings
accounts

N.A.

Table 1.2: Investment options (cont)

20
Chapter 1

market

1.
Traditional
hedge 1. Prices can be volatile
against long-term inflation
2. Usually involves
2. Safe haven currency
storage costs

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Advantages

Disadvantages

1. Performance can be
very volatile, particularly
1. Capital appreciation due to mining stock
and hedge against inflation investments

Commodities
$1,000
Mutual Funds

$100

2. Usually invests into


mining companies along
with physical commodities
which can give higher
returns

1. Hedge against long-term


inflation

Commodities
ETFs

Depends on the relevant


market; as low as the price of N.A.
1 share (U.S. market)

2. Fees can be relatively


high
3. May not provide
the pure gold/silver
exposure
that
the
investor is looking for
1. Prices can be volatile

2. Safe haven investment

2. There may be less


liquidity in exchanges
3. Allows exposure to
where there are lower
gold/silver/ almost any
trading volumes
commodity at a relatively
low investment amount with
relatively low fees

1. Capital appreciation

1. Subject to Government
intervention measures
(e.g. restrictions on
borrowing/high taxes
on buying and selling)

2. Rental Income

Properties

Depends on type of property


N.A.
and market prices at the time

2. Generally requires a
large investment capital
3.
Correlation
with (unlike
other
asset
other asset classes is classes)
relatively low, making it
a suitable asset class for 3. Relatively illiquid
diversification of risk
4. Requires maintenance
5. Subject to taxes (e.g.
property tax)

Table 1.2: Investment options (cont)

21
Chapter 1

Investment
Options

Minimum
Investment Amount

Minimum
RSP
Amount

Advantages

Disadvantages

1. Capital appreciation

Real Estate
Investment
Trusts (REITs)

Depends on the relevant


market; as low as the price of N.A.
1 share (U.S. market)

2. Regular dividend income 1.


The
underlying
properties are subject to
3. Gain diversification in Government intervention
property investments
measures
4.
Correlation
with
other asset classes is
relatively low, making it
a suitable asset class for
diversification of risk
5. No need to manage the
properties on your own

Hedge Funds

(Accredited Investors
Typically USD 1 mil
Only)

2.
Subject
management fees

to

3.
Performance
is
subject to management's
competence

1. Fees are usually very


1. Potentially high capital
high (typically a fixed
appreciation
2%p.a. fee and a 20%
performance fee)
2. Strategies are usually
meant to provide returns in
2.
Risk/volatility
is
At hedge fund's any market environment
usually high
discretion
3.
Correlation
with
3.
Long-term
other asset classes is
performance can be
relatively low, making it
very inconsistent
a suitable asset class for
4. Liquidity may be an
diversification of risk
issue

Private Equity
Funds

At fund
(Accredited Investors Typically $100,000-$250,000 manager's
discretion
Only)

Table 1.2: Investment options (cont)

22
Chapter 1

1. Fees are usually very


1. Potentially high capital high (typically a fixed
appreciation
2%p.a. fee and a 20%
performance fee)
2. Strategies are usually
meant to provide returns in 2. Risk/volatility is
any market environment
usually high
3.
Correlation
with
other asset classes is
relatively low, making it
a suitable asset class for
diversification of risk

3.Long-term
performance can be
very inconsistent
4. Liquidity may be an
issue

Investment
Options

Alternative
Investments
(E.g. Art/Wine/
Collectibles etc)

Minimum
Investment Amount

N.A.

Minimum
RSP
Amount

Advantages

N.A.

1. Potentially high capital


1. As values are
appreciation
dependent on supply
and demand, the market
2.
Correlation
with
values of such items can
other asset classes is
be unpredictable and
relatively low, making it
volatile
a suitable asset class for
diversification of risk
2. It can be difficult to
value the items
3. One can actually enjoy
the ownership of the item
3. Liquidity may be an
(e.g. derive pleasure from
issue
admiring the artwork)

Disadvantages

1. Returns can be
unpredictable
and
volatile
2. It can be difficult to
value the investment
holdings

Alternative
Investments
Funds
(E.g. Art/Wine/
Collectibles etc)

At fund
At fund manager's discretion,
manager's
indicatively $10,000
discretion

1. Potentially high capital


appreciation
3. Liquidity may be
restricted
2.
Correlation
with
other asset classes is 4. Fees are usually
relatively low, making it high, with subscription
a suitable asset class for fees, fixed fees and
diversification of risk
performance fees similar
to hedge funds

5. Funds may be
unregulated
by
authorities, so invested
capital may be at a
higher risk
Table 1.2: Investment options

So once again, as we can see from the table above, there are so many options to save and invest. There is
really no need and may not be advantageous to use insurance for saving and investing.

23
Chapter 1

THE THREE KEY QUESTIONS TO ASK BEFORE BUYING OUR INSURANCE


So if insurance is primarily for protection, what do we need to do to ensure that we are adequately covered
at the minimum cost? To be able to do that, we need to answer three fundamental questions
1. How long do we need insurance cover?
2. How much coverage do we need?
3. Which type of insurance is suitable, after answering question 1 and 2.
We will answer these questions over the next few chapters.

24
Chapter 1

Chapter 2

How Long Do We Need


Insurance Converage
For?

25
Chapter 2

DEATH/TOTAL PERMANENT DISABILITY (TPD) COVERAGE


Why does one buy insurance that pays upon death/TPD? For most people, the primary reason is to replace
loss of income for the family and dependants when the income earner is no longer around. There are other
secondary reasons why people buy this type of insurance but we will discuss that later in this chapter. For
now, lets focus on people whom buy insurance for the purpose of income replacement. For this same group
of people, the following situations are when such insurance is not or no longer needed:
a. When there are no more dependants
There will come a time in our life when we have no more dependants or they have become independent of
us. Such situations are when:
1. Our children have all grown up and are working. Our parents are no longer around as they have
predeceased us.
2. We are single and our parents, whom were dependent on us, have predeceased us.
3. Our children have all grown up and are working. Our spouse is working and can support himself/herself
with his/her own income plus accumulated assets.
b. And when our earned income is no longer needed
There will also come a time in our life where we will no longer earn or need an income. Such situations are
when:
1. We have retired. During this stage of our life, we will be living off our retirement nest egg and our children
if any, would be independent of us. If death occurs, there is no income to replace as we have already retired.
2. We have sufficient assets to fund the family lifestyle, even upon our demise. Assets can come in the form
of property investments, stocks and shares, business and so on and so forth.
Summary
So if we are buying insurance that pays upon death/TPD, for the purpose of replacing income loss, when we
dont have or no longer have dependants and when our earned income is no longer needed, there is no need
for coverage. Our need for this kind of insurance is therefore temporary and not permanent.

26
Chapter 2

DREAD DISEASE/CRITICAL ILLNESS COVERAGE


Why does one buy insurance that pays upon diagnosis of a dread disease (a.k.a critical illness)? There are
2 primary reasons:
1. To replace income loss as one might not be able to work due to illness
2. To pay for the cost of alternative medicine and care that may not be covered by hospital plans
So if we are buying it for the purpose of replacing income loss, the following situations are when such dread
disease insurance is not or no longer needed:
a. When there are no more dependants
There will come a time in our life when we have no more dependants or they have become independent of
us. Such situations are when:
1. Our children have all grown up and are working. Our parents are no longer around as they have
predeceased us.
2. We are single and our parents have predeceased us
3. Our children have all grown up and are working. Our spouse is working and can support himself/herself
with his/her own income plus accumulated assets
b. When our earned income is no longer needed
There will also come a time in our life where we will no longer earn or need an income. Such situations are
when:
1. We have retired. During this stage of our life, we will be living off our retirement nest egg and our children
if any, would be independent of us. If death occurs, there is no income to replace as we have already retired.
2. We have sufficient asset to fund the family lifestyle, even upon our demise. Assets can come in the form
of property investments, stocks and shares, business and so on and so forth.
And if we are buying it for the purpose of paying for the cost of alternative medicine and care that may not be
covered by hospital plans, we will likely need this dread disease insurance for as long as we want it. When
we no longer want this option, then we dont need this kind of insurance anymore.
27
Chapter 2

Summary
So if we are buying insurance that pays upon diagnosis of a dread disease, for the purpose of replacing
income loss, there will come a time when we will no longer need it. This is when we dont have or no longer
have dependants and when our earned income is no longer needed. Our need for this kind of insurance is
therefore temporary and not permanent.
But if we are buying it for the purpose of paying for the cost of alternative medicine and care that may not
be covered by hospital plans, we will need this kind of insurance for as long as we want it. Our need for this
kind of insurance is permanent and not temporary.

SOME OTHER REASONS WHY PEOPLE BUY INSURANCE THAT PAYS


UPON DEATH AND/OR DIAGNOSIS OF A DREAD DISEASE
1. Paying off liabilities such as mortgage loans, car loan and other liabilities
Most of us will have some liabilities such as mortgage loans or car loans. When we pass away, we would
want to ensure that these liabilities can be fully taken care of, so that we do not leave behind financial burdens
for our loved ones to undertake. The good thing about loans is that there is an end point to them. There will
be a day when they will be fully repaid. So if we are buying insurance to allow our family to pay off these
liabilities in the event of our unfortunate demise, there will come a time when we no longer need it, because
the loans have been fully taken care of. Once again, our need for this kind of insurance is therefore temporary
and not permanent.
2. Ability to fund childrens education upon demise
For those of us with children, we would have plans to accumulate towards funding their tertiary education.
However, the concern is when death occurs, we may not have accumulated enough funds yet. Buying insurance
to provide an immediate lump sum upon demise is useful. But if we survive till the time when the kids have
graduated, such insurance coverage is no longer necessary. Once again, our need for this kind of insurance
is temporary and not permanent.
3. Legacy planning & gifting
For more affluent individuals, many buy insurance for the purpose of legacy planning (leaving behind
financial wealth for the family) or gifting, usually for philanthropic reasons upon their demise. If we are buying
28
Chapter 2

insurance for these reasons, we will need it for as long as we live. It is a permanent need. However, we need
to mention that there are many other ways of legacy planning and gifting that goes beyond insurance. But
it is usually the more affluent that will consider it. Some common ways of gifting is through setting up a trust
and putting into the trust properties, investment funds, etc. Of course, insurance has the advantage of setting
aside a small capital (in the form of premiums) in exchange for a huge death benefit. One can also place the
insurance policy into the trust for the purpose of distribution, gifting upon demise.
4. Taking care of children with special needs
For those that may have children with special needs, we may want to ensure that our children can be well taken
care of when we predecease them. Insurance is one way of solving this problem. There are 2 approaches to
using insurance in this case.
a. We can buy an insurance that covers us for as long as we live, so that when we pass on, the insurance
proceeds will be able to take care of our children.
b. We can buy an insurance that covers us till we retire. Meanwhile, we can accumulate towards an amount
that will be sufficient to take care of our children, if death occurs after our retirement.
So for this need, our need for insurance coverage can be a temporary or permanent need.
5. Providing for alternative medicine and care for children, in the event if they are diagnosed with a dread
disease
One of the worries of parents is that our children may be diagnosed with a dread disease. So if we are
buying insurance for the purpose of paying for the cost of alternative medicine and care that is not covered
by hospital plans, we will likely need a dread disease insurance for as long as we want it. For this kind of
coverage, our need is a permanent need.
6. Replacement of a keyman in an organization
In business, it is often difficult to replace the loss of a key man, such as a CEO or a key employee. The loss of a
key man can result in potential business losses. The payout from insurance can replace this loss, until another
suitable employee is found. If we are buying insurance for this purpose, we only need to cover the key man till
his planned retirement or when he no longer works for the organization. Our need for this kind of insurance
is therefore temporary.
29
Chapter 2

7. Funding a buy-sell agreement contract between business partners


In business, the death of a business partners can create havoc for the organization, especially so if the surviving
owner may have to work with the family members, who have just inherited the shares of the deceased partner.
One of the common solutions to solve this, is by way of a buy-sell agreement between partners, whereby
both partners agree to sell to each other their shares upon one of their demise. But in order for the surviving
partner to have immediate cash to buy the shares, the partners buy an insurance on each of the partners life.
When there is a demise, the insurance paid out will be given to the deceased partners family, in exchange
for his shares. If we are buying insurance for this purpose. We will need insurance coverage until the planned
exit of the partners from the business. Our need for insurance in this case can be temporary or permanent,
depending on when the partners planned for their exit. Although in our experience working with business
clients, the need is usually temporary.

TYPES OF INSURANCE NEEDS


Type of Need

How Long Do You Need Remarks

Replacement of income due to death and Temporary - We need it only for a


Higher priority planning need by most people
TPD of income earner
period of time
Replacement of income due to diagnosis Temporary - We need it only for a
Higher priority planning need by most people
of dread disease of income earner
period of time
Paying for alternative medicine and care Permanent - We need it for as long Only if we want this as an option and have a
for one who suffers from dread disease
as you live
conviction in alternative medicine
Paying off liabilities such as mortgage

Temporary - We need it only for a


Higher priority planning need by most people
period of time

Funding childrens tertiary education even Temporary - We need it only for a


Higher priority planning need by most people
after demise
period of time
Permanent - We need it for as long Usually done by the more affluent and not a
as you live
first priority planning need by most of us

Legacy planning and gifting

Taking care of children with special needs Can be temporary or permanent

Most of us do not have children with special


needs

Providing for alternative medicine and


Permanent - We need it for as long Only want this as an option and has conviction
care for children, in the event if they are
as you live
in alternative medicine
diagnose with a dread disease
Replacement
organization

of

keyman

in

the Temporary - We need it only for a


Most of us are not keyman in an organization
period of time

Funding a buy-sell agreement contract


Can be temporary or permanent
between business partners
Table 2.1: Types of insurance needs and whether temporary or permanent?

30
Chapter 2

Can be temporary or permanent

What if I know that I only need insurance coverage temporarily but I dont mind paying more for coverage
for my entire life?
Today if we have unlimited resources, and insurance needs are our only concern, we can buy as much
insurance for as long a cover as we want, even if we dont need it. Unfortunately because we have limited
income, but unlimited planning needs, we really need to prioritise our needs. For every extra dollar we pay to
buy insurance that we dont need, it simply means we will have lesser money to save and invest towards our
life goals, such as retirement and accumulating towards childrens education.
Remember that when we plan for ourselves financially, we are really planning to live and not to die! We
buy insurance as a contingency plan. We dont really want to use it. We have insurance, just in case if the
unforeseen happens, and we are no longer able to earn an income, an insurance payout allows us and our
family to carry on with life.
So if we buy so much insurance, and especially coverage that we dont need, leaving insufficient financial
resources to save for our life goals, the only way for our family to achieve their life goals is to delay the
achievement of these goals (such as retirement) or for us to die so that the insurance payout will fund our lives!
What a joke that will be, isnt it?
Conclusion
So how long do we need insurance cover? Based on the above discussion, we will realise that in almost all
situations, especially the higher priority planning needs, we dont need it forever. We only need it for a period
of our life, when we are still earning an income, or have dependants that need the income. The only main
exception, is, if we are buying insurance for the purpose of paying for alternative medicine or care. And this
is provided that we want this option and have a conviction for the use of alternative medicine.
In other circumstances where we need insurance cover for as long as we live, such as
1. Legacy planning and gifting
2. Taking care of children with special needs
3. Funding a buy-sell agreement between business owners (which in many instances, could also be a
temporary need)
These are either not higher priority planning needs or they are unique circumstances for the minority.
31
Chapter 2

Advisers may argue that clients and not advisers, should determine what their higher priority planning needs
are. We submit that as professional advisers, there are times when we must exercise our responsibilities and
obligations to our clients, in advising them what is right for them. If we are always giving in to clients every
want, we are not advisers, but we become salespeople.

32
Chapter 2

Chapter 3

How Much Insurance Do


We Need?

33
Chapter 3

e do not think it is right to just use the rule of thumb way (such as 10% of your income going into
insurance or insure yourself up to 10 times of your annual income) when it comes to financial planning
and in this case, insurance planning. We are convinced that a better way is to understand the needs of each
individual.
Some of the factors that differ from person to person, that will affect how much insurance a person needs are:
1. How much of our monthly income do we need to replace on our unfortunate demise?
2. How many years do we need to replace this income for?
3. Do we need to pay off our liabilities (such as mortgage) upon our demise?
4. Do we need to fund our childrens tertiary education, even after our demise?
5. What is our current insurance situation and how much assets do we have now?
And of course, there could be additional factors, depending on our situation.
Using a case study of 2 different individual profiles of Tony and Peter, we did a needs analysis for them to
determine their needs if death or total and permanent disability were to occur.
Scenario: Male, Age 45 (DOB 010171), Non-smoker, family with 1 child
Profile

Tony

Peter

Monthly Income

$3,500

$10,000

Monthly Income Provided for


Dependents

$2,625

$7,500

Assumption: 75% of
income used to provide for
dependents needs

Dependency Period (years)

15

15

Assumption: inflation-adjusted
returns at 0% to keep pace
with inflation

Income Replacement

$472,500

$1,350,000

Children Tertiary Education

$88,400

$177,000

Home Loan & Liabilities

$166,875

$462,500

Table 3.1: Needs analysis for death, TPD coverage (cont in the next page)
34
Chapter 3

Remarks

Guided figures: 4 years


non-medicine study & 5-year
medicine study respectively in
local university

Profile

Tony

Peter

Total Death Needs:

$727,775

$1,989,500

Remarks

Existing Death Cover

$200,000

$600,000

Assumption: No existing
death coverage - scenario
used to illustrate actual
shortfall in protection

Current Assets for


Consumption

$30,000

$400,000

Assumption: Cash in bank


and investments

Shortfall / (Surplus) in
coverage:

$497,775

$989,500

Table 3.1: Needs analysis for death, TPD coverage (cont)

Using the same case study, we did a needs analysis for them to determine their need of replacing their income
if they were to be diagnosed with critical illness or dread disease.
Tony

Peter

Monthly Income

$3,500

$10,000

No. of years of income that needs to be


replaced

Total needs

$126,000

$360,000

Existing insurance

$0

$0

Shortfall

$126,000

$360,000

Table 3.2: Need analysis for critical illness coverage

Based on the above analysis, for the purpose of replacing income, cancelling liabilities and funding childrens
education upon demise or total and permanent disability:
a. Tony will need an additional of about $500,000 coverage
b. Peter will need an additional of about $1 million coverage
Based on the above analysis, for the purpose of replacing income upon diagnosis of critical illness or dread
disease:
a. Tony will need an additional of about $130,000 coverage
b. Peter will need an additional of about $360,000 coverage
Tony and Peter has also indicated that they want the option of paying for alternative medicine, which might
not be covered under hospitalisation and surgical insurance. The amount each of them want is $50,000.

35
Chapter 3

Tony

Peter

Death/TPD Coverage Needs

$500,000

$1,000,000

Critical Illness Coverage (Replacement of


income)

$130,000

$360,000

Alternative Medicine Payment

$50,000

$50,000

Table 3.2: Need analysis for critical illness coverage

To calculate your own life insurance needs, you can go to:


http://www.diyinsurance.com.sg/portal/calculators/life-insurance-calculator
To calculate your own critical illness needs, you can go to:
http://www.diyinsurance.com.sg/portal/calculators/critical-illness-calculator

36
Chapter 3

Chapter 4

Which Type Of Insurance


Is Suitable To
Cover Our Needs?

37
Chapter 4

There are 4 main types of insurance that pay out upon death, total and permanent disability (TPD) and dread
disease (critical illness):
1. Endowment
Endowment policies are designed to help us save for the future. We contribute a regular premium for a number
of years and at the end of the policy duration we receive a lump sum maturity pay out. Some Endowment
policies have a "Cash Back" feature, whereby yearly cash benefits are given at specified years in addition to
the maturity pay out.
As endowment plans are mainly meant for savings, a much smaller portion of our premiums are used to pay
insurance charges (mortality charge) that gives us the insurance coverage. Therefore, endowments are not
suitable, if we are buying it for the purpose of protection.
We have no objections if we are using it for savings, either towards our retirement fund or childrens education
fund. But we are not big advocates about endowments, simply because the returns may not be sufficient for us
to achieve our goals, and also because of its inflexibility. In addition, we have given many other savings and
investment options in Chapter 1. So if we want to buy an endowment plan, do consider if they are enough for
us to reach our goals. We might need to supplement it with other options.
To understand more about endowments, we might like to read the following educational articles:
Choosing the Right Endowment
4 Endowment Plans Specially Designed For Your Child's Education
2. Investment-Linked Policy (ILP)
ILPs are insurance policies that combine life insurance coverage with investments into unit trusts. Part of our
premiums goes to pay for insurance charges that pay for the cost of insurance benefits, and part of it is used
for investing. The investment value is liquid and it can be withdrawn from anytime.
For a regular premium ILP, the policyholder determines the annual premium amount, which stays level, as well
as the percentage allocations to insurance charges and investments. However, ILPs are usually structured such
that the insurance charges increase over time, which means that the remaining portion of the premiums that
goes into investments shrinks over time.
We have written an article on why we do not advocate ILP at all. We can read more about it here.
38
Chapter 4

In gist, the main reason why we do not advocate buying an ILP is that we are limited by the choice of funds
(unit trusts) that are being sold by that insurer. And if we are really keen to invest in unit trusts, there are plenty
of choices outside the ILP space, why do we want to tie our hands unnecessarily?
As such, we do not advocate using ILPs for the purpose of protection.
3. Term Plan
A term plan is one where by we only pay for pure protection. We do not give extra money to the insurance
companies for them to invest it into their life fund. We also decide how long we want to cover ourselves for,
using a term plan. As such, when a term plan runs its course, we no longer have any cover and also we do
not get any money back.
Because of this, the premium for term plans is very low, for the same amount of coverage we would have paid
for using a whole life plan or an ILP. As such, term plan is the most affordable way for us to be fully covered
for our needs.

SOME ADVANTAGES AND DISADVANTAGES OF TERM PLANS


Features of Term Plan
Pure insurance coverage with no
investment component

Advantages
1. Premium is low and very affordable. We can afford full coverage of our needs
2. We only pay what we need - insurance
But that is what insurance should be for - protection, not savings or investments.

We decide the term of coverage

We can decide how many years of coverage we need and we pay for what we need. No
money wasted and premium is affordable.

No cash value

As there is no investment component in term plans, there is no cash value, simply protection.
But that is what insurance is for - protection, not savings or investments. And because there is
no cash value, we can terminate this plan anytime when we dont need it, or there is a better
plan out there. There is no fear of not being able to breakeven our premium paid.

Table 4.1: Advantages of term plans

Features of Term Plan

Disadvantages

Remarks

No more coverage after term ends

We may be afraid that when the term plan


ends, we might have miscalculated in that
we have yet to retire or our retirement
has been delayed, due to unforeseen
circumstances. We might still need the
coverage but now we have none.

This can be easily solved by giving


ourselves a buffer in our planning.
Instead of buying a term till 60 or 65, we
can stretch it until aged 70. If we retire
earlier than 70, we can always terminate
it earlier without fear of losing cash value,
etc. It is simple, no complications.

Table 4.2: Disadvantages of term plans (cont to next page)


39
Chapter 4

Features of Term Plan

Disadvantages

Remarks

No cash values - cannot do automatic


premium loan (APL)

An APL is an insurance policy provision


that allows the insurer to deduct the
outstanding premium amount from the
cash value if the insured does not pay
it after the grace period (30 days). This
ensures that the policy will not lapse if the
premium is not paid. Because term plans
have no cash value, if we forget to pay
premium, after 30 days, a term plan may
lapse.

While having an APL feature is useful,


to buy a high premium whole life plan,
just to hedge against forgetfulness to pay
insurance premium does not make sense.
One can easily prevent it from happening
by setting up a direct debit facility with the
bank to do regular premium deduction.

No cash values - After term ends, no


money back

The primary purpose of insurance is for


protection, not savings or investment.
For if we want to save or invest, there
No cash values - After term ends, no are many other options available as
money back
described in Chapter 1. Furthermore,
having no cash value makes terminating
a policy when we need to, easier. No fear
of not breaking even our premium paid.

Table 4.2: Disadvantages of term plans

In our experience working with clients over the past almost 2 decades, many have told us that they bought
whole life plans because they get some returns on the premiums they paid from whole life insurance whereas
from term plans, they get nothing back at the end of say, 20 years. But this is a misunderstanding because the
only reason why they get something back from whole life plan is because they gave the insurance company
extra money above the insurance cost to invest. The insurance cost they paid for their protection portion of
whole life plans has no return. It is an expense, just like term insurance.
4. Whole Life Policy and Whole Life Hybrid Policy
A whole life plan is one where we get permanent coverage - meaning that the insurance policy will continue
for as long as we live. It used to be that we will also need to pay our premiums for as long as we live as well.
However, nowadays, insurers are coming out mostly with limited pay whole life plans where we only pay for
a limited period of your life, for example, till age 70 years old but the coverage is for as long as we live. So
it seems like a steal, isnt it? Well, we all know there is no free lunch. What this means is that the insurance
companies have already calculated the amount that we didnt have to pay from, say aged 70 and brought
forward so that we pay more premium per year, till aged 65.
The premium for whole life plan is high because for every dollar that we pay, a small proportion of it is taken
to pay for insurance cost (mortality charge) and the rest is invested into the insurance companies' life fund.
The life fund return is currently projected between 3.25% - 4.75% p.a. This is of course not guaranteed. What
40
Chapter 4

that means is that even if the life fund can return 4.75% p.a., we will only get 4.75% p.a return on the portion
of the premium that is invested into the life fund. The portion of the premium that is paid for insurance cost is
an expense. There is no return.
Increasingly, we see insurance companies launching what are known as Whole Life Hybrid products. These
are packaged products that put a whole life plan and a term plan together. How a hybrid can be structured
might be like this: A $50,000 whole life plan is packaged together with a $100,000 term plan that run
till aged 70. So we get covered say $150K plus cash values for death, total and permanent disability, if it
happens before say aged 70. If death, total and permanent disability happens after aged 70, we only get
covered $50,000 plus cash value.
Hybrid plans are cheaper than pure whole life plans for the same coverage because of the embedded term
component. But the premium is still much higher relative to a term plan.

SOME ADVANTAGES AND DISADVANTAGES OF WHOLE LIFE PLANS


Features of Whole Life Plan Advantages

Remarks

Automatic Premium Loan - APL

An APL is an insurance policy provision


that allows the insurer to deduct the
outstanding premium amount from the
cash value if the insured does not pay
it after the grace period (30 days). This
ensures that the policy will not lapse if the
premium are not paid. When the insurer
deducts from our cash value, we are
effectively taking a loan from the insurer.
If we want to pay back the premium
amount back into the cash value, we have
to pay the insurer an interest.

While having an APL feature is useful,


to buy a high premium whole life plan,
just to hedge against forgetfulness to pay
insurance premium does not make sense.
One can easily prevent it from happening
by setting up a direct debit facility with the
bank to do regular premium deduction. In
addition, we have to pay an interest to the
insurer for the loan taken.

Paid-up Policy

If we do not wish to continue paying


the premium or, if we cannot afford the
premium, we can request the insurer to
lower our sum assured to a level whereby
they estimate that the cash value of our
insurance policy is sufficient to pay our
monthly premium for our new lowered
sum assured, until we probably pass
away.

While this gives us some flexibility if we


can no longer afford our premium, our
sum assured is reduced and we may
not be sufficiently covered. Also, if we
surrender this policy subsequently, we
wont have much cash value to take back.

Table 4.3: Advantages of whole life plans (cont to next page)

41
Chapter 4

Features of Whole Life Plan Advantages

Remarks

When we surrender the policy, we get


back some money. Whether the amount
we get back will be more than the
premium paid depends on how well the
life fund has done and when we surrender
it. Early surrender usually mean inability
to breakeven our premium paid.

The primary purpose of insurance is for


protection, not savings or investment. For
if we want to save or invest, there are
many other options available as described
in Chapter 1. Furthermore, having cash
value makes terminating a policy when
we need to, complicated. There is a fear
of not breaking even our premium paid if
we terminate early.

Due to the policy bonus that is declared


regularly, the protection value may
Higher death benefit pay out than the increase over time as bonus is declared
amount we initially bought
when the insurance companies' life fund
performance is good. This may help to
mitigate the effects of inflation

While mitigating the effects of inflation is


important, the high premium of whole life
plans may only afford us a much lower
coverage than what we actually need.
Buying a low cost term plan with a slightly
higher coverage than what we need
will easily solve the problem of hedging
against inflation.

Has cash value

Table 4.3: Advantages of whole life plans

Disadvantages of
Whole Life Plan

Remarks

When we buy a whole life plan, we are paying for insurance coverage for as long as we live.
Disadvantages of Whole Life
However, as we have discussed above, in most situations, we only need coverage for a period
Plan
of time. As such, we are paying premiums for what we dont need.

Returns

The primary purpose of insurance is for protection, not savings or investment. For if we want to
save or invest, there are many other options available as described in Chapter 1. Furthermore,
having cash value makes terminating a policy when we need to, complicated. There is a fear of
not breaking-even. That if we terminate early, we may have paid more premium than the cash
value we would receive. If we are depending on this return for the purpose of saving towards
retirement, the return might not be enough to reach our goals.

Inflexible

Having cash value makes terminating a policy when we need to, complicated. If we terminate
early, there is a fear of not breaking-even. Over the years, insurers are coming out with good
term plans with very competitive premium. But even if we are healthy enough to switch plans, we
might find it hard to do it because of this consideration.

High premium

The biggest disadvantage of whole life plan is that the premium is so high that we might not be
able to afford the cost to provide full coverage of our needs. This defeats the primary purpose of
insurance, which is to give us sufficient protection against our risks.

Table 4.4: Disadvantages of whole life plans

Many people buy whole life plans for dual purpose: coverage and saving for retirement. The problem with
this approach is that because whole lifes premium is too high for us to afford ourselves full cover, and the
return is probably too low for us to reach our retirement goal, we end up not achieving both objectives. We
are stuck in the middle.

42
Chapter 4

So whilst whole life plans are meant for protection purpose, the premium is expensive because:
1. There is an investment component
2. The protection is for the entire life
As we have said the primary purpose of insurance is for protection and not saving or investment, the question
really is: Should we use term or whole life plan to meet our insurance needs? To answer this question, lets put
all our discussion in the previous chapters together

Higher
Priority
Needs

How Long
Do You
How Much
Need
Coverage?
Insurance?

*Whole
*Whole
Life
Life Plan
Hybrid
Premiums
Premiums
(p.a.)
(p.a.)

*Term
Plan
Recommended
Premiums Plan
(p.a.)

Tony - $14,320 Tony - $5,761

Tony - $1,922

1. Income
replacement
due to
death and
TPD
2.
Repayment
of all
liabilities

Temporary - You Tony - $500K


only need it for a Peter: $1 mil
period of time

Peter -$28,640 Peter -$11,189 Peter - $2,913

Term Plan

3. Funding
of childrens
tertiary
education
need upon
demise
Income
replacement Temporary - You Tony - $130K
only need it for a Peter - $360K
due to
period of time
critical
illness

Tony
Peter

Table 4.5: Term or whole life? (cont to next page)

43
Chapter 4

Tony
Peter

Tony - $1,699
Peter - $3,810

Term Plan

Higher
Priority
Needs

How Long
Do You
How Much
Need
Coverage?
Insurance?

Income
replacement
due to
Permanent (due
critical
to the desire to
illness +
have the option
for alternative
Alternative
medicine
and
medicine
care)
and care

*Whole
*Whole
Life
Life Plan
Hybrid
Premiums
Premiums
(p.a.)
(p.a.)

Tony - $130K
Peter - $360K

Tony - $6,439
(combined
$180K
coverage)

Tony - $3,061
(combined
$180K
coverage)

Tony - $50k
Peter - $50K

Peter- $14,666
(combined
$410K
coverage)

Peter - $6,720
(combined
$410K
coverage)

*Term
Plan
Recommended
Premiums Plan
(p.a.)
Term Plan (to
cover income
replacement)
Tony - $1,699
Peter - $3,810
Whole life
(to cover for
alternative
medicine and
care)

Whole Life Hybrid


(as premium for whole
life hybrid is cheaper
than buying term and
whole life separately)

Tony - $1,814
Peter -$1,814
Table 4.5: Term or whole life?
*We used the lowest premiums based on the 5 insurers we compared. Please go to appendix 1- 4 (Table A) for a detailed
breakdown of the various insurance companies premiums. The premium for the whole life and whole life hybrid is over a limited
period of 25 years.

Conclusion
Based on our discussion so far, we can safely conclude that term plans are the most suitable plans for
most people with higher priority needs. It is the most suitable because all of our higher priority needs are
temporary needs. Secondly, as our need for coverage is quite high, it will simply be too expensive to use
whole life plan to cover ourselves fully.
However, if we want the option of providing a lifetime of alternative medicine and care, then a whole life or
a whole life hybrid insurance plan may be more appropriate.
Many a times, when we advocate the use of term plan for insurance planning purpose, people often question
whether we are too broad stroke, too presumptuous to assume that all clients need are the same. Many
have commented that we should not be one size fit all in our approach. The truth is, we agree that we should
customise recommendations based on clients needs.

44
Chapter 4

But the customisation is based on how much coverage one needs, based on the different factors which we
have described above. After calculating the coverage amount needed, we can see that term plan is the most
suitable, because all of our higher priority needs are temporary needs and the amount of coverage needed is
usually too large to use a whole life plan to cover cost effectively.
Can someone insist on using whole life plan to cover that amount? The answer is obviously yes. But not many
people can afford the premium and this person must have so much financial resources that after buying all the
insurance he needs, he still has enough to plan for other areas of his life.
Because of the above, we strongly advocate term plan as the insurance plan of choice,
once the amount of coverage is established.

45
Chapter 4

Chapter 5

Why Are More Whole


Life Plans Sold
Rather than Term Plans?

46
Chapter 5

ongratulations, for reading up till this chapter. By now, we will begin to understand why term plans are
the most suitable plans to use for our higher priority needs. But the question we might have on our mind
is: if term is more suitable, why then are there more whole life plans being sold, rather than term plans?
To begin answering this question, let us first verify if this statement is indeed true: Are there more whole life
plans being sold in Singapore rather than term plans?
Year

Whole Life
(%)

Endowment
(%)

Term (%)

Others (%)

Total (%)

2000

24.90

34.50

6.70

33.90

100

2001

15.90

57.90

4.90

21.30

100

2002

7.02

18.33

2.15

72.50

100

2003

18.43

36.91

7.29

37.37

100

2004

13.20

38.40

9.50

38.50

100

2005

2.95

5.97

68.91

22.17

100

2006

10.99

23.93

23.51

41.58

100

2007

9.21

20.21

21.70

48.87

100

2008

8.81

23.08

16.3

16.3

100

2009

7.76

19.29

15.29

57.66

100

2010

8.05

19.73

13.18

59.04

100

2011

7.45

20.88

13.29

58.38

100

2012

8.23

18.98

14.59

58.20

100

2013

8.83

21.33

11.26

58.58

100

2014

8.29

22.73

11.02

57.56

100

Table 5.1: Distribution of new individual business (non-linked)


Source: MAS

From the table above, we can see that prior to 2005, there are indeed a higher proportion of whole life plans
being sold rather than term plans. In fact, though not shown in this table (but we can refer to MAS website), if
we go back even to the mid 90s, we will see that there are also a higher proportion of whole life plans being
sold. This is not surprising because term plans weren't popular back then.
In 2005, the data was skewed as we can see a big spike in the proportion of term plans being sold (68.91% of
the total non-linked plans). According to Life Insurance Association (LIA), it is understood that the privatisation
of Dependent Protection Scheme (DPS) has caused the huge increase. It used to be that DPS was administered
under CPF Board. But in 2005, it was privatised and all CPF members who bought DPS would either purchased

47
Chapter 5

through Great Eastern Life or NTUC Income. This explain a jump in the proportion of term plans sold in 2005
as DPS are term plans.
But one thing is clear, from 2000 onwards, we see a change in trend, the proportion of whole life plans being
sold decreased steadily as term plans picked up pace.
One more thing to note: From 2013 onwards, term plans sales started coming down, with no increase in the
proportion of sales of whole life plans. Where did the decrease in proportion of sales in term plans go to?
We will notice an increase in percentage in the category others, which we could not find an explanation on
what it constitutes on the MAS website.
Summary
It is true that more whole life plans (relative to term plans) were sold in the past. However, from 2000 onwards,
the proportion of sales of whole life plans started dropping. Instead, the proportion of term plan sales started
increasing steadily. We believe the reasons why this is so because:
1. A lot more were written about term versus whole life insurance. When we started writing about term
insurance in 2003, we faced a lot of flak from the industry. At that time, very few, in fact, almost no one in
the industry wrote about term insurance. Today, we see journalists, magazine writers, and financial bloggers
writing more and more about term insurance. Even some advisers are beginning to see the advantages of
term over whole life insurance.
2. Consumers are more educated today and are beginning to understand the advantages of term plans.
Again, since 2003, almost all our clients who passed through Providend and DIYInsurance bought term
insurance through us.
3. The insurers are coming out with better term products with more competitive prices.
So why is it so, that in the past and even now, many people still buy whole life insurance? Besides the fact
that many consumers and advisers out there are still not aware of the advantages of term versus whole life
insurance, we believe that the key reason is because of compensation. What do we mean?
Using the same case study of Tony and Peter, we look at the various insurance plans that we can use to meet
their needs.

48
Chapter 5

Death/TPD Coverage
Needs
Critical Illness Coverage
(Replacement of income)
Alternative Medicine
Payment

Tony

Peter

$500,000

$1,000,000

$130,000

$360,000

$50,000

$50,000

Table 5.2: Summary of coverage needs

1. Tony: Possible insurance plans to cover $500,000 death/TPD


We compared the premium cost using term plans, whole life plans, whole life hybrid plans in order for Tony to
meet his shortage of $500,000 coverage in the event of death and TPD and also put up the agents first year
commission if he has sold each of the plans.
We only show the first year commission because although commissions can be paid over a number of years,
the first year commission is typically the highest and it is enough to show the difference without making it
overly complicated for readers to understand.
In the tables below, the premium for the whole life and whole life hybrid is over a limited period of 25 years.
In order to make this segment more readable, we show the comparison of just one company.
You can go to the Appendix 1 (Table A and B) to see the comparison between other companies.
Term Plans Premium
Company B
$1,922
(Premium p.a.)
Agents First
$748
Year Commission

Traditional Whole Life


Plans

Whole Life Hybrid


Plans

$15,670

$7,410

$7,052

$3,335

Table 5.3: Various insurance options for Tony and agents first year commission for these options

Conclusion 1: For the same amount of coverage, the premium are a lot higher if you buy traditional whole
life plans or whole life hybrid plans. As a result of this, agents get higher commission selling traditional
whole life or whole life hybrid plans.

49
Chapter 5

2. Tony: Possible insurance plans to cover $130,000 for replacement of income due to critical illness and
$50,000 for alternative medicine and care
We compared the premium cost using term plans, whole life plans, whole life hybrid plans in order for Tony
to meet his shortage of $130,000 coverage in the event of critical illness as well as $50,000 in the event Tony
wants an option to pay for alternative medicine (due to critical illness) and care.
You can go to Appendix 3 (Table A and B) to see the comparison between other companies.
There are a few options to solve Tonys problem and the table below shows the various combination.
(a) For income replacement need ($130,000)
Option 1
Option 2
Option 3
$130,000 Term Plan $130,000 whole life $130,000 whole life
(till aged 70)
plan
hybrid
Company C
(Premium p.a.)
Agents First Year
Commission

$1,700

$4,884

$2,484

$612

$1,905

$969

Table 5.4: Various insurance options and agents first year commission for these options

(b) For income replacement ($130,000) and alternative medicine provision ($50,000)
Option 1
Option 2
Option 3
$130,000 Term Plan
$180,000 whole life $180,000 whole life
(till aged 70) +
plan
hybrid
$50,000 whole life
plan
Company C
(Premium p.a.)
Agents First Year
Commission

$1,700 + $1,986
= $3,686

$6,763

$3,249

$612 + $774
= $1,386

$2,637

$1,267

Table 5.5: Various insurance options and agents first year commission for these options

Conclusion 2: If you are just buying critical illness plan for the purpose of replacement of income (higher
priority need), the premium (and therefore the commission) for term insurance is lower than whole life
plans and whole life hybrid plans. But if you want the additional option of buying critical illness for the
50
Chapter 5

purpose of providing alternative medicine and care, buying a whole life hybrid plan makes sense as the
premium is slightly lower.
3. Peter: Possible insurance plans to cover $1,000,000 death/TPD
We compared the premium cost using term plans, whole life plans, whole life hybrid plans in order for Peter
to meet his shortage of $1,000,000 coverage in the event of death and TPD.
You can go to Appendix 2 (Table A and B) to see the comparison between other companies.

Company B
(Premium p.a.)
Agents First Year
Commission

Term Plans Premium Traditional Whole


(p.a.)
Life Plans
(Term till age 70)
Premium (p.a.)

Whole Life Hybrid


Plans
(Premium p.a.)

$2,913

$31,340

$14,720

$1,133

$14,103

$6,624

Table 5.6: Various insurance options for Peter and agents first year commission for these options

Conclusion 3: For the same amount of coverage, the premium are a lot higher if you buy traditional whole
life plans or whole life hybrid plans. As a result of this, agents get a higher commission selling traditional
whole life or whole life hybrid.
4. Peter: Possible insurance plans to cover $360,000 for replacement of income due to critical illness and
$50,000 for alternative medicine and care
We compared the premium cost using term plans, whole life plans, whole life hybrid plans in order for Peter
to meet his shortage of $360,000 coverage in the event of critical illness as well as $50,000 in the event Peter
wants an option to pay for alternative medicine (due to critical illness) and care.
You can go to the Appendix 4 (Table A and B) to see the comparison between other companies.
There are a few options to solve Peters problem and the table below shows the various combinations.

51
Chapter 5

(a) For income replacement need ($360,000)


Option 1
Option 2
Option 3
$360,000 Term Plan $360,000 whole life $360,000 whole life
(till aged 70)
plan
hybrid
Company C
(Premium p.a.)
Agents First Year
Commission

$4,662

$13,010

$6,242

$1,678

$5,074

$2,434

Table 5.7: Various insurance options and agents first year commission for these options

(b) For income replacement ($360,000) and alternative medicine provision ($50,000)
Option 1
Option 3
$360,000 Term Plan Option 2
$410,000 whole life
(till aged 70) +
$410,000 whole life
hybrid
$50,000 whole life plan
plan
Company C
(Premium p.a.)
Agents First Year
Commission

$4,662 + $1,986
= $6,648

$14,817

$7,110

$1,678 + $774
= $2,452

$5,779

$2,773

Table 5.8: Various insurance options and agents first year commission for these options

Conclusion 4: It is cheaper to buy a term plan to cover your need of income replacement due to critical
illness. If you want the option of providing alternative medicine and care, buy a term policy and a whole
life plan separately. Alternatively, if you are prepared to pay a bit more, you may also consider getting a
whole life hybrid instead to take care of both needs.
So what do the 4 conclusions tell us?
For all our higher priority needs, not only does it make sense to buy a term plan (as we have explained
in chapter 4, in terms of commission, we also pay (and agents/advisers get) lower commission. You only
consider a whole life or a whole life hybrid plan if you want the option of alternative medicine and care.
We want to clarify that we are not saying that all agents and financial advisers out there are simply selling
whole life plans/whole life hybrid to consumers because they are paid better. In fact, we know that there are

52
Chapter 5

agents and advisers who do the right thing, even though they are paid lesser. These agents/advisers truly look
after the interest of the clients and they need to be recognised.
However, the truth is, compensation does drives behaviour. As long as there is a huge difference in commission
between term, whole life, and whole life hybrid, there is always that temptation for us to sell products that pay
better, especially so, if sales awards, incentives, promotions are tied to the amount of sales we bring in.
As we have painstakingly explained, for our higher level needs, our need for insurance is temporary. And
for us to be fully covered, the premium for whole life plans are so expensive that most of us will not be able
to afford it. Why then is it so that before 2005, there is a higher proportion of sales in whole life plans rather
than term plans? And because a lot more people are sold whole life plans, many would have just bought what
they can afford in terms of premiums and as a result, they are not fully covered. Perhaps this explains why
we are an underinsured nation.

53
Chapter 5

Chapter 6

The Story Of Providend


and The Birth Of
DIYInsurance

54
Chapter 6

t the age of 27 years old, I started my career in the financial services industry as an insurance adviser
with a large insurer. I had wanted to be a financial adviser then. But there was no such animal back in
the late 90s as not only it was a new idea, the Financial Advisers Act was not put in place. You either join the
insurance companies, the banks or the stockbroking house to do something like that. Although I was promised
that I will get a chance to do financial planning in the agency that I joined, I was never taught how to.
In 1999, I discovered by accident that there were good books on how to write a financial plan in NUS Hon
Sui Sen Library. That was the beginning of my financial advisory career. But, regardless of how good a plan
I wrote for clients, I only had one product to implement their plans - insurance. And I was using lots of whole
life insurance.
You see, back in my agency days, no one really talk about term plans. In almost all of our trainings, we were
taught how to sell whole life plans, endowments and investment-linked policies to clients. These were the plans
that pay us well and also allow us to achieve the coveted Million Dollar Round Table (MDRT), Court of the
Table (COT) and Top of the Table (TOT) award.
And in the 3 years I was with the insurance company, I did well. I was second top rookie adviser in my first
year and by the time I reached my third year, I was top 25 in the company. Besides being financially well paid,
every year, I get to go on 2-3 overseas incentive trips. Life was good.
Sometime in early 2000, I read an article on Business Times, written by Ms Genevieve Cua. She interviewed
US financial planner Ms Suze Orman. In that article, it was reported that Ms Orman said something to the
effect that if you sell whole life plans to your clients, you are like serving them a plate of poison. When I
read that, I was of course fuming mad. I thought to myself back then: how could she say such a thing?! This
is not true! I ignored what I read and continued selling whole life plans.
For the next 6 months, what Suze Orman said kept coming back into my mind and troubled me. And after
doing enough research and realised what she said was in many ways true, I could not take it anymore. I
decided that if I want to leave the insurance company, I better leave when I was still young, where the recurring
insurance commissions is still small and when I still have the courage to do so.
At the peak of my insurance career, I left and subsequently set up Providend, Singapores first fee-only firm on
11th September 2001. You can read more about Providends early days here.
When Providend started, we wanted to build a company that represents trust. But how can we build trust?
We decided that in order to do that, we must exist to give the most honest, independent and competent advice
55
Chapter 6

to our clients. So we structure the company to the best of our ability, to deliver honest, independent and
competent advice.
To give the most honest advice, we decided to be the first fee-only firm in Singapore. What that means is that
when clients take advice from us, they pay us a fee. And if they need to buy any financial products to execute
their plan, we will help them buy these products but we will return 100% of the commissions back to them.
Many people said to us that we need not do this. As long as we have honest advisers, we would be able to
give honest advice. But our thought was that honest advisers is a given in this work that we do. If you are not
honest, you should not even do this work. But, we still need to put in place a structure to minimise temptations
and conflict of interest.
To give the most independent and competent advice, besides have enough breath of financial products to
choose from, we basically breakdown the entire advisory process, to be carried out by different teams of
people. Our client adviser from the advisory team, who are client facing provides general financial planning
advice and risk coaching in investments. But they cannot recommend specific products. The specific products
are recommended by a team of salary-based specialist who are not client facing. This not only ensure that
the most competent people do what they are best at (client advisers perform general financial planning,
risk coaching and relationship management, and specialist in their own expert domain such as insurance,
investments etc recommend the specific strategy and products).
The investment portfolios are managed by a separate team of investment analysts reporting to a head of
investments. This investment team further reports to an investment committee that are staffed by members
outside of Providend. We do not believe that advisers who are good at relationship management, general
financial planning can also be an expert in estate, insurance, investments etc. By structuring the process this
way, we also ensure independence and minimise conflict of interest.
While we appreciated the Providends advisory model, we realised that most of the clients that came to us
were the mass affluent clients whose financial situations were more complex and they required more in-depth
planning. They also had the ability and was willing to pay us a fee. However, we were unable to reach out to
the rest of the people whom genuinely need good advice, but were not able or unwilling to pay a fee. In truth,
their financial needs are also a lot simpler, which do not require them to pay a fee for advice. This was when
we decided to birth DIYInsurance in June 2014, to bridge this gap.
The idea of DIYInsurance was simple. We want to create a transparent platform where people with insurance
needs can come to a safe environment, to get advice, without feeling pressured to buy and knowing that

56
Chapter 6

whatever they are getting is best for them, and not because we earn the most from it. We achieve this by:
1. Openly stating that we advocate term insurance and not whole life insurance. By saying that we advocate
term insurance, we are not saying that whole life insurance are of no use and we will not recommend it to
clients. What we are saying is that for your higher priority needs, you only need term. Once you have taken
care of your basic needs, including retirement planning, funding childrens tertiary education, and if you still
have budget, you can take care of the lower priority insurance needs and use whole life plans if you want.
Today at DIYInsurance, 1 out 4 policies that we recommend are whole life insurance. They are only sold to
meet those unique needs that are usually not of top priority, and only after the higher priority needs are met.
2. Putting up an engine to compare the premiums and features of different insurance companies that are
on our platform. In this way, clients know which the cost-effective plans that are suitable for them are.
3. Putting up educational materials and planning tools to empower clients to decide what they need and not
what advisers want to sell them. And if they need advice, by
4. Using salary-based advisers to advise clients, we minimise conflict of interest. On top of that, the advice
is backed by nearly 20 years of experience from the founders
5. Ensuring that there is absolutely no pressure selling. On average, clients only need to meet us once, for
between 20 minutes to an hour, to apply for their insurance.
6. Letting clients know all the various promotions from the insurance companies, so that clients get the best
deal.
7. Having a client service team to help clients with post-sales service such as claims.
On top of the above, we give a 30% rebate of salespersons commission (for as long as the insurance
companies pay us) to reduce the cost of purchasing insurance.
But DIYInsurance is not about giving rebates. Our clients really come to us because they feel absolutely safe
doing their insurance plans with us. Over the past 2 years, we have received so much encouragements and
recognitions from clients. You can read them here.
And because we embrace honour in our work, and because the practices we put in place exhibit our value
of honouring clients and our staff, Honour Singapore recently produced a short video, in recognition of this.
57
Chapter 6

It has been a long journey for Providend since 2001 and the road hasnt been easy. In my near 20 years in
this industry, I have realised that in order to do the right thing and to always put clients interest first, we must
be prepared to make sacrifices. One such sacrifice is in the form of receiving flak from advisers, for not all of
them agree with our stand. But we believe that this sacrifice is worth it, because we can answer to ourselves
and above all, our clients. This is our calling, our purpose.
I salute all Providend and DIYInsurance staff for sharing our dream and walking this journey with us. I thank
all our clients for being part of this adventure in making honest advice work.

58
Chapter 6

Epilogue

59
Epilogue

his e-book started with Mr. Marq Siew, an adviser with many years of experience in the insurance industry,
stating his many points of contention against our stand on term insurance. It is only appropriate that we
end the book by answering Marqs questions/points.
Marq Siews Points of Contention
1. Marq feels that in advocating term insurance, we are not being customer-oriented but product-oriented.
2. That we are obsessed with arguing which instrument is better. He feels that all products are created to
meet a certain need. If DIYInsurance advocates the use of Term insurance against Whole Life plans, we are
advocating a one-sized fit all approach. We should instead customise each plan to customers needs.
3.That regulators have indicated before that they do not wish to see product-type pushing (Term policies are
a product-type), by expressing that Incentives should not be given for any particular product-type. As such,
by advocating Term insurance, What DIYInsurance is doing is akin to product pushing.
4. That If Term insurance is so good, like what DIYInsurance is saying, there should be a massive landslide
of market share to Term plans. But this is currently not the case. Marq is alluding that good products will lead
to huge market share or simply put, a huge market share means that the product must be good.
5. That Providend/DIYInsurance is saying that Term insurance commission rates are lower than Whole Life
commission rate. And as such, we should publish a table on commission rates to the public.
6. That DIYInsurance is insinuating Singapore financial planners/consultants/advisers because we allude
to them getting lower commission rates for recommending Term policies and so most prefer to recommend
Whole Life plans.
7. That DIYInsurance should make a public apology for pt 6.
8. That we assumed that all Singaporeans do NOT require coverage after exactly aged 65 years old.

60
Epilogue

OUR REPLY
Dear Marq
By now, I hope you have realised that in advocating term, we have never been more customer-centric rather
than product-centric. Our decision to make this stand was not done without research, analysis and deliberation.
And at the centre of our process is this: Our clients.
Inside and outside of our boardroom, we constantly asked ourselves this one question: What is best for our
clients? And we are convinced, that after considering all that we have written above, that term insurance is
the most suitable insurance for a large majority of people in wanting to protect their higher priority needs.
Although our philosophy of insurance is that it is primarily for protection and not for saving or investing, this
is not the same as saying we advocate buying term and investing the rest. We dont buy term to invest the
rest. We buy term insurance because it is the most affordable way to be fully protected.
There are situations where using whole life insurance is appropriate. But those situations are unique or should
only be done after taking care of our higher priority financial planning needs, which include retirement
planning and accumulating towards our childrens tertiary education.
Many including you have said that we are advocating a one-sized fit all approach, and that we should
understand the needs of the individual client before prescription. I think you may have misunderstood us and
also the term term insurance". Term insurance is not a product. Term insurance is a class of products that are
suitable when our need for coverage is temporary and if we want an affordable way to fully meet our huge
coverage needs.
At DIYInsurance, we take time to understand every clients need. This is done at the need analysis stage, which
may result in clients wanting different amount of coverage, to cover different risks and for different number
of years. But as we have painstakingly explained, these higher priority needs are almost mostly temporary in
nature and therefore, term insurance is most suitable and cost effective.
As an adviser who has been in the insurance industry for many years, you will also know that different
insurers price their term insurance differently for different age range and gender. So once we know the needs
of the clients, DIYInsurance will then choose the most appropriate term insurance from different insurers for
clients. I think after doing all these, one cannot say that we are using a one-sized fit all approach, even worse,
call us a product pusher. (Product pushing happens when without understanding the needs of the client, a
product is being sold.)
61
Epilogue

Dear Marq, unfortunately, we cannot agree with you that good products will lead to huge market share or
simply put, a huge market share means that the product must be good. There are many contributing factors to
market share, and the quality of the product is but only one of them. And even if we accept your thesis, you
will notice in table 5.1 that over the years, the proportion of sales for whole life plans are decreasing while
term plans have been increasing. Does this then suggest that whole life plans are no good and term plans are
better? We do not think so. As we have explained in Chapter 5, we believe that this is because consumers
and advisers alike are beginning to understand the use of term plans better and also insurers are coming out
with good and competitively priced term plans. It is not what the market share was that is important but where
it is going.
We also think that you have misunderstood that we assumed that all Singaporeans do not require coverage
after exactly aged 65 years old. Nowhere in our publications have we said that. In various publications
including our earlier articles, we used age 55, 65 and even age 70 as an age for illustrative purposes. But we
do maintain our stand that for our higher priority needs, our need for insurance coverage is temporary. One
day, whether aged 55, 65 or 70, we do not need insurance coverage anymore.
With regard to commission, we would also want to clarify that we have never said that commission rates for
selling a whole life plan is better than term plans. We have always said that commissions are higher when
whole life plans are sold. This is because, for the same coverage need, the premiums for whole life plans are
many times higher than term plans. You have requested us to publish a table of commission rates for whole
life and terms plans to the public. Unfortunately, we cannot accede to your request as our agreements with
the various insurers do not allow us to do so. However, what we can do is to publish Appendix 1 to 5, where
we put up the different premiums and agents first year commission from different companies (keeping names
anonymous).
We can clearly see that though the commission rates for term and whole life plans do not differ much, selling
a whole life plan to meet coverage need of our clients cost the client a lot more, than if he had bought a term
plan. Higher premium translate to higher commission.
Marq, it was not my intention to insinuate Singapore financial planners/consultants/advisers. I have stated in
a few of my articles and in this book, that there are good advisers who will do the right thing, even if it means
earning a lower commission for themselves. I salute all these advisers. However, it is true that the commission
structure can cause one to be tempted to sell a product that is of a higher compensation. We need to be honest
to accept this as a fact. But I agree with you that in those articles that I wrote in my earlier years, my tone of
voice could have been better. Although my principle was right and I dont apologise for making this stand on

62
Epilogue

term insurance, my posture could have been much better. For that, I sincerely apologise to every single adviser
in Singapore which I may have offended. I hope all of you can forgive me.
Thank you Marq for reading this book. I hope many advisers and you have enjoyed and benefited from
reading this as much as I have enjoyed writing it.

63
Epilogue

Appendix

64
Appendix

Appendix 1: Possible insurance plans for Tony to cover $500,000 death/TPD


Term Plans
(Term till age 70)
Premium (p.a.)

Whole Life Hybrid


Plans
(Premium p.a.)

Traditional Whole
Life Plans
Premium (p.a.)

Company A

$2,345

$5,761

Not Available

Company
Company
Company
Company

$1,922
$2,310
$2,131
$2,178

$7,410
$5,849
$8,739
Not available

$15,670
$14,581
Not available
$14,320

B
C
D
E

Table A: Various insurance options for Tony


*Not Available: Insurers either do not have the product or do not have products that have the same 25-year limited premium
term.
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.

Company
Company
Company
Company
Company

A
B
C
D
E

Term Plans

Whole Life Hybrid

$1,351
$748
$845
$852
$1,089

$2,938
$3,335
$2,281
$3,495
Not applicable

Table B: Estimated agents first years commission for selling the above policies in table A

65
Appendix

Traditional Whole
Life Plans
Not applicable
$7,052
$5,687
Not applicable
$5,728

Appendix 2: Possible insurance plans for Peter to cover $1,000,000 death/TPD

Company
Company
Company
Company
Company

A
B
C
D
E

Term Plans
(Term till age 70)
Premium (p.a.)
$3,203
$2,913
$3,391
$4,622
$3,261

Whole Life Hybrid


Plans
(Premium p.a.)
$11,189
$14,720
$11,253
$17,472
Not Available

Traditional Whole
Life Plans
Premium (p.a.)
Not Available
$31,340
$29,162
Not Available
$28,640

Table A: Various insurance options for Tony


*Not Available: Insurers either do not have the product or do not have products that have the same 25-year limited premium
term.
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.

Term Plans
Company
Company
Company
Company
Company

A
B
C
D
E

$1,845
$1,133
$1,241
$1,849
$1,631

Whole Life Hybrid


Plans
$5,706
$6,624
$4,388
$6,989
Not applicable

Table B: Estimated agents first years commission for selling the above policies in table 5.5

66
Appendix

Traditional Whole
Life Plans
Not applicable
$14,103
$11,373
Not applicable
$11,456

Appendix 3: Possible insurance plans for Tony to cover $130,000 for income replacement due to a critical
illness and $50,000 for alternative medicine and care
Whole
Term Plan
Life
(till ALB
with
70) with
$130,000
$130,000
Company
A
Company
B
Company
C
Company
D
Company
E

$1,707
$1,699

Not
Available
Not
Available

Whole
Life
Hybrid
with
$130,000
Not
Available
$2,843

$1,700

$4,884

$2,484

Not
Available
Not
Available

Not
Available

$2,269

$4,650

Not
Available

Whole
Life
Whole
Life with Hybrid
$50,000 with
$50,000
Not
Not
Available Available
Not
$2,166
Available
Not
$1,986
Available
Not
Not
Available Available
Not
$1,814
Available

Whole
Life
with
$180,000
Not
Available

Whole
Life
Hybrid
with
$180,000
Not
Available

$8,098

$3,061

$6,763

$3,249

Not
Available

$3,143

$6,439

Not
Available

Table A: Various options for Tony to cover $130,000 income replacement for critical illness and $50,000 for alternative medicine
and care
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.

Whole
Term Plan
Life
(till ALB
with
70) with
$130,000
$130,000
Company
A
Company
B
Company
C
Company
D
Company
E

$983
$637

Not
Available
Not
Available

Whole
Life
Hybrid
with
$130,000
Not
Available
$1,279

$612

$1,905

$969

Not
applicable
Not
applicable

Not
Available

$907

$1,860

Not
Available

Whole
Whole
Life
Life with Hybrid
$50,000 with
$50,000
Not
Not
applicable applicable
Not
$974
applicable
Not
$774
applicable
Not
Not
Available applicable
Not
$726
applicable

Table B: Estimated agents first years commission for selling the above policies in table A

67
Appendix

Whole
Life
with
$180,000
Not
applicable

Whole
Life
Hybrid
with
$180,000
Not
applicable

$3,644

$1,652

$2,637

$1,267

Not
applicable

$1,257

$2,575

Not
applicable

Appendix 4: Possible insurance plans for Peter to cover $360,000 for income replacement due to a critical
illness and $50,000 for alternative medicine and care
Term Plan
(till ALB
70) with
$360,000
Company
A
Company
B
Company
C
Company
D
Company
E

$4,364
$3,810

Whole
Whole
Life
Life
Hybrid
with
with
$360,000
$360,000
Not
Not
Available
Available
Not
$7,728
Available

$4,662

$13,010

$6,242

Not
Available
Not
Available

Not
Available

$6,293

$12,877

Not
Available

Whole
Life
Whole
Life with Hybrid
$50,000 with
$50,000
Not
Not
Available Available
Not
$2,166
Available
Not
$1,986
Available
Not
Not
Available Available
Not
$1,814
Available

Whole
Whole
Life
Life Plan
Hybrid
with
Plan with
$410,000
$410,000
Not
$6,782
Available
$17,142

$7,834

$14,817

$7,110

Not
Available

$7,167

$14,666

Not
Available

Table A: Various options for Peter to cover $360,000 income replacement for critical illness and $50,000 for alternative medicine
and care
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
** The premium for the whole life and whole life hybrid is over a limited period of 25 years.

Term Plan
(till ALB
70) with
$360,000
Company
A
Company
B
Company
C
Company
D
Company
E

$2,514
$1,429

Whole
Whole
Life
Life
Hybrid
with
with
$360,000
$360,000
Not
Not
Available
Available
Not
$3,478
Available

$1,678

$5,074

$2,434

Not
applicable
Not
applicable

Not
Available

$2,517

$5,151

Not
Available

Whole
Whole
Life
Life with Hybrid
$50,000 with
$50,000
Not
Not
applicable applicable
Not
$974
applicable
Not
$774
applicable
Not
Not
Available applicable
Not
$726
applicable

Table B: Estimated agents first years commission for selling the above policies in table A

68
Appendix

Whole
Whole
Life
Life Plan
Hybrid
with
Plan with
$410,000
$410,000
Not
$3,459
applicable
$7,714

$3,525

$5,779

$2,773

Not
applicable

$2,867

$5,866

Not
applicable

Appendix 5 - How much cover you can get from whole life and whole life hybrid plans with the same
premium you pay to get term plans
Premium for
$500,000 term
plan till age 70
Company
Company
Company
Company
Company

A
B
C
D
E

$2,345
$1,922
$2,310
$2,131
$2,178

Sum Assured of
Whole Life Plan for
the same premium of
$500,000 Term
Not Available
$59,000
$71,000
Not Available
$73,000

Sum Assured of Whole Life


Hybrid Plan for the same
premium of $500,000 Term
$195,000
$125,000
$186,000
$122,500
Not Available

Table A: How much cover you can get from whole life and whole life hybrid with the same premium to get $500,000 term plan

Company
Company
Company
Company
Company

A
B
C
D
E

Agents First Year


Commission (Term
Plan)
$1,351
$748
$845
$852
$1,089

Agents First Year


Commission (Whole
Life Plan)
Not applicable
$865
$900
Not applicable
$871

Agents First Year


Commission (Whole Life
Hybrid Plan)
$1,196
$865
$900
$852
Not applicable

Table B: Estimated agents first years commission for selling the above policies in table C

Premium for
$1,00,000 term
plan till age 70
Company
Company
Company
Company
Company

A
B
C
D
E

$3,203
$2,913
$3,391
$4,622
$3,261

Sum Assured of
Whole Life Plan for
the same premium of
$1,000,000 Term
Not Available
$89,000
$112,000
Not Available
$112,000

Sum Assured of Whole Life


Hybrid Plan for the same
premium of $1,000,000 Term
$264,000
$190,000
$274,305
$264,514
$186,000

Table C: How much cover you can get from whole life and whole life hybrid with the same premium to get $1,000,000 term plan
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.

69
Appendix

Company
Company
Company
Company
Company

A
B
C
D
E

Agents First Year


Commission (Term
Plan)
$1,845
$2,267
$1,241
$1,849
$1,631

Agents First Year


Commission (Whole
Life Plan)
Not applicable
$1,315
$1,323
Not applicable
$1,305

Agents First Year


Commission (Whole Life
Hybrid Plan)
$1,652
$1,323
$900
$1,849
$1,298

Table D: Estimated agents first years commission for selling the above policies in table C

Appendix 6 - Interesting Facebook Threads About Our Stand on Term Insurance


Marq Siew
I would like to enquire as a member of the public:
(1) Why are AIA's Term rates generally absent?
(2) Can DIYinsurance confirm that these 2 tables do not have any error? It seems that AXA has the
cheapest Term rates across Almost all age bands.
(3) Can DIYinsurance give the public, an explanation of the recent sudden shift, in terms of how old
we should be covered for Death Cover?
Just in June 2016, your company was still recommending Death cover till the age of 65. In July 2016,
you now recommend it till 70 years old.
I certainly hope it's not because most insurers now offer Disability protection till 70 years of age, which
caused DIYinsurance to shift it's recommendation, which is noticeable despite the slick footwork.
Should we pity consumers who believed in DIYinsurance's past recommendation to buy Term till
the age of 55, based on what Christopher said in his 2005 article? What about the clueless public
who later believed DIYinsurance's recommendation to buy Term till 65, only now to suddenly
hear DIYinsurance shift the goal post again to 70 years old? By the time DIYinsurance shifts the
recommended Death cover age backwards again, the overall DIYinsurance recommendation will
look like a Whole Life coverage.
70
Appendix

The innocent public which followed such recommendation, are stuck with an old Term policy, with a
coverage duration which cannot be changed.
Of course, there is a possible Magical solution: these hapless Customers can replace their older Term,
re-buy a brand new Term Policy at an older age (sometimes cheaper, sometimes more expensive),
to fit to the new recommended cover till 70. No clawback of Commissions due to Term-to Term
Replacement because there is no Cash Value involved, so the company which does this, can earn
fresh Commissions all over again!
Diyinsurance.com.sg
Dear Marq Siew, thank you for your comments and questions
In an earlier thread that you posted on 21 June 2016 (under the June's Singapore Term Life
Comparison Tables post), you have requested for us to also provide Tokio Marine (TM), AIA as well
as Great Eastern Lifes (GE) rates, Roy Yong, an agent from GE has also requested the same. We
accepted your request to do so. In including TM term plans, you might know as an adviser, that the
shortest term we can buy from TM is a term till aged 70. TM does not have term plans that covers till
aged 65. That explains why we have changed the coverage age till aged 70.
Marq, once again, you might have misunderstood our CEOs article dated 16th August 2005 which
appeared on Today Newspaper. I embed the link here http://www.providend.com/think-twicebefore-you-pay-your-next-insurance-premiums/ . In the article, Mr. Christopher Tan said To illustrate,
if you are 35 years old man and need to provide your family with a monthly income of $3,000 for 20
years in the event of your unfortunate demise, you will need about $600,000 cover. If you intend to
retire and have no dependant at age 55 Mr. Tan did not advocate that one should buy coverage
till aged 55. He was simply illustrating how much coverage one needs and the premium cost if he
wants coverage till aged 55. In the same vein, by putting up a comparison table that shows term
plan coverage till aged 65, we are not advocating that one should only buy a term plan till aged
65, but simply to use a reasonable term for comparison purpose. We appreciate your concern that
the public might not know how long they would need coverage. But that is what we as advisers in
DIYInsurance are here for, to guide them and provide them with the most honest, independent and
competent advice. We also believe that our clients who come to DIYInsurance to get insurance advice
are people who are wise, and as such will not misread our articles.
We are honestly shocked to hear of the suggested solution that advisers can ask clients to keep
71
Appendix

changing their term plans so as to earn new commissions. We do hope that the suggested solution
is not a common practice in the industry. Providend and DIYInsurance is a fiduciary. We owe our
clients a duty of care. Such so called solutions" not only have never crossed our minds, we have
in fact created a structure to minimise any conflict of interest. You might be pleased to know that
at DIYInsurance, all recommendations are done by a specialised team of licensed advisers that are
salaried-based and not compensated by commissions. They do not get anything out from churning.
On top of that, there are higher level checks by an executive director of the firm before each insurance
application is processed. This is how serious we take our advice to our clients. To top it all, in all of
our 13 years of operation as a firm, Providend has zero compliance breaches of such nature.
Finally, our comparison table is accurate as at 1 July 2016 and so AXA rates for the specified
parameters are accurate. AIA rates are missing for most age band because AIA Secure Term Plus (II)
(AIAs term plan) limit coverage to 5, 10, 20 or 30 years.
On another post
Tan Songkai
Sounds like a advertisement for AXA though
Fyi, cost of insurance to be paid to AXA highest in Singapore. 9%

SongKai - any supporting materials to prove so?


Tan Songkai
Meet me in real life. I'll show you :)
Diyinsurance.com.sg
Dear Tan Songkai, thank you for your comment. One of the factors that affect premium rates is
mortality cost aka as the cost of insurance. The higher the mortality cost, the higher the insurance
premium. Our comparison table showed AXA to have the lowest premium for this scenario. Would
appreciate if you can elaborate what you mean when you say AXA has the highest cost of insurance,
especially so when premium is lowest. Thank you.

72
Appendix

Tan Songkai
As I said, meet me in real life and I'll.show you the evidence :)
Tan Songkai
Premiums are shown but rate of deductions are not.
Diyinsurance.com.sg
Dear Tan Songkai, thank you for your reply. As much as we believe you might have the evidence, that
was not our question. We are just asking what you mean when you say AXA has the highest cost of
insurance when premium is the lowest as it is technically unsound. Thank you.
Tan Songkai
LOL. are you technically unsound?
Premiums are what the client pay. However, every insurance plan has a cost that will be paid to the
company. For example, if a client wants a ilp that cost 100$ a month. Will 100$ be actually used
for investment? Yes and no.
Front end loading, the company deduct 5$ and invest the remaining 95 into the invest ment fund of
client choice.
Back end loading, 100$ is invest first. At the end of x years, 5% of the total value is deducted to pay
the company.
AXA deduct the highest amount to pay the company salary and operation cost.
This is what I am saying.
Diyinsurance.com.sg
Thank you Tan Songkai for your reply. But amount deducted to pay front end load, back end load,
company salary and operating costs are not defined as cost of insurance. They are distribution cost
73
Appendix

and coy expenses. Cost of insurance is mortality rates based on life expectancy. So your definition
may be incorrect.
Tan Songkai
Lol.sorry but I do.Not memorize definitions. All I know is loading affects how much clients get from
company only. And axa has the highest in this aspect. This means although on paper axa win but
factoring this aspect axa will lose :)
Diyinsurance.com.sg
Dear Tan Songkai, thank you for your reply. We accept your apologies for not knowing the meaning
of the term "cost of insurance". But this is a term plan comparison that you are commenting on. There
is no return of cash or investment value to clients.

Hence Tan Songkai - sound so confident earlier .... lol but well you learn something new. :)
On another thread
Marq Siew
With reference to DIYinsurance's reply to Felix Lam, DIYinsurance has valid and invalid points.
1st, Top in the class does not equal to good enough or sufficient. If a child scores 38 marks out of
100, and the rest of the classmates all score lower, the child is Top, but fails the examination.
2nd, the Low cost of the ETF cannot be immediately interpreted to translate into higher returns. If it
does, why do the high nett worth individuals not buy just ETFs, but buy investments based on sectors
and countries? Because the rich and well educated are not informed of the existence of ETFs? ETFs
may give better returns. May in caps. Cheapest may not equate to being the best when it comes to
investing. Do any of us even buy the cheapest toothpaste in a supermarket? Do we buy everything
we use, based on the cheapest product in a supermarket, regardless of the reliability, benefits and
ingredients? Of course I still advocate that for plain simple Term coverage, cheaper is always what
we are looking for.

74
Appendix

3rd, it is true that buying a Term policy may be better for investment savvy consumers. I seldom see
investment savvy consumers who buy Term and invest the rest, buy ETFs. They often invest in other
instruments. A Term and ETF mix doesn't seem to be seen often.
4th, if the individuals in a particular society are not financially educated enough yet, doesn't it make
strategic sense to focus on the education part first, before we push them to do buy Term and invest
the rest (because they don't know what they are doing also) now? Can you force a 10 year old child
to take a degree in Quantum Physics immediately, skipping all the basics of physics supposed to
learnt along the way, just because "eventually you will have to learn it anyway"? There is a time and
process for everything.
I acknowledge that DIYinsurance has a noble mission, but I suspect that DIYinsurance should focus
on investment education, instead of recommending that everyone buy Term insurance immediately.
That would be even more noble, but from a business point of view, it may not be what DIYinsurance
wants to do.
Diyinsurance.com.sg
Dear Marq Siew, thank you for sharing your thoughts. Please allow us to clarify your misunderstanding
1. When we put up the link to show that Singapore is ranked top in financial literacy in Asia Pacific,
we did not say it is good enough, rather, if you have read our post and the article in full, you would
realised that we are simply saying that Singapore's financial literacy level has improved.
2. When we shared with Felix Lam on how we can invest using low cost ETFs, again, if you have read
what we commented, we did not say that it is the best, but rather, it was to answer to Felix's point on
advisory and trailer fees. We are simply saying that ETFs have no trailer fees and have low advisory
fees. We also did not say that lower cost translates to higher returns. We simply said that higher cost
(in terms of higher expense ratio) eats into returns. Risk and returns go hand in hand. If one wants a
a possible higher return, they have to take more risk. This is how markets work.
3. You mention that high net worth do not just buy ETFs but also invest in sectors and countries. Once
again, if you have read our comment, we are not saying one should only buy ETFs, but rather we are
simply giving Felix an example of an investment option that is without trailer fees. But really, whether
one is high net worth or not, it should not be a stopper to investing into other investment options. You
might want to know that you can also invest into sectors and countries using ETFs. ETFs do not restrict
75
Appendix

your geographical exposure. It is basically a way of investing into a basket of securities by tracking
the index. They do not do security selection to beat the market. Therein lies the reason why it is low
cost.
4. Unfortunately, We have to disagree with your point that buying a Term policy may be better
for investment savvy consumers. Once again, we reiterate that buying term is not so that one can
invest the rest. Buying term is the most affordable way to be sufficiently covered. Whether you are
investment savvy or not, there is a need to be sufficiently covered. Our point in our reply to Felix is
also that if consumers are not investment savvy, it is our job as advisers to help them.
5. We quote your 4th point: "if the individuals in a particular society are not financially educated
enough yet, doesn't it make strategic sense to focus on the education part first, before we push them
to do buy Term and invest the rest (because they don't know what they are doing also) now" - Firstly,
we are aligned to your point that we should educate. This is why we have been writing such articles
since 2003. However, we do not agree with you that it makes more strategic sense to focus on the
education part first, before we get people to buy term and invest the rest. Once again, if you have
read our reply to Felix and the above comment, we are not advocating buying term and investing
the rest. Secondly, you seems to suggest that before individuals are financially educated, they should
not buy term. The question is, how do we measure if individuals in a society is ready? As you have
alluded in your first point, that even when we are top in financial literacy in Asia Pacific, it is not
good enough. So the question is: when will our consumers be "good enough" to buy term insurance?
When we started out writing in 2003, advisers have said that consumers are not ready. 13 years
later, when we posted the same articles that were written more than a decade ago, advisers are still
saying that our consumers are not ready. Our belief has always been: consumers will be ready when
we as advisers are ready. Thirdly, at Providend and DIYInsurance, beyond being concerned with
whether it makes strategic sense for us. We are also concern with doing what make sense for our
clients. Beyond a business enterprise, Providend and DIYInsurance are firstly fiduciaries.
6. We are humbled that you acknowledge that DIYInsurance has a noble mission. We have never
seen ourselves that way. We only want to do what is best for our clients. If you have visited our web
portal, you will notice that we carry whole life plans as well. From a business point of view, it doesn't
make a difference whether clients buy a whole life or Term from us.
Marg, you might want to post your reply with Felix's thread so that readers watching this space can
follow our points easier. Thank you once again for watching this space and sharing your thoughts.
Have a good weekend!
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Appendix

Singapores 1st Life Insurance Comparison Web Portal

END

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