Term Insurance: Basic, Inexpensive and Easy to Understand

29 Apr 2014
What is term life insurance?

Term insurance is basic, inexpensive and easy to understand. It gives you all the coverage you need and none that you don't. Its a good fit for short-term needs or those that have a specific end point. 

This offers insurance protection for a limited period only whereby the money is paid up if you pass away or if you suffer total and permanent disability. Simply choose a term policy duration to meet those needs. That's why it's the best choice for almost everyone. 

As the name implies, a term insurance policy is good for a specific period of time; that can be one year, 10 years, 20 years or even up to 30 years. Given that you generally need life insurance only until you've managed to save up money elsewhere, just pick the term that dovetails with the time you need coverage. If you die during that term, your beneficiaries get a payout, known as the death benefit. If you die after the term expires, there's no payout.

What are the different types of term insurance?

There are two kinds. There's "annual renewable term," which gives you one year of coverage at a time that you renew annually, and "level premium term," which you buy for a specific multiyear period - say, five, 10 or 20 years.

Annual renewable term usually has the lowest annual premium to start, but the premium rises as you age. If your main concern is keeping your initial costs down  for example, because you think your earnings will rise significantly in the future - consider going with annual renewable term.

For example, to help ensure your family will be able to pay a 20-year mortgage, you can choose a 20-year term policy. The policies allow you to choose the length of coverage you need, such as 10, 15, 20, or even 30 years. During this period, called the level-premium period, your premiums are guaranteed not to change. After this period, however, premiums will increase each year until the policy ends (usually at age 95) and may not be guaranteed. 

The pros of term life insurance

Lower Premiums: Term life insurance has the lowest premiums if compared to other types of life insurance – you can get maximum amount of protection for the least amount of premium paid. You could find, for example, an insurance company that offers a term life insurance premium starting from as low as RM 175 per annum (usually you would have to be aged 18 – 45), with a sum insured of up to RM 40,000 (natural death) and RM 80,000 (accidental death) in return for this low premium.

Flexibility of Application: Because of its non-permanent state, insurance companies are generally more flexible in accepting applications for this type of insurance, especially for those who are under 50 years of age and have a good health condition. In fact, most insurance companies do not require a medical examination from applicants for term life insurance.

Flexibility of Policy: Many term policies offer a term-to-permanent insurance privilege.

The cons of term life insurance

Cost Increment: While we mentioned that term insurance can be renewed or changed to a permanent life insurance, this might cost the premium to increase dramatically. This depends on several factors such as the age and the health condition of the policy holder, as well as the policy’s term and conditions.

Age Restrictions: Unlike a permanent life insurance, age matters when it comes to term life insurance. Typically, insurers won’t allow people from the age group of 50 – 55 and above to buy a term life policy.

No Cash Value: As previously stated, term life insurance focuses solely on life coverage and has no investment value, therefore there will be no added cash value in your coverage sum (Cash Value is the amount of money that you will get back if you cancelled your policy).

Sources From:

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Keep It Simple, Bank Negara Tells Insurance Firms

21 Apr 2014
To protect consumers, Bank Negara wants the insurance industry to make their policies easier for the public to understand.

The regulatory body has issued product transparency and disclosure guidelines to insurance providers, emphasising the importance of using “plain and intelligible language” in policy documents.

This is to make it easy for consumers to understand their contractual rights and responsibilities, so that they can make informed decisions, a central bank official said.

“Work is already in progress to improve the wording in hospital and surgical insurance policies to ensure that simple words are used to explain and draw attention to important terms and conditions of the policy, including, in particular, the medical conditions covered and those excluded from the policy,” she said.

On the pricing of medical and health insurance products, she said these were determined by the insurance company or takaful operator based on actuarial principles.

Any changes to factors like exposure to anti-selection risk and medical inflation might lead to a review of the premiums, she explained.

“There are, however, safeguards in place. Insurance product pricing requires a qualified actuary of the insurance company to certify the reasonableness of the premium charged.

“This is influenced by economic factors such as medical inflation, mortality and morbidity rate as well as investment performance of the insurer,” she said.

Source From: http://www.thestar.com.my/News/Nation/2014/04/20/Keep-it-simple-Bank-Negara-tells-insurance-firms/

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Why You May Be Losing Hair?

18 Apr 2014
Healthy Hair, Start with Healthy Lifestyle

As everyone are concerned to take care of skin and to maintain the best to look beautiful, but sometimes they forget hair scalp also need special care to ensure hair stays healthy and beautiful. According to hair expert who is also a member of the International Academy of Dermatology (IACD), Dr. Thanaruch Thanakorn.

According to him, if the scalp treatment is ignored, possibility for someone easily suffer from dandruff and various hair problems like hair loss, branched or hair damage. Many people end without knowing or realize that the scalp needs between men and women are totally different. For male hair scalp generally more vulnerable and under pressure while exposed to pollution and heat. Compare to women are more prone to the problem of chemicals from hair dyes and tense.

Studies show that men hair scalp are more oily scalp than women because the areas of the zone are more weaker. Although if women more exposed to chemical pollution their hair scalp produce less oily rather than men because the skin immune system of women  more stronger.

Causes of Hair Loss

Stress is one of the most common causes of unusual hair loss. Hectic lifestyles can reduce a lot of energy out of us and increase our stress levels. Numerous studies hold stress responsible for many health problems ranging from smaller ones like a headache to life-threatening disease like a heart attack. True, a good percentage of people who shed a bit of extra hair are susceptible to a lot of stress, but that doesn't necessarily mean that stress is the only factor responsible for baldness. 

#Junk Food
Most junk foods contain artificial ingredients to enhance their colors and flavors. Monosodium glutamate, or MSG, is one of the primary substances used to enhance the flavor of processed foods. It’s mostly because junk food hardly gives your body any nutrients. Living on junk food could lead to nutritional deficiencies, which may contribute to baldness. People having eating disorders are also more likely to suffer from extensive hair loss.

#Frequent Use of Chemical Product
Excessive use of hair styling tools like strengtheners and curling iron or hair products like gels, mousse, sprays, colours, etc can damage the hair shaft and prolonged usage can hamper its growth. Tight ponytails, wrong combs, parting your hair, can further make the condition worse.
Pregnancy is the one example of the type of physical stress that can cause hair loss (that and hormones). Pregnancy-related hair loss is seen more commonly after your baby has been delivered rather than actually during pregnancy.

#Family history
If family history become the main reason causes your hair loss. So nothing much you can do. You can only reduce your chances of losing a lot of hair by following a proper diet, taking supplements and live in healthy lifestyle. The important is avoiding things that could contribute to accelerating hair loss.

What is DHT (Dihydrotestosterone)?

DHT, which stands for Dihydrotestosterone (5α-Dihydrotestosterone), is a male sex hormone, an androgen. 5α-reductase, an enzyme, synthesizes DHT in the adrenal glands, hair follicles, testes and prostate. Male and female adults can lose hair as a consequence of changes in the metabolism of androgen in the body - men more commonly than women. DHT plays a major role in hair loss.

The most important part of the hair follicle is the dermal papilla (papilla of hair), which is responsible for the growth of hair. The dermal papilla cells divide and differentiate to form new hair follicles. The papilla is in direct contact with the skin's blood capillaries, from which it gets its essential nutrients for proper hair follicle growth. The dermal papilla has a large number of androgen receptors (more in males than females).

When DHT gets to the dermal papilla, it undermines the absorption of vital nutrients required for healthy hair follicles. Hair follicles have resting and growing phases - without proper nutrition, their resting stages get longer while their growing phases get shorter.

Hormones are cyclical. Testosterone levels in some men drop by 10 percent each decade after thirty. Women's hormone levels decline as menopause approaches and drop sharply during menopause and beyond. The cyclic nature of both our hair and hormones is one reason hair loss can increase in the short term even when you are experiencing a long-term slowdown of hair loss (and a long-term increase in hair growth) while on a treatment that controls hair loss.

Since hormones operate in the healthiest manner when they are in a delicate balance, the androgens, as male hormones are called, do not need to be raised to trigger a problem. Their counterpart female hormones, when lowered, give an edge to these androgens, such as DHT. Such an imbalance can also cause problems, including hair loss.

How to Get a Healthy Scalp?

You are what you eat 

Your hair is literally or highly affected by what you eat. Avoid eating food that can prevent hair loss. Eat more nutritious and healthy food like fresh fruit and vegetables, sufficient protein and carbohydrates, and drink more plenty of water because it give a body all the nutrients it needs to stay healthy.

Regularly exercise

The combination between physical activity and nutrition is to generate better health. Nutrients are carried to the hair in the blood and regular exercise helps to maintain good circulation.

Avoid unnecessary stress 

Obviously stress can damages all of your body and is not exception for your hair. But at the certain point, stress starts causing major damage to your health, your mood, your productivity and your quality of life. Loss of hair can be one of your body signals that you are in stress or stress overload.

Taking supplements

Taking supplement that are specifically formulated to promote healthy scalp and hair. Look for a formula made for hair, skin, and nails that has biotin, vitamins B, C, E and  Iron. Multiple vitamins, including biotin, have been promoted for hair growth.

Sources From:
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Free Spine Evaluation By Tags Specialists Center and Health Talk (Spine Care) by Dr Samuel John Hunter

10 Apr 2014
We are at easicircle please to inform. This is an open invitation to invite the general public to come join us on Saturday, 19th April 2014 and get to know about easicircle, our community portal. Don't miss out on this exciting event.

Date: Saturday, 19 April 2014 (Next Week) 

Time: 12:30pm - 5:00pm

Venue:  Pool Side, Level 5, Binjai Residency, No 1 Lorong Binjai, Kuala Lumpur, 50450

Tentative Program

12.30pm - 1.15pm : 
Registration / View vendor products and spine evaluation

1.30pm - 2.30pm :
Health Talk Regarding Spine Care by Dr Samuel John Hunter

2.35pm - 2.50pm :
 Update by CEO

3.00pm - 3.45pm : 
Ecc Presentation

3.50pm - 5.00pm :  
Light refreshment and view vendor products

For More Information Please Visit Our Facebook www.facebook.com/easicircle
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Tips For Consumers On Buying Life Insurance

9 Apr 2014

Mr. Tan Kin Lian started work in 1966 and qualified as a Fellow of the Institute of Actuaries in 1975. 

He joined NTUC Income, Singapore in 1977 as the general manager/chief executive officer. During this stewardship, the assets of the cooperative increased from $28 million to $17 billion and became a leading life and general insurance co-operative.

Mr. Tan is now the President of the Financial Services Consumer Association (FISCA), a non-profit organization formed to educate the public on financial planning. He has published a few books on life insurance and financial planning. He also lectures as an adjunct professor in a university in Singapore.

Chapter 1 - Introduction

I have received many requests from consumers to give my views on the life insurance policies that they have bought previously or are being recommended to them now. They are mostly whole life or investment-linked policies that are intended to provide insurance protection and as a form of savings for the future.

I wish to present the results of my analysis in this book. They represent the policies that are now sold in the market in Singapore. I have removed the name of the consumer and the insurance agent from the benefit illustrations.

The focus on my analysis is on the amount of the accumulated premium that is taken away from the consumer. Most of these products offer a modest amount of insurance protection which, in my view, should take away 10% of the premium. The remainder is invested to earn an investment yield that should be returned to the consumer. The insurance company can take away another 10% for the investment service. It is fair for the insurance company to take away a total of 20% of the accumulated premium over a period of 25 years. This is my benchmark for a life insurance policy that is fairly priced to the consumer.

If the life policy does provide a large amount or wider scope of coverage, it may be justified for the deducted proportion to be higher than 20%. But this is likely to be not a commonly situation.

It is important for the consumer to pay a fair price for a life insurance policy. For most consumers, the life insurance policy represents the biggest financial commitment after the mortgage payment on your home. They should study the cost and benefit analysis carefully before making this commitment.

Chapter 2 - Structure of a life insurance policy

A life insurance policy performs two functions

Insurance protection for premature death, disability or medical expenses

Savings for the future

The consumer has to pay a premium that reflect the actual cost or value of the benefits provided by the policy and also a loading that is taken away by the insurance company to pay the commission to the agent, the expenses of running the operation and to give a profit to the shareholders.

Take the case of an insurance policy that provides protection only. If the average cost of the claim is $100 a year, it would be fair for the insurance company to charge $200 a year, as they need the loading to cover their expenses. In a competitive market, they may reduce the loading and charge only $150.

The loading for the investment portion should be lower and should be comparable to the fee that is levied by the manager of an investment fund or unit trust. The total fees should not exceed 10% of the invested sum.

As a larger proportion of the premium is intended for investment, a fair amount that is taken away should be 20% of the premiums that is paid. This is to cover the insurance protection and the investment service.This leaves 80% of the accumulated premium to be returned to the consumer.

If the actual cost of the benefit is $240 a month, you should pay a monthly premium of $300. If you are paying a monthly premium of $400 to $500, you are paying too much. The problem is - the consumer does not know the actual value of the benefit.

A good way for the consumer to know if the premium is fairly priced is to look at the amount that is deducted from the accumulated premium. This is shown as the "effect of deduction" in the benefit illustration that has to be provided with the life insurance policy. This amount has to be compared with the "value of the accumulated premium". If the deduction is more than 20% over 25 years, it is likely to be too expensive.

For example, if you pay $500 monthly over a period of 30 years and the investment yield is 5% per annum, the value of the accumulated premium is $418,000. If the cash value of policy is $250,000, the amount that is deducted is $168,000.This represents a deduction of 40%.

If you find a policy that deducts only 20%, you will be able to get a higher cash value of $334,000 at the end of 30 years. The difference is $84,000 over 25 years. It is a lot of money.

The amount that is deducted could even be higher. I have seen some benefit illustrations that show a deduction of 50% or more at the end of 25 years. This type of policy gives a very poor payout to the consumer.

The benchmark of 20% for 25 years applies to most typical policies. If a policy is specially designed to have a high proportion of the premium that goes to the insurance protection, it is justified to have a higher deduction. But most policies that are sold in the market are intended to provide a modest protection and to have a larger proportion of the premium that is intended for investment. For these policies, the benchmark of 20% is applicable.

Chapter 3 - Buy Term Insurance and Invest the Difference

The consumer has the option to buy a term insurance policy to provide the insurance protection and to invest the savings in a low cost investment fund. By adopting this approach, the consumer is likely to pay less than 20% of the value of accumulated premium.

The consumer is even likely to earn a higher yield on the amount that is invested, compared to the yield earned by the insurance company.

The consumer needs only to buy a term insurance for 20 or 25 years. For a young consumer, the cost of this coverage is extremely low. It is possible for a consumer to buy a term insurance of $300,000 and pay an annual premium of less than $300. This premium is fixed for the duration of the policy.

If the consumer wishes to be covered for an earlier payout on the occurrence of a critical illness, the premium will be slightly higher. It is important that the insurance be taken for a period not exceeding 25 years or for a shorter period, if the policy is taken at an age above 40 years.

The consumer can invest the savings in a low cost investment fund. An example of this type of fund is an investment fund that is invested to mirror a stock market index and is traded in the stock exchange. A few of such exchange traded funds are available at a management fee of 0.3% per annum. Over a period of 30 years, this is likely to take away only 6% of the accumulated amount.

Some consumers are worried about the risk of investing in the stock market. The risk is actually quite small, if they follow the following rules of diversification:

a) Invest in a large, professionally managed fund as it offers diversification. You will not be badly affected if some investments go bad, as the impact is small and is compensated by other good investments.

b) Choose a low cost fund, where the fund manager takes only a small fee. If you choose an indexed fund, you enjoy diversification and pay a fee of only 0.3% per annum.

c) Invest for the long term, i.e. 10 years or longer. The fund will do badly in some year but will do well in other year. Over the long term, you can get an average rate of return.

d) Invest 80% of your savings in a fund that is largely or fully in equity, as equity gives a higher return over the long term. You have already reduced your risk through diversification and averaging out the good and bad years.

e) You can keep 20% of your savings in a money market fund or in short term assets. The return may be lower, but you can withdraw the savings at any time to meet emergency needs, without having to pay a penalty or suffer a capital loss.

f) Avoid trading in the market. There is a high transaction cost involved in buying and selling your investments. Most investors are not able to read the market well to achieve a trading gain that can offset the cost. Their financial adviser is also unable to read the market well, in most cases.

Published by easicircle with permission from Mr. Tan Kin Lian.

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Do You Know That Heart Disease is The No 1 Killer in Malaysia?

7 Apr 2014
We at easicircle have organized a talk on Oct 2013 last year about how to manage your heart and health that was conducted by Mr Peter Terence, a certified clinical Hypnotherapist.

How I Reversed My Heart Disease 
Peter Terence D’Cruz 
Clinical Hypnotherapist 
Hospital Sungai Long

My story overview 2005 – 2013

Overweight and getting sick from time to time - 90 KG

• In denial of the seriousness of my condition 
• Chest pain, breathing difficulties 
• Getting conflicting information on my health 
• Outsourcing my personal health to the doctor 
• Confused on what to do 
• Feeling sorry for myself 

Difficulty in walking, swallowing, 
sleeping, having chest pain, back 
pain, shoulder pain, depressed, 
self pity........

Reasons for My Heart disease

First attack 2005 – Age 49 

•Arm ache 
•Chest dull pain 
•Cold Sweat 
•Stress test level 1 failed 
•Angioplasty found I had 
 90% blocked in 
•Two Stents put in which 
  cost RM18000++ 

Second Attack 2011 – Age 55 
•Heart Palpitation 
•Chest dull pain 
•Poor sleep 
•Only could walk short distance

I Refused Admission!

•Stress test level 1 failed
•Cardiologist advised re-stent or by-pass 
•I refused further interventional treatment 


How EECP Works?

35 session later

Not only did I see the difference – you can feel it. 
• Increases energy and stamina 
• No angina pain or discomfort 
• I return to activities I thought had to be given up forever 
• Ability to rest and sleep better 
• Run up stairs

Benefits of EECP 

•Increased blood flow occurs in the heart, brain, kidneys, intestines, and all other parts of the body
•Lower blood pressure, increased energy, endurance, and sense, of well-being 
•Patients with stroke have experienced much quicker improvement than would otherwise occur 

Other Benefits from EECP

• <There are several mechanisms of action believed to explain the extensive benefit from EECP.> (US health department).
• One of the main results is collateral recruitment, or the widening creation of small blood vessels in the heart muscle. 
• These new vessels improve the flow of healthy, oxygenated blood to the heart. Amazingly these small “collateral” blood vessels will create natural bypasses around narrowed or blocked arteries. 
• ED!!

How to Have a Healthy Heart

Notice and be mindful of your body alert system 

 Sleep well 
 Eat well
 Exercise well
 Breathe well
 Healthy Mind

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Learn About Life Insurance

4 Apr 2014
Mr. Tan Kin Lian started work in 1966 and qualified as a Fellow of the Institute of Actuaries in 1975. 
He joined NTUC Income, Singapore in 1977 as the general manager / chief executive officer. During this stewardship, the assets of the cooperative increased from $28million to $17 billion and became a leading life and general insurance co-operative.
Mr. Tan is now the President of the Financial Services Consumer Association (FISCA), a non-profit organization formed to educate the public on financial planning. He has published a few books on life insurance and financial planning. He also lectures as an adjunct professor in a university in Singapore.
The contents of these articles are personal opinion of Mr. Tan Kin Lian and have not been edited by easicircle. Reader's discretion is advised.
No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the author.
Copyright: Tan Kin Lian & Associate Pte. Ltd
June 2013

Many people find a life insurance policy to be confusing.
They find it difficult to decide between the different types of policies that are available and to choose which different insurance company to buy the insurance from.
They usually depend on the recommendation of an insurance agent (or financial adviser) who approaches them.
The insurance agent is likely to recommend a life insurance policy that pays an adequate commission to the agent. After all, the agent has to make a living.
I have written this book as a guide to the consumer to know what to look for in a life insurance policy and to judge if the policy gives good value to the consumer.
It will help the consumer to evaluate the recommendation given by the agent. It will also help consumers to find where they can buy the right type of insurance and investments on their own.
I have adapted this book to be used by the easicircle platform. I commend this platform for its effort to make affordable insurance available to consumers.
Tan Kin Lian
Different Types of Policies
There are basically three main types of life insurance policies, namely
  • Term insurance, which pays out the sum assured in the event of premature death during the term of the policy.
  • Endowment insurance, which pays out the sum assured on premature death during the term and also on survival at the maturity date (i.e. at the end of the term).
  • Whole life insurance, which pays the sum assured on death and the policy continues during the lifetime of the policyholder.
Most consumers like the endowment policy, because they can get their money back at the maturity date. The whole life policy is quite attractive to the consumers.
In the next chapter, I will explain how the consumer should evaluate between these three types of policies.
Duration of premium
Most life insurance policies require the premium to be paid for the duration of the policy, e.g. 20 years of premium payable for a 20 year policy. This is described as "regular premium".
Some policies require a premium to be paid over a shorter period, for example, premium payable for 10 years only under a 20 year policy or a whole life policy. This is described as "limited premium".
Some policies require a premium to be paid once only, at the start of the policy. This is described as "single premium".
If the premium is payable for a shorter period, you need to pay a larger premium to obtain the same sum assured.
The premium can be paid yearly or in installments every one, three or six months.
Unit linked policies
There is another category of life insurance policies called "unit linked policies". They have become quite popular in many markets. I will also explain about this type of policies in a later chapter.
How to evaluate a policy

Let me illustrate with this example.
A consumer wishes to save $5,000 a year over 20 years. If he is able to invest this savings on his own, e.g. in good quality shares in the stock market, and earns an average return of 5% per annum; the savings will accumulate to $173,000. The total savings is $100,000 and the remaining $73,000 comes from the investment return.
If the consumer puts the same savings in a 20 year endowment policy, he will probably receive less than $173,000 at the maturity date, assuming that the insurance company is able to invest the savings at the same rate of return.
The lower payout from the endowment policy is due to:
  • A part of the premium has to be used to provide the insurance protection, i.e. to pay out the sum assured on the premature death of some policyholders.
  • The commission and other marketing expenses.
  • The administrative expenses and profit margin of the insurance company.
Assume the reduction to be 25% in the above case, i.e. $43,000, giving a maturity benefit of $130,000. The consumer may think that this is still a good investment, as he gets more than the premium of $100,000 paid over 20 years and enjoys the protection, i.e. "peace of mind", of a big payout to the family in the event of premature death.
This is not the right way to evaluate the endowment policy. The correct way is for the consumer to find out if the "peace of mind" can be obtained at a lower cost, compared to $43,000.
This is where the term insurance policy maybe more suitable for the consumer.
If the consumer buys a term insurance policy to provide the same protection over 20 years, the cost of the term insurance is policy likely to be only 5% of the savings and not 25% shown in the above example.
The consumer can then invest the remaining 95% of the savings to get a projected sum of $164,000 (i.e. 95% of 173,000) which is much higher than the maturity benefit of $130,000 payable under the endowment policy.
I have used a reduction of 25% as being realistic for an endowment policy of 20 years. This reduction is likely to be higher for a longer term policy or for a whole life policy.
In the above example, I have calculated the figures based on assumptions, but I have tried to use figures that are quite realistic in reflecting what is happening in the life insurance market in many countries.
You can use this method to evaluate an endowment or whole life policy that has been recommended to you.
In the case of a whole life policy, you can assume that the policy is terminated at age 65, and use the surrender value at that time as the maturity benefit.
If you find that the endowment or whole life policy is not attractive, as the reduction is too high, you will need to find another solution.
This is called the "buy term and invest the difference" approach, or the "do it yourself" or D-I-Y approach.
I will explain it in the next chapter.
Do It Yourself

When you decide to "do it yourself" instead of relying on an endowment or whole life policy, you have to:
  • Buy term insurance to provide the "peace of mind" that is needed for your family.
  • Invest the rest of your savings in good quality shares and bonds to earn an attractive return, which is as good as what the life insurance company can earn on your savings.
Term insurance
In the past, it is difficult for consumers to buy term insurance, as it is difficult to find an insurance agent to sell this type of policy to you; the agent does not earn sufficient commission for the time spent.
You will have to buy it directly from an insurance company through their Internet platform.
There will soon be an easier way for you to buy term insurance, using the easicircle platform. I will explain it in a later chapter.
Index fund
You can invest your savings in an index fund that is invested in the leading shares that are quoted in your local stock market.
In the next chapter, I will explain the concept using the index fund that is available in Singapore, called the Straits Times Index Exchange Traded Fund (STI ETF). You should be able to find a similar fund in your country, if you are not living in Singapore.
I will also explain the concept of minimizing the risk of investing in shares. When you understand this concept, you will feel secure about making investing in the index fund.
Insurance protection
I will also explain some of the common types of insurance protection available to consumers. They are low cost insurances that do not have any investment embedded in the policy.
Advantages of D-I-Y
There are two important advantages of the D-I-Y approach compared to investing in an endowment or whole life policy.
The D-I-Y approach gives you the flexibility to increase or reduce your regular savings according to your personal circumstances.
You can even make withdrawals from the index fund at any time, e.g. to meet cash emergencies, without having to suffer a penalty.
The endowment and whole life policy do not provide this kind of flexibility.
Better return
The D-I-Y approach is likely to give you a better return. The cost of protection is likely to be only 5% of your savings, which is lower than the reduction in the maturity benefit that is embedded in an endowment or whole life policy.
Tax relief on premiums

There is an advantage of the endowment or whole policy that may mitigate its disadvantage.
When you invest your savings in a life insurance policy, you are allowed to claim relief from your income tax subject to certain limits.
If you are paying income tax at the rate of 10% and the entire savings (i.e. premium) is eligible for relief, you enjoy a saving of 10%.
If only half of your savings is eligible for relief, your tax saving is 5%.
This tax relief is not available to you when you invest your savings in the index fund.
You should take the tax relief into account when comparing between investing in a life insurance policy (through an endowment or whole life policy) and investing on your own (i.e.D-I-Y).
Straits Times Index ETF
I wish to explain the key features of the index fund, called the Straits Times Index Exchange Traded Fund(STI EFT) that is available in Singapore. You should be able to find a similar index fund in your country.
You can use the index fund as a benchmark to evaluate other types of investment choices available to you.
The STI ETF is invested in the 30 leading companies that form the stock market index in Singapore. They are mostly the blue chip companies, i.e. large, well-managed companies with a long track record of profitable business results.
The components shares are in various industries, e.g. banking, manufacturing, transport, telecommunications, shipyards, media and property. They are well known companies.
These blue chip shares earned an average yield of 9.2% over a period of 20 years up to 2006. I do not have the figures up to 2012, but it is likely to be more than 8% per annum.
You can reduce the risk of investing in shares through diversification and investing over the long term.
The STI ETF provides diversification over 30 shares. It saves you the headache of evaluating the different shares and reduces your risk of choosing the wrong shares.
Some of the component shares may perform badly in some years (and some may even become bankrupt). As only a small proportion of the fund is invested in each share, the impact of any bad performance is small and will probably be compensated by the good performance of other shares.
Market cycles
There will be certain years where the entire stock market will perform badly, and most of the shares in the index fund will fall in value. Your investment in the index fund may suffer a big loss in these years.
You do not need to worry. The stock market can go up and down in cycles. Over the long term, the returns in the good and bad years will average out and give you an attractive average return. The average return for the STI ETF was 9.2% over 20 years.
Low expenses
A key advantage of the index fund is the low expense ratio. This is the amount that is taken away from your investment yield to pay the fees of the fund manager and the other expenses of managing the investments of the fund.
Most index funds have a low expense ratio compared to actively managed unit trusts.
The STI ETF has an expense ratio of 0.3%. If the average return from the underlying shares of the fund is 6%, the net yield to be investor is 5.7%.
Most actively managed unit trusts have an expense ratio of 1.5% to 3%.
The difference of 2% in the expense ratio can make big difference over a period of 20 years or longer.
The STI ETF provides pays a dividend twice a year. The annual dividend is about 2% to 2.5%.
The remainder of the yield comes from the long term appreciation of the underlying shares.
Insurance protection
Term insurance
If you are married and have children, you will need insurance protection to provide a large payout to your family in the event of premature death.
The best way to provide this protection is by buying a term insurance policy for 25 years or shorter, i.e.until your youngest child reaches age 22.
You can buy insurance for 5 to 10 years of your income.
The cost of this insurance should be within 1% of your income. If you earn $60,000 a year, you can set aside $600 a year for this insurance.
Within this 1% budget, you can set aside a small amount to buy critical illness cover (which pays a lump sum in the event of a critical illness), but you do not really need to worry about it, if it is too troublesome to get the cover.
Most critical illness will occur at an older age. By that time, you would have accumulated sufficient savings to pay for any loss of income due to critical illness. The cost of treatment is likely to be covered by a medical insurance plan.
Personal accident insurance
You may consider buying a personal accident insurance, if you find it difficult to get term insurance due to your health condition or other reasons.
If you encounter this difficulty, just ask for a personal accident insurance, which is easily available from many insurance companies.
The cost of a personal accident insurance is less than half of a term insurance, but it covers death or injury arising from accidents only, and not for natural causes.
The risks faced by most young people are from accidents and not for natural causes anyway.
Medical insurance
You do not need to worry about medical insurance for the following reason:
  • If you are working, your medical bills are likely to be covered by your employer.
  • The risk of contracting a serious illness is quite low for young people.
  • You may contract a serious illness at an older age, but you would have accumulated sufficient savings at that time.
If you are not covered, you can buy some low cost medical insurance.
Unit Linked Policies
In recent years, unit linked policies have been introduced in several countries and have become quite popular.
These policies are similar to endowment and whole life policies in several aspects.
The consumer pays a single or regular premium into this policy. A part of the premium is taken away for the distribution cost, cost of insurance and cost of administration.
The remainder of the premium is invested in units of one or selected investment funds.
Compare to D-I-Y
The unit linked policy is similar to D-I-Y approach in several aspects.
The key difference is the charges. The unit linked policy tends to have much higher charges, compared to D-I-Y. However, this may be offset by tax relief.
The investment risks are similar.
By now, you should be able to make the comparison and evaluate which is a better option for your future.
Financial advice
If you find it difficult to evaluate the various options available for your financial planning, you should consider getting the services of a financial adviser or planner and be willing to pay a fee for the advice.
Some adviser may be willing to give advice for $250 or at $50 to $100 per hour. You should be prepared to pay this fee, as the financial adviser needs to make a living.
The advice may be worth a lot more to you, as you can earn much more on your savings, if you invest them in the right way.
However , if you are knowledgeable and make the evaluation on your own, there is no need to pay this fee.
easicircle Platform
easicircle is an Internet Platform that has been designed to make it easy for consumers to buy insurance protection conveniently and at a low cost.
It will approach a few insurance companies to offer their term insurance, accident insurance, medical insurance and other attractive insurance packages.
Consumer education
In the future, the platform will also be educating consumers about the benefit of the D-I-Y method of financial planning.
This book, which is written by Mr. Tan Kin Lian, is an example of our educational effort.
Index fund
The platform may look for partners to offer their index funds or ETF to our members at a later date.
Register now
To qualify for the attractive benefits offered by this easicircle platform, you should register now. It is easy and FREE.
Do tell your friends and relatives to sign up as well, so that they can enjoy the same benefits.
Many consumers put a large part of their personal savings in a life insurance policy without understanding if this is the right choice for their financial planning.
I have written this book to educate consumers on making the right choice and to show the advantage of the "Do It Yourself" approach, i.e. to buy term insurance and invest the rest of the savings in a low cost index fund.
I urge consumers to read this book and be ready to pay a fee for independent financial advice, as it could make a big difference to their future financial outcome.
Please help me to spread this message to your friends and relatives, so that they can also make the right choice.
Tan Kin Lian
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