Happy Lunar New Year

Wishing you & your family good health, good luck and much happiness throughout the year.216468-P17MTK-959

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Mortgage Insurance (Home Protection Scheme)

The properties in Singapore are purchase with two types of ownership if there are more than one owner . The property will be either under joint tenancy or tenancy-in-common.

JTIn a joint tenancy, the owners have equal share of the property. The ownership of the property will be automatically passed on to the surviving co-owners regardless if a Will was made. Most HDB properties are under this arrangement.

Another type of ownership i.e.  Tenancy-in-common allows each owner to have a different share of the property and to leave his share of the property to any beneficiary upon his death. The beneficiary may receive his share in equal or different percentage. This type of ownership usually occurs in private properties and in certain situation, it can be for HDB flats, depending on the scheme that the flat is purchased.

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In the above example, the Husband can Will his share of 35% to the wife, son and daughter at 20%, 10% and 5% respectively.  Therefore, the total share among them will be wife (45%), Son ( 20%) and daughter (35%). This distribution can cause an issue such as the wife even though holds the majority of the share at 45% but the total holdings of the children is 55%. If they children decides to sell this property, the wife can only agree to it.

We will discuss about the distribution issues in future and for now, there is a bigger problem with property ownership with outstanding loan. In the above situation, regardless of Joint Tenancy and Tenancy-in-common, if a mortgage insurance (or more commonly known as Home Protection Scheme for HDB) is not in place to cover the husband’s share, the beneficiaries will continue with the loan. If this property has an outstanding loan of $1mil, this amount will be re-structure with the surviving owner’s financial ability to loan base on their Total Debt Servicing Ratio(TDSR) . What this means is there can be a possibilty that the bank will not approve the same $1mil outstanding loan to the new owners due to a lower TDSR because of lower income. The owners will have to pay up $200,000 if the approved loan is at only $800,000. In the worse case scenario, the new owners may have to force-sale the property instead of inheriting it.

The most cost effective way to cover the outstanding loan is to have a mortgage insurance. Typically, an owner can have an individual policy to cover or a joint-life mortgage insurance to cover the first death of the owners.

Assuming a couple took an individual policy to cover their $1mil outstanding loan, the mortgage may look like this.

husband

wife

The total premiums will be $5555.55

In the event if the husband passes on, the $1mil will be paid out to the family so that they can offset the loan. The surviving owner can choose to terminate or continue with her own policy. If both pass on (e.g in a traffic accident), a total of $2mil will be paid.

Alternative, some will choose to use a joint-life mortgage insurance and the couple will buy a $1mil policy to cover the first death of the owner. Will this be cheaper or more expensive?

Here’s an example

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In the event if the husband passes on, the $1mil will be paid out to the family so that they can offset the loan and the policy will be terminated. The premium is $5616.60

Which is a better option depends on individual’s situation. It is uncommon the total premium of 2 individual policies cost more than a joint-life policy. Do talk to your financial adviser to have a proper assessment of your risk. Our intention of purchasing a property is always to pass down an asset, do not leave behind unsettled debt.

Saving Challenges for the year

Do you still remember the Ice bucket challenge where you had to pour a bucket of ice cold water onto yourself and you had to nominate someone to take up the challenge? How many other viral challenges over the years that you know? Here are some for your reading pleasure.

For this year, I would like to suggest some saving challenges that can help you financially. I hope you can let me know which challenge you took and nominate someone by sharing this post. Let us show our results at the end of the year.

The $5 Challenge

This challenge requires you to put aside your $5 notes every time you get one of it.

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Put your $5 note into a glass jar and you will be surprised by how many $5 notes you would had saved. These money can be used for buying presents or gifts at the end of the year or just extra savings.

You can replace $5 notes with $1 or $2  and put every dollar coin or every $2 note that is in your possession into the jar.

The savings from this challenge can be very random but it can be enjoyable especially when you see the glass jar filled with the coins or notes.

The 52 weeks Challenge

The 52 weeks challenge requires more discipline than the $5 challenge but the savings is more predictable.

First of all, we need to decide the amount of money to start the challenge.

For e.g. we can decide the amount to be a $1. We will start to deposit $1 at the end of week 1. Then $2 at week 2, $3 at week 3 & so on. The amount we deposit into the jar at the 52nd week will be $52.

The amount you will save at the end of 52 week is as below.

52-week-money-challenge-2-2-1-638

If we decide the amount to be $3, then it will be $3 for week 1, $6 for week 2,  $9 for week 3 and so on. The amount to be deposited for the week is :

No. of week x amount at week 1

You can also decide to deposit other amount that you prefer every week. Once you decide on the amount to be deposited, you just need to stick to the regime. It may be difficult at the start to keep the habit going and in the middle of the year, it can be difficult to set aside the amount needed but it will be sweet at the end of the year when you see the result of your perseverance.

Please submit the form at the end of this post if you need the template for the 52 week challenge.

Save-As-You-Spend Challenge

This has to be the most difficult challenge among these 3 challenges.

All you need to do is to deposit 5% of the amount spent into the jar whenever you spend an amount more than $10. So if you spend $15 on a lunch and $2,000 on a laptop, you will deposit $0.75 and $100 respectively into the jar.

This challenge not only helps you to save, it also helps to curb impulsive spending. Knowing that you are paying an extra 5% for the item that you are buying will make you think twice before paying for it.

 

 

Merry Christmas & A Happy New Year

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Thanks for all your trust & support in 2017.

There were positive changes in the industry, company and myself.  We look forward to provide you with better services in the coming year!

2018 will be a year to grow my team of financial advisers & I seek your help to refer people who may be new or experienced to me and grow their business together!

Merry Christmas & A Happy New Year

Associate Estate Planning Practitioner(AEPP)

Mr. Liu, who is a widowed, decided to make his Will so that he can leave his estates to his love ones according to his wishes. He went to his lawyer to get the Will drafted. He drafted a simple Will that is just to distribute in equal share to his 2 sons. The lawyer was very professional and got the Will drafted. Mr. Liu was very please with himself that everything is in place and is confident that the 2 sons will not squabble over his (not much) wealth when he leave this world. He decided to call his best friend, Mr. Kiang, for coffee and shared what he had done so that his best friend knew he had drafted a Will and hope he can assist his family if needed.

Mr. Liu told his friend,” Bro, I did a Will and everything will be divided in equal share between my 2 sons. It will be a fair and equal share so they will not squabble over unfair treatment.”

Mr. Kiang asked Mr. Liu, ” Do you think it is a fair and equal share that will leave them happy with each other?”

Mr. Liu was surprised with that question. Afterall, what can be more peaceful and fair than an equal share among 2 sons? Mr. Kiang continues,” Bro, your elder son is married  and staying with his wife in their own house and your younger son is single staying with you. By getting 50/50 of your house, what do you think they will do with it?”

Mr. Liu replied,” Most probably my elder son will want to sell it since he has his own house and take 50% of the proceed while my younger son will want to continue staying in it.”

Mr. Kiang asked again,” What will happen?” And there was silence…

The above scenario might be a situation when a person speaks to a legal professional to get a Will drafted and when the estate planning is done with an Associate Estate Planning Practitioner(AEPP) before getting the Will drafted.

An AEPP is not there to influence your Will but to give you a scenario of “What-if”, highlight the possible hiccups if the estate is distributed in a certain manner and most importantly, to provide a solution if your estate distribution face a potential issue (such as the case of Mr. Liu).

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I am glad to be certified as an Associate Estate Planning Practitioner after procrastinating for a few years due to busy schedule. I hope my knowledge and skills gain in this course and the financial planning experience accumulated over the years will help to provide a better service and advice to my clients.

 

 

 

Retirement Planning Seminar Part II

Avallis Financial had successfully conducted Part II of the Retirement Planning Seminar on 1st Nov 2017. The audience had a good session on retirement planning and the options that may be possible such as annuities, investment, properties etc. The advantages and disadvantages of the available options were discussed as well.

 

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Here are some articles on SRS that may be useful for you.

By submitting this form, you agree that Avallis Financial may collect, use and disclose your personal data, as provided in this entry form, for the following purposes in accordance with the Personal Data Protection Act 2012, the Privacy Statement and the Data Protection Policy  of Avallis Financial.

Retirement Seminar

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The guests had an informative session and some were pleasantly surprised that there were no sales or product being pushed after the session unlike some similar sessions that they had attended.

The slides for the seminar as requested by the guests can be downloaded from the link below.

Retirement Planning Slides

Another session on retirement planning will be held in the last quarter of 2017. This coming session will be more ‘hands-on’ and it involves topics such as calculating your own retirement needs. If you are interested to the seminar, just drop me a sms/whatsapp if you have my number or just send the form below to me. I will keep you in the loop. I hope to see you at the next seminar. Read more of this post

Do you need a million dollar of coverage?

There was a period of time when a million dollar was a unreachable figure. I’m not saying that it is an amount that is easy to accumulate today but it is more realistic. Afterall, an average HDB flat can cost close to half a million and some flats were sold above the $1mil mark in some area.

So, do you need a million dollar cover and how much do one really need as a coverage amount? Here are some methods you can use to estimate your coverage required.

1) Multipliers of  Income Approach

download (1)This is a very traditional method of calculation is taking your annual income multiply it by 5 or 10.  That is to assume if premature death occurred now, your love ones will have 5 to 10 years of your income replacement to let them adjust to the lifestyle prior to the death. This method is the easiest but it has it flaws because in practical sense, the dependents may never have the same earning power as the sole breadwinner. For e.g. I have a client who is in management and earns nearly $20,000 per month. His wife have not been working since the birth of the first child more than 10 years ago. Will it be easy or possible for the housewife to get back to employment and earn $20,000 in the next 5-10 years? It can be tricky to decide how long the family will adjust to the lifestyle without the sole breadwinner’s income.

 

2) Need-based Approach

CaptureAn more commonsensical method is the need-based approach. It can be very comprehensive but because of the comprehensiveness, it can be a complicated process. This method takes into account the financial obligation an individual have for each dependent and the assumed inflation rate till that dependent becomes financially dependent. The individual’s assets will be categorised into cash, near-cash assets such as shares and unit trust which can be converted to cash within days assuming market valuations are not an issue. However, assets such as properties will take months to be convert into cash. The properties can be further categorised into stay-in or investment property. For e.g. if an individual own only a property which the family is staying currently, it is unlikely the dependents will sell it else they will lose the roof over their heads. But if the dependent have another property, the dependent can consider selling it to have more cash on hand if needed.

As mentioned, this method is very commonsensical and we can see it using this simple case study.

An individual has a wife, a son age 5 and a daughter age 4. The wife is financially independent on him and he provides $500/mth to each child. He wants to provide the children till they are age 21. We can use the following to calculate the amount of coverage he need.

(Age of child’s financial independence  – current age of child) x $500 x 12

For the son, it will be 

(21 – 5) x $500 x 12 =$96,000

For the daughter, it will be

(21 – 4) x $500 x 12 = $102,000

The total amount of coverage required for him will be $198,000. 

Do note in an actual planning, a financial advisor will take into consider that inflation rate to ensure the $500/mth is in line with the cost of living.

3) Income Protection Approach

 c95b3987f397973cd66558ff419555dc--make-money-today-make-more-money (1)One of the easiest is to look at the potential income a person can earn till his retirement. The retirement age can be 50,55,60,65 or even beyond that. This method is similar to how workman compensation or a court decide on a disability or death compensation.  The disadvantage is it is difficult to assume the increment rate. The amount can be derived using the following

(Retirement age – Current Age) x Current Income

However, in a real life, a person’s income will increase over the years because of his experience or promotion and we have to take into account the salary increment over the years. The amount after taking into account the increment can be compute using a financial calculator

PMT= Annual income

Ir= Assumed increment annually 

np = No. of  working years (i.e. Retirement age –  Current age)

Click “FV”. The figure shown on FV is the potential income one stands to earn.

Assuming the retirement age is 55, a person with the below income at different age will generate $1,000,000 of income assuming there is a 3% increment annually.

income

What the chart above means is if a person is age 25 years and earns a minimum of $21,020 annually, he should protect his loss of income of $1,000,000 that is potentially in the bank if nothing goes wrong.

Please note the 3 methods of calculation are meant to be informative only. For a proper assessment, please speak to a financial adviser.

 

 

 

 

 

Love, Hate feeling in cheque.

Many people reject a career as a financial adviser because they think it is a difficult sales job. Unlike someone who is selling a dress which a consumer can immediately see how good she looks in it or someone selling a weight reduction pills which a consumer can see the effect in week or months, financial products can be very intangible.

The effect of a financial adviser’s proposal will be felt by the client only in years to come when the client manage to retire comfortably. In some cases, a financial adviser’s proposal may be tested much earlier than he wished…. that’s when a claim arises.

20170804_172735_mh1501838966531(One of the cheques made out to a client.)

As usual, mixed feeling when we deliver cheques to clients. On one hand, I know what I have been doing really help the client. To know the client can have a peace of mind and not to worry about their medical cost as well as loss of income due to sickness is fulfilling. On the other hand, we are sad that clients have suffered.

To all the financial advisers out there, keep up the noble work despite the rejections that you may had faced.

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How long does it take to process a critical illness claim?

How long does it take to receive a cheque from an insurance payout for critical illness? To the skeptics, do insurance companies actually pay out or will they screen through the contract wordings and make it hard to claim?

Those who have been following this blog will know that I had made a critical illness claim for Major Cancer on 31st May 2017. The definition for Major Cancer is as follow:-

A malignant tumour characterised by the uncontrolled growth and spread of malignant cells with invasion and destruction of normal tissue. This diagnosis must be supported by histological evidence of malignancy and confirmed by an oncologist or pathologist. The following are excluded:
• Tumours showing the malignant changes of carcinoma-in-situ and tumours which are histologically described as pre-malignant or
non-invasive, including, but not limited to: Carcinoma-in-Situ of the Breasts, Cervical Dysplasia CIN-1, CIN-2 and CIN-3;
• Hyperkeratoses, basal cell and squamous skin cancers, and melanomas of less than 1.5mm Breslow thickness, or less than Clark
Level 3, unless there is evidence of metastases;
• Prostate cancers histologically described as TNM Classification T1a or T1b or Prostate cancers of another equivalent or lesser
classification, T1N0M0 Papillary micro-carcinoma of the Thyroid less than 1 cm in diameter, Papillary micro-carcinoma of the
Bladder, and Chronic Lymphocytic Leukaemia less than RAI Stage 3; and
• All tumours in the presence of HIV infection.

A Major Cancer claim needs to be supported by the pathology or histology report. It states a few things such as the size, type of the cancerous cells and the diagnosis. The pathology report was received on the 20th Jun 2017 and submitted to the insurer on the 21st Jun 2017.

The payout was made on 20th Jul 2017. 20170731_171416

In most cancer claims that were rejected were due mainly to the first and third points of the exclusion list stated above which in layman terms means stage 1 or 2 cancer.  That is also the reason some financial advisers encourage taking up Early Stage Critical Illness policy instead or in additional to the usual Advance Stage Critical Illness policy.