What are the biggest lessons you have learned in the insurance industry?

The following is my answer to a Quora question: “What are the biggest lessons you have learned in the insurance industry?”

I have learned, over the years, that it is not just about the policies you buy, but how you structure them.

I have learned that the wealthy and the masses buy the same policies, but for different reasons.

I learned that there may be ways to get around having pre-existing conditions covered, at a reasonable cost.

I have learned that most people who buy insurance do not fully understand their coverage.

I have learned that the insurance industry in Singapore, is a lot different from the rest of the world, and that in certain other countries, such as the US, it is predatory.

I have learned that having good coverage is useless without understanding how to claim for it.

I have learned that insurance plans can function as financial instruments, creating immediate estates, as collateral for loans and credit lines, and as a means to move funds.

I have learned that the right sort of insurance coverage, particularly in large projects, saves a lot of money.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-are-biggest-lessons.html?m=1 ]

Image for illustrative purpose only.

Terence has more years in the line than I do; and some of these lessons I am still learning and continue to learn.

And yes, when you have understood these lessons, it can never be peddling of products.

You would learn the importance of consultation, planning and advisory. The real value of the profession.

What is the difference between stocks and bonds?

Here I’ll briefly summarised from The difference between stocks and bonds explained.

If you choose to invest in a company, there are two routes available to you:

  • Equity (also known as stocks or shares)
  • Debt (also known as bonds)

Shares are:

  • issued by firms
  • priced daily
  • listed on a stock exchange

Bonds are:

  • effectively loans, where the investor is the creditor
  • in return for lending money to issuer, the investor receives an annual income as well as the ultimate repayment of principal amount (unless issuer defaults or the bond is purchased at premium)
  • can be issued by both companies and governments
Image courtesy of Fidelity International.

What are the differences?

1. Shareholders versus bondholders rights.

When investors buy shares in a company:

  • they become one of many co-owners
    • significant shareholders can shape company’s strategy
    • right to veto and veto corporate proposals
  • Upside: share price can rise in value, allowing investors to sell their holding and make a profit.
    • Companies can also share their profits via dividend payments to shareholders
  • Downside: shareholders are not promised any economic returns.
    • Share prices can fall significantly; shareholders may have to sell at a loss or wait and hope the shares recober
    • Company can go into liquidation; shareholders are the last to be repaid.

Bondholders are in a more secure position if the company comes under bankruptcy. They fall under the category of creditors, and therefore are repaid before shareholders.

2. What about risk?

General rule of thumb in investing: the riskier the investment is, the higher the potential to make a gain, but the chance to make a loss is also higher.

  • Shares are generally deemed riskier than bonds.
  • Some bonds, issued by high-risk companies and governments, can be just as volatile as some shares. (Termed as high yield bonds.)
3. Complementary assets

Bonds and shares can work well together as part of a well-diversified portfolio. They tend to have low correlations with each other, meaning they respond differently to changes in the economic cycle.

If an economy is shrinking during a recession, interest rates are often cut, which tends to mean higher bond prices (and lower yields). This is a particularly good environment to invest in bonds.

Choosing the right investment

Before investing in either bonds or shares, it is important to ascertain your tolerance of risk. Do not invest what you cannot afford to lose, and it is a good idea to consult a professional financial adviser for guidance. And whatever your choice, it is worth considering a mutual fund where your investment is pooled with other people’s and invested in a wide range of assets. That means the effect of a default (in a bond fund) or share price fall (in an equity fund) is minimised.

The difference between stocks and bonds explained, Fidelity International

Read full article: The difference between stocks and bonds explained

Understanding Term life insurance

When buying personal life insurance, you’d be introduced to Term life insurance, Whole life insurance, Endowment/savings plans, as well as Investment-linked policies.

Each product type has its purpose, advantages and disadvantages.

So what is Term life insurance?

Term insurance is life insurance that provides insurance coverage only for a fixed period of time. An example of term insurance is the Dependants’ Protection Scheme.

Buy term insurance if you only need protection coverage for a fixed period of time. For example, if you want to be covered until your youngest child completes university or is financially self-reliant.

Understanding term insurance, MoneySense

Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the policy to terminate.

Term Life Insurance, Investopedia
Image courtesy of DollarsAndSense.SG

Term insurance is a policy that would cover you for a fixed period. The policy will pay out an insured sum of money in the event of death or terminal illness of the policyholder.

How to Understand A Term Insurance Illustration, DollarsAndSense.SG

In brief, Term life insurance:

  • Provides purely insurance protection coverage
  • For a fixed period of time
  • Hence, premium tends to be lowest amongst the different insurance product types

Preparing for a Post-Pandemic Economy – 2nd Half 2020 Market Outlook

According to World Meter tracking of coronavirus, we have passed 5 million cases of the infection, with over 350,000 death. Even then, we know these numbers are massively under-reported since many countries do not have the means to test much of their population. When we consider the expected deaths of select countries against actual deaths, we have anecdotal evidence that the death rate is as much as six or seven times above the historical average.

Image for illustrative purpose only.

Entire nations and regions are in various forms of lockdown, with restrictions on travel, gathering and businesses. This affects economic activities, and this is reflected in the balance sheets, the stock prices, and other indicators of economic strength, such unemployment reports, GDP, and debt to GDP. We are very much amidst a global recession, with many economies projected to contract for the year.

This economic slowdown on a massive scale has had a severe impact on several industries more than others. For example, oil wells were still pumping, partly due to the ill-timed spat between Saudi Arabia and Russia, leading to massive over-supply. This glut took up all available storage space, including FPSOs, and super tankers anchored at major ports. This affected the rollover of oil futures and options, leading to negative prices.

There have been major bankruptcy filings in the travel industry, the shale oil industry, and among airlines, leading to restructuring of debt. We should expect there to be more such filings for creditor protection, Of greater concern would be the default of sovereign bonds of petro-economies, such as Nigeria, Colombia and Venezuela. Even countries with better credit ratings such as Malaysia, Brazil and Saudi Arabia are to be viewed with concern. All these nations enacted budgets predicated on oil trading at US$60 and above. Oil is trading at the low to mid US$20s per barrel. We should expect a cascading sovereign debt default, shaking the market.

On a brighter note, we expect equities to recover as stimulus measure and quantitative easing in major markets take effect and put some optimism in the market. The Federal Reserve has slowed down their bond buyback, while the Treasury is considering issuing new debt, but the market is largely saturated. The US Government itself launched a US$2 trillion stimulus package, the biggest relief package in its history where Fed bought government debt of higher yield, injecting liquidity into the market.

Image for illustrative purpose only.

Putting aside the US, which still has to contend with the highest unemployment rate since the Great Depression peak of 1933, I expect a strong economic recovery to begin in the next 6 to 12 months, particularly in Asia and Europe. South America will still be buffeted by their inability to stem the pandemic due to lax public policy.

By the end of June, global GDP is expected to drop by 6% in the first half of 2020. We are looking at a long U recover, meaning that we are looking at mid-2021, at the earliest, before the economy returns to pre-pandemic levels. It may well be 2022 before we see a full recovery. The glut in bonds means that interest rates will remain low, with plenty of cheap credit available, but not enough businesses to take full advantage. Now would be a good time to lean heavily into select bonds because their yield will increase in time as the market balances out.

In general, market sentiment will drive the increase in equities, which is why the market is out of sync with the economy. There will be periods of strong rebound followed by correction as we go through cycles of opening up and lockdown with the waves of new infections. This will likely continue until we have a viable, widely available vaccine. Now is a good time to take up position in counters we expect growth in, such as light manufacturing and online retail.

Whilst a lot of analysts advocate a strong preference for the US market due to the strong policy response, I feel that this is dictated by sentiment. I expect the US to lag behind the EU and Asia in recovery because their pandemic response is inadequate, the jobs report is concerning, and the we have to contend with a contentious American presidential elections. I am betting on Donald John Trump’s administration self-sabotaging.

Asia, excluding Japan, is expected to recover the quickest. It is still the most dynamic region, with a lot of light manufacturing in place to take advantage of the need for PPEs, ventilators, and associated equipment. As the first region hit, it is also expected to be the first region to recover.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/02nd-half-2020-market-outlook-preparing.html?m=1 ]

How old should your children be before you name them executors of your estate?

The following is my answer to a Quora question: “How old should your children be before you name them executors of your estate?”

Image credit: Investopedia
(Image for illustrative purpose only.)

They may become executors of your estate once they have reached the age of legal majority, which varies from place to place, from as low as 16 years to as old as 23 years of age. Biological age aside, you must also consider that they should be of sound mind, and be credible and reliable. You should not have, as an executor of your estate, someone who has a conviction for fraud or any form of dishonesty, for example. It would be prudent, also, that your executor not be a bankrupt. Your executor should preferably, also not be in frail health since there is no point of an executor that dies before you.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-how-old-should-your.html?m=1 ]

Building an Emergency Fund

Why do you need an Emergency Fund?

An emergency fund is a sum of money set aside for accidents, sudden injury, or an unexpected loss of income. It’s essentially what you keep aside “for a rainy day”.

Unpredictable events can be life-altering as well as expensive, resulting in financial emergencies. An emergency fund gives you the buffer you need to pay out-of-pocket expenses, so you don’t have to turn to loans or credit cards to cover the short-term lack of cash.


How much should you set aside for Emergency savings?

Financial advisors have slightly varying views.

I would recommend 3 to 6 months’ of your income.

This is to provide some cushion should you be retrenched or out of job while you search for a new job or source of income.

You can start by setting aside 10% of your income or $200 monthly via GIRO (or you can do manual transfer) to a second savings account.

Banks like POSB and OCBC facilitate this with their eMySavings account and OCBC Frank account respectively.

Though it can be a better option to have the second savings account with a different bank; you can leave the debit card at home so as to avoid any urge to use it for spending.

Image for illustrative purpose only.

Read more: Why Every Singaporean Needs an Emergency Fund – And How You Can Build Yours

Saving $100k by 30 years old?

Perhaps you’ve read Saving $100K by 30 Years Old… Is It Even Possible?

A lengthy read but worthy to know that it’s possible.

Image for illustrative purpose only.

But here are my thoughts:

In all honesty, one would probably save like this when he plans to get married. Bootstrap to save 50% of take-home income.

And most of that savings will be gone on the wedding expenses.

Question is, will you be bootstrapping in your marriage life? Responsibilities and new commitments will set in.

It’d be better to be more realistic with your income level and percentage to save and manage your expectations (ie. you don’t really need to spend $50k on your wedding, do you?)

It’s different if you’re earning $4k or more; you can afford a decent lifestyle while having more to save. Yes, “the world isn’t fair”.

As the Malay saying goes, “Ukur baju di badan sendiri” (Tailor your shirt to your own body.)

Image for illustrative purpose only.

The day you start working, I’d recommend that you:

You can still work towards a financial goal at 30 while still being realistic and enjoying life.

What is the best long term advice for newly-wed couple?

The following is my answer to a Quora question: “What is the best long term financial advice for a newly-wed couple?”

A lot of marriages flounder because of fights about money. Therefore, have a financial plan, make budgets and keep to them. Put money aside in a separate account for investment, and wealth creation. That money must not be grocery money. Make sure you have a good hospitalisation plan so that one illness does not bankrupt the family. Have a clear delineation between what belongs to the family, and each of you. Avoid going into debt for consumption expenses. Debt is only an option when it is calculated to increase the family net worth.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-is-best-long-term.html?m=1 ]

Image for illustrative purpose only.

A succinct piece of financial advice for newly-wed couples.

Essentially, it’s about:

  • Managing cashflow
  • Having a financial safety net
  • Planning ahead for future needs and aspirations

How do people shop for life insurance?

The following is my answer to a Quora question: “How do people shop for life insurance?”

Image for illustrative purpose only.

Depending on where you are, there should be web sites that allow you to compare between different policies of similar type and coverage. For policy portfolio, you need to shop around for a good financial services consultant, instead of the policies direct, because, unless you have some experience with finance, there is no way you can do a better job than a good consultant.

In general, most hospitalisation plans have standard coverage for basic claims across the industry. The fine lines are found in claim procedure, hospitalisation payout and in how quickly your claim is processed. Before you intend to make a claim, take a look at the schedule of waiting periods for various categories of claims.

For accident plans, you need to look at the area of coverage relative to where you are, and the depth of coverage. Does it have coverage for hospitalisation benefit, meaning a payout because you are off work? Does it cover separately for dismemberment and loss of limbs?

For whole life, you need to consider whether the death benefit pays out for accidental death, for suicide, or if there is a waiting period. You have to consider what constitutes disability in your area. You have to look at whether it is critical illness or terminal illness coverage, or both. Terminal illness means you are expected to live weeks, or up to six months, in some cases. Is the critical illness multiple claims for different categories of severity, such as early and late stage cancer? What types of critical illnesses are covered?

This is all for base coverage. There are also tailored plans, or plans specific to a particular condition, or even mental illness.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-how-do-people-shop-for.html?m=1 ]

What are the top 3 life insurance policies you can recommend?

The following is my answer to a Quora question: “What are the top three life insurance policies you can recommend?”

I am speaking strictly from a Singapore perspective, although I believe the general principle may be applied elsewhere. There are three types of insurance plans that form the foundation of our liability mitigation.

Firstly, it is important to have a good hospitalisation plan. If you can afford it, get the highest tier of coverage, and get it as early as you can. Hospitalisation plans are multiple claim, and are for life. Having a pre-existing condition because you did not get a plan early enough means getting saddled with large hospital bills later.

Image for illustrative purpose only.

Secondly, it is important to have a good accident plan. Like hospitalisation plans, they are multiple claim. There is also an option that pays you something for the duration of your incapacitation, or a period thereof.

Finally, the third plan to get is a whole life plan with disability and critical illness coverage. These plans can get expensive, but it is good to start with one, even a cheaper plan, and then add to the coverage as your earning capacity improves.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-are-top-three-life.html?m=1 ]

Though I agree with Terence in principle, I must add that client’s circumstance is still the main factor of consideration.

That is often when I would recommend a Term insurance plan instead of a whole life plan.

I would recommend a Personal Accident plan that is customisable to tailor to specific needs and concerns.

It should also be noted that this post merely addresses financial protection needs, without factoring in wealth accumulation needs such as retirement planning and child education planning.

With which budget could be a concern; the overall financial planning has to be adjusted accordingly.

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