Lady Specific Insurance – Do you really need it? ~ Gimmick or Necessity?

The insurance product is getting more complicated while it is already very confusing for many. Lady Specific Insurance is one of it. So, is it a necessity or rather just a gimmick from insurance company?

While I was “researching” to get more information about Lady Specific Protection plan, I found this article on Focus Malaysia and I believe it has addressed those issues that I thought of highlighting. Hence, I am sharing this article while adding some opinion of mine.

Original article : Lady’s insurance – gimmick or necessity?(http://www.focusmalaysia.my/Income/lady-s-insurance-gimmick-or-necessity)

Few points as highlighted in the article:

1. Overlapping Benefits

Most of the event has been covered by Critical Illnesses Plan and others like snatch thief, kidnapping & etc would had been covered by Personal Accidents.

2. Reconstructive Surgery

Yes, it will not be covered by most of the Hospitalisation & Surgical Plan (Medical Card), but again, you will get lump sum payment from Critical Illnesses Coverage or Personal Accident Coverage.

3. Special Events

Cash Payout for special events such as marriage, child birth & etc. This would be more to a “feel good” as the amount may not be significant in most of the cases. But maybe some will feel it is better than none.

4. Pregnancy & Maternity Benefits

This may be the one fine part of the Lady Specific Protection Plan that makes the most sense of all. – Maybe this is the part that should help you to really decide whether you need a Lady Specific Protection Plan.

In conclusion, Lady Specific Plan is more to a luxury option. Everyone should be well planned for the four core segment of Personal Insurance (Death, Hospitalisation, Critical Illnesses & Personal Accident) before considering this extra option.

Yes, many may not agree with this. Feel free to provide your opinion.

Feel free to email us to discuss further : ethanteh@moneysense.com.my

WhatsApp : https://bit.ly/2nRkxwD

Prices for Insurance Products from different companies are almost the SAME – True?

Remember many years ago, information was not easily obtained, everyone told everyone that insurance premiums for insurance products are almost the same even if it is from different companies. In fact, even today, life insurance information is still relatively not easy to obtain.

Insurance Comparison

What we were normally told?

  1. All insurance products were approved by Bank Negara Malaysia, therefore, the price will be almost the same.
  2. As insurance risk is based on the country population and data from Government, the price will be almost the same.
  3. Those Actuaries who responsible for product pricing is from the same pool of people, therefore, the prices are very near to each other.

However, although we don’t know how they actually structure the price for insurance products and it will not be our matter of discussion for today. What we would like to highlight here is the comparison of a product from 2 major companies in Malaysia, and it might surprise you that the price is differs by approximately 60%.

We have recently conducted product features and pricing comparisons after the new regulations by Bank Negara Malaysia on Minimum Allocation Rate (MAR) and Policy Sustainability requirements on Investment Linked Products. The comparison was done with the nearest comparable features from different companies with same profile of client, same coverage and same number of year of sustainability. (Up to age 80)

As a summary, we found no evidence of significant increase in Cost of Insurance, premiums or other charges besides the Surrender Charges if you choose to surrender the policies within the first two years.

If you would like to construct a insurance plan for yourself from an Independent Financial Adviser, feel free to contact us.

WhatsApp : https://bit.ly/2LX727W

email : ethanteh@moneysense.com.my

O.P.R Cut by 0.25%

Bank Negara announced cut by 25 basis point for OPR (Overnight Policy Rate) on 7th May 2019. In their statement:

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

(ref: http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4850&lang=en)

OPR Cut - 2019

What is Overnight Policy Rate (O.P.R)?

The overnight policy rate (OPR) is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight.

(Quoted: https://en.wikipedia.org/wiki/Overnight_policy_rate)

When was the last adjustment? What was the adjustment?

The last adjustment was on 25th Jan 2018 with increase of 0.25%. For the full list of OPR movement since 2008, kindly refer to Bank Negara Malaysia website.

(http://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt)

What does this has to do with me? 

The movement of OPR might trigger adjustment of interest rate for banks including fixed deposit, short-term or other long-term interest rate. And, if you have a Mortgage Loan, movement of OPR will trigger adjustment to your Base Lending Rate (BLR) or Base Rate (BR) which could affect your monthly instalment. In short, this shall followed by lower interest rate in both saving or loan products for banks.

What can I expect and what to do?

Since the adjustment will come in phases, if you have extra cash and decided to be deposited, you may want to log in longer and earlier. As you will expect the next deposit rate may be lower. At the same time, if you are looking for loan product with fixed interest rate such as Hire Purchase, Personal loan and etc, you might want to wait for the bank to make the adjustment.

Why does OPR set by Bank Negara?

In a simple way, it is used by Bank Negara as a way to either encourage spending or discourage spending. This is also one of the way to influence economy growth, inflation and even employment rate. Imagine, when saving interest rate is low, this will discourage public from deposit it with bank but to look for alternative such as capital market, bond or other investment opportunity. This will bring more money to the market to spur economy activities.

At the same time, when loan interest is low, it will also encourages borrowing activity that will stimulate economy. Businesses might take the opportunity for capital expenditure or business expansion since the cost is lower. This could also lead to more employment opportunity.

What is your view on the adjustment of OPR by Bank Negara Malaysia?

Feel free to share with us your view.

Fund My Home – A long awaited solution to own our dream house?

We heard this in the Budget Announcement and then we read the news of the Program Launch subsequently. It seems to be a solution long awaited to help us purchasing our dream home. Is it really the long awaited solution?

Highlights:

  • Purchaser pay 20% to own the property for 5 years.
  • No Monthly Instalment within 5 years.
  • The remaining 80% is not in the form of loan – No obligation.
  • Full Ownership within 5 years – Own Stay, Rent Out, etc..
  • After 5 years, choose to Own or Sell.

What is so great about this program? In order for us to find out, we compare it to a normal way for us to buy a house (10% Downpayment and 90% Mortgage Loan) : ~

Comparison

At a glance, the Fund My Home is indeed a good option for buyer that could not secure a mortgage loan. However, this is not a permanent solution as buyer is only owning the property for 5 years.

What happens after 5 years?! This is the most important portion that you must understand before making your decision to take up the program.

Proceed Distribution

The table above obtained from the FAQ section of Fund My Home website (https://fundmyhome.zendesk.com/hc/en-us/articles/360018733792-How-will-sale-proceeds-be-distributed-)

Looking at the table above:

There is only 2 possibilities after 5 years, owner buy the remaining 80% or sell off the whole property. It seems that the owner does not benefit from owning the property unless the property appreciate by more than 20%. It is not as what we assume earlier that the owner could have share on the appreciated value of the property.

Assuming owner is buying the remaining 80% of the property after 5 years with 20% appreciation in the price of the property, the owner need to finance RM300K (2nd Row Last Column). Which mean owner still need to pay in total RM 360K for the property (initially paid 60K and finally refinance 300K). This is one of the disappointment for this program.

Further to that another major disappointment for the program is when the property actually depreciated. Just like appreciation, up to 20% depreciation will be fully paid by Owner rather than the loss being shared with the investor as well. When property depreciate by 20% to RM 240K, owner is the only one that making the loss (refer to 6th row of the table above)

In short, owner does not benefit from appreciation of the property price unless it is more that 20%; Further to that, the owner only get the share of 20% from any amount in excess of the 20%. And at the same time, when the property depreciate, owner will be the only one absorbing the loss up to depreciation of 20%.

So, it seems like this is only a last option when you want to own a house now but you can not secure a mortgage loan. But after 5 years, you will be facing the same problem.

Maybe one should consider whether to defer your plan to own a house such as renting one for the moment..

We welcome any comment from anyone for this matter and feel free to contact us at ask@ethanteh.com or ethanteh@moneysense.com.my

Navigating Through Turbulence

What is Turbulence in Financial Management? Turbulence is disruption to your current plan (Example: during economy downturn), which may cause you to start worrying. It is indeed great that you are aware of the condition and start worrying. So, what should you do?

Airplane Turbulence

Normally during this time, you will see and hear that many pulling out from their investment as the investment is making lost.

Whenever we come to this situation, I always recall a story shared by Mr Appelles Poh many years ago:

Airplane in turbulence

A: Assuming you are on a plane and suddenly the plane going through turbulence, what will the crew or pilot ask you to do

B: Get back to our seat and fasten seat belt.

A: Would you follow the instruction?

B: OF COURSE!

A: What if there is a passenger who doesn’t follow instruction and run into the cockpit to take over the role of the pilot? Would you do that or allow that?

B: NO! NEVER! It is best left to the pilot.

A: Would you jump off the plane? Since it is going through turbulence?

B: NO! The chance is better to stay on the plane.

A: Finally, if the pilot says the plane will crash, would you jump with or without parachute?

B: Of course with parachute.

After going through this story, we can easily relate:

1. Discuss with your pilot for your financial plan.

2. Decide if it is still on track? Do you need a alternative plan? Or the disruption is just temporary and we shall navigate it through?

3. If you really need to terminate the plan, what is the risk mitigation plan (your parachute)?

2017 Coming to an End, have you found out about 2017 Tax Relief?

Malaysian will be required to file personal tax by end of April each year for employed person (Form BE) and by end of June for self employed/business owner (Form B), however the assessment period shall be from 1st Jan 2017 to 31st Dec 2017. Therefore, we should be prepared and foresee what are items that could benefit to us as Malaysian Tax Residents.

Before we discuss the relief available, we should first understand Tax Relief. Tax relief means it is deducted from you taxable income, which is different from Tax Rebate. Example, if your tax able income is RM 20,000, with tax Relief is RM 3,000, your taxable income will be RM 17,000. Tax Rebate will be the amount deducted from the amount of tax you supposed to pay to LHDN. Let’s say your final calculated tax payable is RM 1,200, and when you are given a Tax Rebate of RM 400, then you only need to pay RM 800. Therefore amount of saving from Tax Relief will depend on the Tax Bracket of individuals.

There are some changes to our tax relief as announced during National Budget in year 2016, let us recap how we could fully benefited from it:

  1. Full Medical Check Up – If you have not carried out any medical check up and intended to do so, it is now the right time as you will be entitled to RM 500 tax relief.
  2. Lifestyle Relief – In year 2017, lifestyle relief included printed newspaper for reading material, tablet and smartphone and monthly subscription for internet. In year 2016 only personal computers are allowed (once every 3 years) and newspaper was not included for reading material relief. However the combined limit was lowered to RM 2,500 compared to RM3,000 for personal computers and RM 1,000 for reading materials earlier. However, it is still worth considering and keep a good record of your purchase or subscription.
  3. Savings in SSPN-i is a great point to consider as SSPN-i dividend for 2016 was 4% and individual are allowed up to RM 6,000 or tax relief. The dividend was better than savings in Fixed Deposit and considering the tax relief up to RM 6,000. If a person tax rate fell into 20% bracket, you could actually saved up to RM 1,200 besides receiving the dividend of 4%.
  4. Another important savings (or investment) is Private Retirement Scheme, tax relief up to RM 3,000 was allowed for investment with approved scheme. If one is planning to utilise Unit Trust as part of retirement planning, you should first invest in PRS since both are of the same concept and have some identical fund manager, but PRS allows tax relief up to RM 3,000. Adding onto that, any individual below 30 years old would be topped up with RM 1,000 from government as encouragement to invest in this scheme.

If you have any opinion or suggestion, please feel free to leave a comment or email to ask@ethanteh.com

Reference: http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=1&bt_posi=3&bt_unit=1&bt_sequ=1&bt_lgv=2