A new level of Frugality

Frugality in Kuala Lumpur has just gone one level deeper.  A saving of about $550 monthly, a 2 hours exercise sessions for FREE and an opportunity to explore natures within the city has just been proven recently with just ONE simple ACT !  As everything goes, there is some trade off or 'risk' too ...

Its Cycling To Work !

Mathew was a guy who suffers from a terrible 24.3% inflation in 2009.  After he started to follow this blog, he has learned a trick or two to keep things going smoother.  Today he is working as a top executive in a public company but situation hasn't changed much.  He is still in middle level income group.  After his 5 figures income divided by the number of people he has to support, his actual cash-at-hand per person monthly is much less than average personal income ie. $1,500.

Many staffs who worked for Mathew always complains about how tough their lives are and demand a salary increment without extra performance to the company ( while their single income is about $1,500 as well).  Mathew thinks it was obvious his staffs weren't educated well enough in personal finance so he decided to role model to show a point - live frugally.

He used to drive about an hour to work, commute about 22 km and then spent about $10+ for parking fee.  Now instead of doing all that, now

He cycles to work

After the decision was made, he first bought a huge term insurance to cover this temporary needs.  After all, he doesn't want his teaching to his staff to affect his even more important loves to his families.

Once the insurance is approved, he started cycling to work.  It wasn't easy.  He first followed his driving route.  It was dangerous as cars and motorbikes are cruising fast by, ignoring his existence.  But the good thing about cycling . . . is that its both a pedestrian and a driver.  So very soon he found a much shorter and safer path, only 12.1km instead of driving 22 km away.

It took him about one hour to cycle to work.  ( Above 2.5 hours was for walking time )  So practically this doesn't affect any of his schedule at all.  As a matter of fact, this improve the stability of his schedule.  Even when there is an unexpected traffic jam which would cause a normal 1 hour driving to 2-3 hours, his cycling time remains the same as 1 hour.

Mathew also lost 6-8kgs since then, has a much tougher built body now.  He used to pay a lot joining fitness centers etc. but never got the time to actually exercise because he is a workaholic.  Now he HAS TO exercise 2 hours a day.

Mathew also started a health diet to eat more veggie and fruits even before this cycling idea.  Thanks to this cycling exercise, his cycling route passed by a local market at Chow Kit ( one of the oldest and largest wet market in Kuala Lumpur ), he now manages to buy 5 star fruits for only $1, which fuel his breakfast and lunch.

There are much more indirect benefits he received since he started cycling to work.  But as everything goes, there must be some Cons that comes with the Pros.  Should one accident happens during his cycling commute, it would most probably cost him his life.  While he was well aware of the risk, he took action to insure against that rick and he also find ways to improve his own skills and awareness to maximize his own safety.

There are quite a lot of tips and tricks he has developed since he cycles to work.  If you were moved by this article and wanted to try this too . . . be warn ahead, there is some risks involved.  Do spend some time to buy me a cup of coffee so I can share with you whatever those tips and tricks are so that you can minimize your risk and maximize your return / saving / investment.

	Driving	Cycling
Time	1 hour	1 hour
Petrol	$10 per day	$0
Parking	$5 - $10 per day	$0

I am just glad living frugally in a city like Kuala Lumpur has just gone one level deeper.  With tons of other extra benefits and with only ONE major risk that a person who really cares can mitigate easily with skills and experience.

Have you managed to find any innovative ways to cut your expenditure or increase your saving by 25% !?

Group Term Insurance sample reviews

A few years back, there was only ONE sensible Group Term Insurance which is the one that has been offered by Public Mutual since many years ago. But when I recently look for more choices, I found some nice surprise equivalent offers if not better ...

Etiqa-Public Mutual offers Group Term Life with PA at the following premium

Plan	Table Of Benefits		ANNUAL PREMIUM
	Term Life	Personal Accident
A	50,000	50,000	RM170.00
B	100,000	100,000	RM340.00
C	50,000	N/A	RM152.50
D	100,000	N/A	RM305.00
E	150,000	150,000	RM510.00
F	200,000	200,000	RM680.00
G	150,000	N/A	RM457.50
H	200,000	N/A	RM610.00

in short it is RM 327.87 protection for each RM 1 you pay. The terms are pretty standard as a group term insurance. However, if one day you are no longer holding any of their mutual funds, your coverage will stop automatically too.

MSIG -Stand Chart Individual PA offers RM 492 for 1 million so it is RM 2,032.52 protection per ringgit. But it only covers very specific damages by accident. If you die like Teoh BH or die while detain in ISA, no payment shall be made. Death not caused by accident is NOT covered too.

e-insuran offers quite interestingly easy-to-use build-your-own protection ...

RM 150,000 Life for RM 285

RM 150,000 Personal Accident for RM 142.50

RM 150,000 Critical Illness for RM 307.50

Add all 3 coverage together, 5% tax and RM10 stamp duty would need a premium of RM 773.75 => RM 193.86 coverage per ringgit. But you need at least 5 person to be entitled for this 'group' insurance.

Great Eastern - Public Mutual offers Mutual Life Plus 2,

Plan	Sum Insured	Annual Premium
1	RM100,000	RM 550.00
2	RM200,000	RM 1,100.00
3*	RM300,000	RM 1,650.00
4*	RM400,000	RM 2,200.00
5*	RM500,000	RM 2,750.00

which is RM 181.82 coverage per ringgit.

Group Takaful could be interesting but there is no rate info online.

Sadly speaking, none of the above can be purchased online with a click with credit card. Almost all of them has convoluted, tedious and rather no-service oriented purchase process. There was an old saying ... insurance without agent tried not to pay no matter what, insurance with agents will try to pay for those who claim first.

Please be reminded that Term Insurance has no saving element so its best to adopt buy term invest the rest in your portfolio, else the longer it runs, the less advantage you have.

Also don't forget the trick to become an insurance agent yourself to save the commission to yourself ..

HLA Guarantee 12.5% saving plan

Hong Leong Assurance offers a plan that guarantees 12.5% return. Basically you only need to save $3,932 for 6 years and you are guaranteed to receive $500 every year starting from the 1st year for 35 years.

So 500 out of 3,932 is more than 12.5%

$500 x 35 years would give a guarantee amount of $17,500. If you do not withdraw this money, it will accumulate more interest. On the 35th year, you will get $50,126 instead of just the $17,500.

In addition, there is a dividend payout where the minimum is expected to be $200. Not guarantee but pretty guaranteed as in insurance layman terms. With the most conservative assumptions etc. you will get more than $105,000+ at the end of 35 years.

Most of the older readers should know this trick by now. There is no such thing as insurance saving that gives guarantee and higher than Fix Deposit return in normal circumstances.

If you save the same $3,932 in a bank account that gives you 1.72%, it will give you a total $41,082 on the 35th year; equivalent to the guarantee yearly $500 plus capital preservation. So the guaranteed return you are really getting is less than 1.72%. Because your capital is NOT guaranteed in this plan.

If you keep the $500 and go for the guarantee $50,126 return at the end, that is equivalent to 2.35% return. Currently bank is offering 2.5% FD rate for annual renewal.

Lastly if you are really getting back $105,862 at the end, that is equivalent to 4.72% annual return.

Consumers need to know what the effective rate is when comparing plans. For crying out loud, insurance field agents please upgrade yourself and calculate what the real effective rate is. May be you don't need to tell everyone about it but when some personal finance savvy consumers asked about it, it is more reputable if you can give some valid figures.

4.72% is NOT a bad return at all. But 35 years is too long.

Malaysian Life Expectancy

I found this in one of the un-published drafts ...

Life expectancy at birth : male 69 / female 74

Healthy life expectancy at birth (2003): male 62 / female 65

Probability of dying under five (per 1 000 live births): 12 = 1.2%

Probability of dying between 15 and 60 years m/f (per 1 000 population): male 197 = 19.7% / female 109 = 10.9%

Basically a male Malaysian can expect to live healthily until age 62 and then drag 7 years before dying at age 69. Likewise women may drag 9 un-healthy years in average before passing away. Some people may have planned for their departure. But almost all people forget their lives WILL NOT just END like that. Instead, it will most probably be a .... ... ... kind of ending. You will most probably be causing troubles to yourself, your family or at least to the society! Other than the finance preparation, what else have you done to prepare for your golden years ?

Also don't forget that there are 95% chances that Malaysian will most probably die of health issues. Most probably either your heart or lung will fail you earlier than any other causes ie. less than 5% chances we will be killed in accidents.

The Biggest Chunk of Insurance Cost

Every time you buy an insurance, some ones get their commissions and that is usually considered the largest part taken away from your money. In life insurance, this fee may start at 20-50% and slowly drop to 0% in 6 to 10 years time.

This fee structure turns out to be the most crucial part why Insurance becomes the most dedicated finance tool for personals. The whole agency and distribution forces have made insurance well accepted by general public because they are paid well. In addition, it becomes one of their most solid passive income streams.

It is really hard to sum this up in a word of good or bad. No one will like to be taken away $400 from their $1,000 savings or investment what ever you call it. But then again, if such commissions scheme did not exist, many people may still be under-insured and even more people did not save anything at all.

Although it starts at a HUGE chunk, it does reduce over time. Generally the total payout is within the range of 160% to 200% over a 10 years period. So the longer you keep your insurance policy, the less effect it has on you ;

10 years old policy has an effective commission cost of 20% = 2 / 10

20 years : 10% = 2/20

40 years : 5%

It is really hard to sum this up in a word of good or bad FOR YOU.

If you bought other products that have similar features but paid lower commission, then you are alright.

If you ended up NOT saving any money anywhere else, its bad for you.

If you have to pay high medical fee later, then it could have been better if ...

If your loved ones have cash flow problem after you die, perhaps the 40% 30 years ago doesn't seem like that much after all.

It is good we keep on searching for better solution all our lives. But before we find better ones, its crucial we engage with whatever available at the time.

Commission fee structure is the biggest chunk in insurance cost. There is probably NOT much we can do to change that in near future. What we have full control in, is to assess the value we receive in return. As long as we receive services and advices that is worth more than we pay, its a lesson well learn.

After reading this, will you

(1) be more eager to buy insurance,

(2) hate insurance more now or

(3) doesn't change much of your opinion on insurance ?

Investment Link Insurance products

Insurance is an industry that is most dedicated to the complete picture of our personal finances. This has become even more apparent when Investment Link Products (ILP) are introduced to the market.

There is really nothing new to ILP other than it actually reveals the elements of insurance to agents and buyers. Which used to be secrets and all they told you was "Don't worry, we will be able to pay you 6% interest every year".

Now with ILP, agents and insurance buyers can decide

1. What elements to put in their policies

2. How much of each element to put in

3. to change the allocation from time to time

This can go either way, good or bad, for you. Before there was ILP, the proffesionals inside the insurance company decide all these for you. In return they can vaguely promise you a 6% return ( in quotation but not in policy ). So in the simplest term, if you can DO BETTER than the pro, then ILP is better for you. Else you may not even get the return like others who are just paying premium, without the need to understand anything else, as in a truly 'passive' tool.

There are 4 to 5 important elemetns to understand in ILP but for simplicity we can group into 2 first; protection elements and invesments.

Protection element in ILP is almost the same as Term Insurance.

Investment element in ILP is the same as mutual fund.

So basically ILP = Buy Term Invest The Rest, which is one of the best ways to build your personal finance portfolio.

Since the elements are configurable now and that the agents are trained but most buyers have not caught up to the idea yet, the agents can configure in a way that;

High Protection Low Investment ~~> Cheaper than Traditional Products

Low Protection High Investment ~~> Gives Better Return than Traditional Products

without properly educating on the side effects

High Protection Low Investment ~~> May Not have enough cash value to keep the policy alive in future

Low Protection High Investment ~~> Not enough protection for initial years

So if the buyer is only stressing on one aspect only ie. Low Price OR High Return, then very likely the buyer may be getting an un-balance ILP, which carries a higher-than-you-can-take kind of risk. In addition, such a buyer may as well;

High Protection Low Investment ~~> Buy Term Insurance

Low Protection High Investment ~~> Buy Mutual Fund

The justifying detail factors may be too much to share here but generally in developed nations, one can expect to use 0.8 to 0.9 times of traditional insurance premium to achieve a good balance ILP. However, in developing nations, one may need to use 1.5 to 2x of traditional insurance premium in order to build a safe and solid ILP.

Do you agree with this rule of thumb ? Why or why not ?

The FIRST Life insurance - a Whole Life Plan

Although Buy Term Invest the Rest is a better option but generally the first life insurance you should buy is a Whole Life Plan.

Typically such a plan runs until you die so its an insruance for them, not for you. One of the facts that some may overlook is that you will have to pay the premium your whole life too. However, the quotation is usually presented in a way that you pay a number of years and then the policy will be able to substain itself. Traditional policy would actually take a loan from yourself by paying interest to the insurance company. Which is usually viewed as a big disadvantage in personal finance planning. However in this article, it works towards our advantage, at least for 'most of us'.

Lets start by reviewing Buy Term Invest The Rest (BTITR), although it works best ideally but in real life when will it work and more importantly when will it NOT work ?

Statistically and historically, most people who practises BTITR starts with buying term insurance and almost certainly did not ends with investing the rest. Everyone has ups and downs in their lives. During the downs time, almost everybody's 'Buy Term' is stopped not to mention there is no such thing as '... The Rest' when cash flow is tight.

What is the ONLY requirment in BTITR to make it a success ? DISCIPLINE ! And guess what human nature is lack off ? DISCIPLINE !!

So if you have been having discipline your entire life up to this point, congratulation, you can start your first life insurance as BTITR. Else, buy a whole life insurance plan instead. You can always BTITR for your subsequent plans and just in case when lack of discipline really screw you in future, you still have at least one plan you can always fall back to - as a safety net.

This way, the worst it could become is you earn less but you are almost guarantee a fail safe approach. Strategically it puts you in a very good position even to start with.

If you are one of those who asked, "Term insurance premium increases as age increases" then you should buy the Whole Life Plan instead. Because you didn't really understand BTITR where the 'Invest The Rest' part should have ironed out this problem.

If you asked, "Should I buy term insurance until age 50 ro 60" then BTITR is also not for you. the 'Invest The Rest' part should usually take over the 'insurance' part after 15-20 years. If you didn't see that in your thoughts, you should be better off with a simply assuring whole life plan, although slightly more expensive.

Today Investment Link policy can also be quoted as a whole life plan. The good thing of investment link whole life plan is the elimination of policy loan - taking money out from your own plan to pay your future premium does not cost too much extra than just the unit price calculation. However, a badly configured link policy can lapse by itself when the market price goes too low. So a traditional whole life plan is implicitly having more assurance than investment link whole life plan.

Another rule of thumb to make your life easier, if you can pay high premium for your first policy, take investment link whole life plan. If you plan to pay minimum premium, then go for a traditional whole life plan.

Lastly, if you know you haven't been discipline but you are sure that you can be and will be from now on, do me a favor, buy a whole life plan now and then do the BTITR thing a couple of years later. 20 years later if your BTITR really does better than your whole life plan, come claim the 2 years differences from me.

Insure for what ? or against what ?

General insurance is more straight forward, you are insuring your car, house, home content etc. But in life insurance, what does insuring your life mean ? What are you actually insuring for or against ?

• Death - end of life
• Disability - partially or completely unable to live a standard live
• High medical fee
• Accidents
• Income

Death is not a problem actually. Everyone got to go eventually. If anyone is still fear of death then its just becuase his personal growth hasn't reached a mature level yet. But then again, NOT everyone must be mature. Living a whole life like a dump kid is still a life, no different than the smartest ass in the world. Either way, they should and acquire solid personal finance despite the differences.

Death is not a problem, but dying too early or too late is. If you live a purposeless life then dying early may be fine for you. But almost suddenly you will realize you do have purpose afterall at the very moment before you pass on and its too late for you to do any thing about it.

"Sorry Mum I am gone, I meant to say I love you. Here is your ticket to Dubai ..."

Dying too late is only a problem when you are incapable of substaining your life but yet you are alive. This usually occurs in 2 major scenarios; financially drain and health problems. So you use up your money, cann't buy any more Starbuick and you sit outside desperately don't know what else to do. Or you have been in coma for 15 years but your body is still going, lying there doing nothing yet doctor doesn't want to certify you dead. Else with a wealthy and healthy being, no one would complain about dying too late ...

"Hi Nurse, I may not be able to speak but here is your salary for massaging me, thanks !"

Disability is hard word to agree upon in common sense but in this industry, a person is considered disable when he couldn't perform the tasks majority of the people can. This is further percisely identified as losing 2 limbs (Total Permanent Disability) or diagnosed of Cancer (Critical Illness) etc. Your family and you may need some helps when you are 'disable'.

"Kids, I can no longer serve you ... here is your last sum of ..."

Ironically the more we know about our body (more civilized), the harder it is for us to fix it. More complicated systems are invented to cure more complex illness. Cost has gone up so high that the poor sick people wish they could share some medical fee with the healthy ones. Hence insurance is the best bet to the solution. If you are sick, wouldn't it be nice someone else is paying your bill ?

"Doctor, please hospitalized me or else I couldn't pay you ..."

Part of the deal to be human is that we don't know all. Things may happen very sudden and out of our expectation some times. The last thing we want is for a car accident to ruin our life totally. So just in case ... it wouldn't hurt as bad if there are some financial helps ...

"I lost my limbs, but at least I have 3 years to pick up new way of life without too much financial worry."

Some may have noticed that insurance is all about money. If you cann't transform what you need into numbers/money, then perhaps insurance cann't help. Then how about insuring the money itself ? Sure you can! Remember insurance is an example of business that is only limited by human's creativity, which is unlimited. So if you are ill and cann't go do labour for 3 weeks, your insurance could have paid you daily allowances.

There you go, these are the general area of coverage of personal life insurance ;

• Death - end of life
• Disability - (Totally Permanent Disable or Critically ill)
• High medical fee
• Accidents
• Income

Insurance, WHO is it for ?

If you don't have a specific goal, you probably don't need insurance. Would you buy car insurance if you don't have a car ? Would you buy house insurance if you don't have any property ? Will you buy mortgage insurance if you don't serve any loan ? Likewise, you should have a clear goal when you commit into any life insurance plans.

Generally there are two big categories; you are planning for other people or you are planning for yourself.

Insurance For Them

If I die earlier than I thought, I would want to make sure my parent, spouse and kids not to worry too much about immediate living expenses.

If I suffer from heart attack, I don't want my spouse to use up all his money to cure me.

If I am ill and cann't work for a long time, I want to make sure my kids still get paid for their pocket money.

Insurance For Me

If I lost my kidney, I don't want to use my own money for cures.

If I am hospitalized, I want to live in good care private room but I want other people to pay for that.

Generally you can lump some reasons together to buy an insurance but it should sperate these 2 categories. If one of your insurances is for you yourself AND also your family, most often you will use up the amount and still leave nothing to your family.

Typical under-insured cases occur in disability and illness. When you are diable or critically ill, should you use the insurance money to cure for yourself or should the money be left for your loved ones ? If you care about your family, most of the time they will use the money on you instead. Like wise, may be a simple small cure can be done with your condition but all of your family members want to keep the money with themselves. Either way, you should be very clear and seperate your insurance plans for others or for youself.

This is especially important in overlapping coverages like accidents, followed by permanent disability and critical illness.

Death pay out is pretty for other people while medical plans are pretty much for ourselves.

Secure Future Income

Insurance can be a long term commitment so it could be very costly to commit into one without having a clear goal in mind. Each of the insurance you own should have a meaningful purpose, else you may not get back what you have sacrificed for. One of the purposes for buying insurance is Income Replacement.

As straight forward as it may sound, there is NO standard way of calculating how much is needed. Below shows one example ...

You are 25 years old and earning $2,000 now. If you want to secure that income up to age 55, that is 30 more years to come. Linear sum would be 2,000 x 12 x 30 = $720,000. If you also think you can get an average of 5% increment every year, then your total future income is about $1.6 millions.

If these numbers seem big to you, then perhaps your personal finance consultant or even yourself have been misleading yourself in your needs assessment. Calculation above isn't exactly rocket science.

If you have set a 10% budget or $200 per month, then what you are looking for is to buy $300 insured value with your $1. ( $720,000 / $ 200 / 12 months = $300 ). This pretty much mean your only choice is Group Term Insurance. Within the same budget, other types of insurances may only provide an insured amount of $100,000. Which is less than 14% of your $720,000 needs.

The simple and straight forward part of insurance consideration is just that, you should get a Group Term Insurance for this purpose. However, should you still not satisfy with that ... you may analyse further ... into the no-that-simple or the fun part

Your income replacement needs is actually reducing as the years go by. For example, 10 years later, you would have already earned some of your income and your needs from age 35 to age 55 is only 20 years or $480,000, no longer $720,000. Likewise, when you reach age 45, your need will reduce by another one third. According to this, a Reducing Term Assurance may be suitable too ... which is also very cost effective.

If $720,000 is still not an affordable sum, you may need to re-assess your needs ... before simply limiting it.

Why do you want to secure your future income? Is it because you worry about your parent's living expenses ? If yes, how much do they really need ? If it is NOT $2,000 a month then perhaps you should secure your parent's future living expenses and not really the whole of your income.

Or are you just planning to maintain your life style? If yes, then you most probably do not need to pay income tax and EPF with your insurance payout. Hence that may comes up to about 15% saving. So intead of $720,000 you just need $612,000 for this purpose. Like wise, what exactly is the life style you are trying to keep ? Are any part of your current income form another part of saving ? Is that saving a part of the lifestyle you want to keep ? If not, then you may further reduce the sum of this need.

If whatever amount you come up with after re-analysing your need is still HIGH, then perhaps 30 years is too long a plan for you. You may want to secure your next 10 years income first. So to secure your income up to age 35, its only $240,000. With the clear concise mind that your age 35 to 55 is NOT secured. You better work something out before you are age 35 ...

Lastly, don't be confused by the dualism. Insurance can be an option but securing your future income does NOT necessary have to have insurance. ie. its not the only way.

The whole idea of you securing the income is that you are assuming the income needs to be secured when you stop working. In another words, your current income is an active income. You work you get paid, you stop payment stops. If future continous income is important to you, why don't you start by focusing on getting passive income instead ? That way, no matter if you are here or there, income keeps coming and you don't need to pay extra to secure any of it ...

don't forget Personal Finance is NOT all about money, sometimes it just takes a little bit of creativity ...

No Claim Bonus in Hospital and Surgical insurance ?

Insurance is one of the very few "Personal Finance" tools that is specifically cater for our personal needs. Hence, as soon as a new need exist in the public, insurance companies will rush toward satisfing that needs. Sometimes insurance companies get very innovative in creating needs and therefore capture more market share.

NCB or No Claim Bonus has been a common term in car insurance. If you never make any claims from your car insurance, your next year's premium is likely to be deducted up to 55%*. $2,000 vs $900 is a huge difference. This is to encourage people to dirve safely and not the other way around ie. drive like Formula 1 on the street since I can get a new car anyway should anythings happened ...

On 2004, Dutch goverment started to introduce the similar NCB on health insurance. They did that so that their people would not abuse the insurance payout and therefore the insurance companies would not use that as an excuse to increase premium until a rediculous high level.

On 2005, Prudential quickly adopted that strategy.

As for Malaysian who has been keeping an eye on health insurnace / hospital and surgical plan / medical plan, most have realized that Prudential Malaysia has also introduced NCB on their health insurance. Typically it says you get back RM 500 every year if you didn't make any claim. PruHealth can only be a rider within one of the investment link products by Prudential ie. NOT a standalone plan.

Lets review this new growth ....

Introducing NCB in health insurance in general is a great move. Basically the whole idea is to encourage you to take good care of your health. You should eat right, move right and live right. Having a handsome health insurance is NOT an excuse to simply commit sins to your health.

Every time when a new great idea is introduced to the market, it is usually not mature. It will take a while before the idea can cover all concerns and all areas. This NCB on health insurance is no exception. The key difference shouldn't be too hard to be noticed. NCB on car insurance may starts with 20%* and then grows every year until it reaches the maximum deduction. PruHealth is only constantly deducting RM 500 every no-claim-year. So unless PruHealth can increase its deduction on 2nd year onward, it will still fail to capture its insured royalty.

All this while, life insurance and general insurance (ie. car) have been managed seperately. Life insurance systems are totally incapable of calculating subsequent years deduction like MRTA or car's NCB. Hence, either Prudential is incapable of coming up with a system that is exactly the same as car's NCB mechanism or they purposely leave it as the room for improvement when competition starts to come.

Either way, it means it sounds great to the insured but it is NOT as good as it should yet. In other words, it will only gets better in time to come.

What does this NCB on health insurance mean to the prospects ? Well, its actually nothing new. Health insurance plans have been paying insured yearly money for whatever reasons or excuses they can come up with. This is especially obvious in lady's insurances. You are paid RM 200 to RM 2,000 yearly so that you can do your medical check up, cover your normal clinic visits etc. So this RM 500 payout to you is just another form of pay-back from your higher premium.

This is why the whole idea is currently built inside an investment link plans. Once you have an investment link plan for more than 5 years, it is most likely the investment return itself can cover all the other 'costs'. But should they do NOT, you are still liable to top up to the plan so that your coverage stays the same. As in the worst case scenario is that you have to add RM 500 to your premium so that you can get paid RM 500 by year end if you didn't claim. Ofcourse this may exagerate but this is just to illustrate the idea.

Should you consider this plan ? Well ....

The new NCB is just a annual pay back, so if you never have any insurance plans that pay you back and if this premium is not too high, you may try this. Its a nice feeling that someone is paying you some money every year. But if you are one of those who believe whatever they pay you is from your own pocket anyway, then you probably shouldn't join this plan for this reason.

One of the key strengths in Prudential is investment link products, so if you believe Prudential can make the right investments and subsequently maintain your portfolio well, then despite NCB on PruHealth or not, you can leave part of your life plan to them. On the other hand, if you have been a successful investors yourself, you probably would not choose this option. ( Just a sharing, most people who think they can do better than the industry usually ended up DID NOT ).

There is also a 'life stle' part on PruHealth which pretty much is a cross marketing tool, so that shouldn't affect your decision too much unless you want to rely on Prudential to assit on your future life style ... ( not a bad option if you never thought of such thing anyway )

* 55% may not be the maximum No Claim Bonus for cars, expert in this area please comment, thanks !

Where does Insurance fit in MalPF ?

This site has avoided talking about insurance long enough, lets face it and see why.

It was hinted before that insurance is originated from gambling but with a good deed instead of a bad one. It was started from greed wanting more money out of less money and eventually evolved into a need base statistical payout.

Despite its history or industry evilness, at personal level, one can use insurance to immediately secure his future asset. Especially when the unexpected and uncontrollable events happen. This is useful when you have a goal to achieve in life.

The summarized concept of insurance can be found here, basically it says buying insurance as protection is good ( this will work for most people ) and selling insurnace for income is even better ( this may only work for some people only).

However, in 21st century, insurance is NO longer JUST about protection. Today's insurance is ALL ABOUT portfolio. And A personally built portfolio is the solution to all your personal finance needs.

Insurance is the OLDEST and MAIN personal finance tool

that helps you manage your personal finance portfolio,

unlike others who are mainly focusing on specific products. This is further supported by industry practice where insurance agents do NOT usually promote Term Insurance.

So the reason insurance cann't even make it to the MeM wealth pyramid is because

insurance itself can be the whole pyramid itself,

NOT just a part of it.

By now you probably already know that it costs

. ZERO to save money in Fix Deposit,

. 1-2% to invest in stocks and

. 2-6% to buy mutual funds

In insurance, you are paying 10% to 40% for the services you obtained. After all, "profesionals" working in insurance companies are "looking after" your whole Portfolio, not just selling you a product like the other 3 mentioned above.

In short, if you are LAZY and has NO interest to learn about personal finance, then just buy some insurances. You do nothing else and just hope the insurance will take care of everything for you. Thats what they "should do" for what you paid for anyway.

So ? Is that it ! After going one big round after one whole year during this anniversary, all this blog is about is to ask people to buy insurance ? ( what a buster ! isn't it ? )

Well, the answer was already given. If you are Lazy and has NO interest to learn, then its a YES to you. Else keep reading and see if there are more to it.

Other related insurance topics:

Insurance always gives return lower than FD ( Allianz example, Prudential example )

Buy Term Invest the Rest

You can Buy RM 328 with just RM 1 !

Do you like or hate insurance ?

How Malaysian would die ?

Out of the 24 million people in Malaysia, this is the list of how we would most probably be dying ...

#1 30% chance you would die of Cardiovascular diseases ie. Heart problems. or 35,700 people

#2 16.7% you may die of cancer Malignant neoplasms ( 19,900 people )

#3 11.7% Infectious and parasitic diseases ( including Tuberculosis (lung?) 2.85% and AIDS 1.8% )

#4 6% Respiratory infections, mostly lower infections rather than upper

#5 5.5% Accidents

In short, either your Heart or Lung will fail you. Then may be your cell will mutate and lastly if you have Health on your side, then you may be crashed on a road accident.

Full data below, data dated 2002, report 2004

Personal Finance in 1Picture

I started this Blog with very fundamental talks on personal finance on lay man write up. I have to apologize if recent posts have become quite cryptic and speculative. So let’s get back to some of the unfinished fundamentals on personal finance.

First you must have an income. Income can be any form of received money including pocket money for kids, household money received from bread earner, begged etc.

No matter how you get your income, you must setup an automated system to save part of your incom; BEFORE you do anything else ! Remember you need your ASS - Automated Saving System.

In today standard, this automated saving system should give you some interest, preferably matching fix deposit rate.

No matter if your income makes you a Rich, Average or Poor person, if you don't have an ASS you may find yourself in trouble one day. Some even cost them their lives.

Once you have enough money in your ASS, ie. can substain your lifestyle for 3, 6 or 9 months. You will need to start thinking about Money Earns Money - MeM. 'Passive' is the keyword. Something that you do once now and enjoy a life long extra income in future.

There are standard methods or PF tools to achieve MeM. Each level up the pyramid requires more learning. Entering into any of this with the wrong preception or knowledge may bring negative MeM.

At this stage, many will tell you high risk high return, low risk low return. While they are not wrong, but that concept is not entirely helpful to your personal finance. In order to focus on what can helps, you may need 21st century understanding on Risk.

Further in future, you may see that MalPF will preach that

1) Personal Risk is what you know, the more you know the better it is, irrelevant to what PF tool it is

2) PF Tool Risk is fixed no matter who invest in it, irrelevan to who you are

Bundle together that 2 concepts result one simple action to position yourself well in MeM - keep learning ( the easy part ) and learn the right stuff ( the harder part - due to Rich Conspiracy ).

There are 2 BIG parts in MeM. The part mentioned above is Earn 2 with 1 or Doubling your money - MeMx2 The crucial part left out here on purpose is Time - which is also the variable for individuals.

We use Rule of 72 to quickly calculate this variable. For example, it takes 6 years to double my money if I get 12% return from my investment.

So far MalPF model works well without the need of setting goals. However MeMx2 is the part where you may see a distinctive difference between a person do it with goals and another without.

Should one still find it hard to find own goals, simply follow the magic number - 7. Setup 7 MeMx2 accounts for the following:

1. Car

2. House

3. Family

4. Education

5. Retirement

6. Charity

7. Holiday and Travels

The good thing about none goal specific MeMx2 is that they are flexible and interchangable. You should start all 7 accounts at once even if you think you don't need it. Even putting in 1 cent a month into each account is better than putting 10 cent into one investment account only. ( No, this is NOT diversification, this is just broaden your availability when you don't have a target, like spreading a fish net when you don't have a hook/bait )

The second part of MeM is to Buy 100 with 1 or Secure Future Money - MeM100. Also commonly treated as insurance. While MeMx2 urges us to learn more, gain more knowledge but there are always something we haven't learned yet or will never able to 'finish' learning. Hence for all the stuff we don't know, we apply MeM100 to it.

This is especially useful when you have goals in MeMx2. For example, I want to save $100 a month for 20 years with 12% return so that I can get my $100,000 for my retirement. So I can buy a $100,000 insurance just incase if I lost my ability to save that $100, I will still get my $100,000 regardless.

There are 5 big areas in MeM100:

1. Die Early

2. Living Dead

3. Fail to Die

4. Accident

5. Income Replacement

If you still don't have clear goals in life up to this stage. Then you will not be able to have an optimized Personal finance plan ie. Buy Term Invest The Rest. You would probably go for something traditional called Whole Life Plan. Its not bad at all for someone who cann't even figure out a single goal after 20+ years of life. Try This ...

and this is what this picture is all about ... ( may be not All but the nutshell yes )

The most long lasting business model

If not mistaken, it was 2,300 BC and 4,500 years ago (no, not a mistake, these are the actual years).   Once upon a time ...

Caby  is a smart man, he understands human nature very well and decide to make a fortune out of it.  Today he is only focusing on the 'greed' part.

He collects $1 from every man he meets and promise to pay half of them $2.  At first, people have doubts and only a handful people join.  But when half of them are paid double the money they put in, words start to spread and everybody rush in like no one business.

Although it was clearly implied that another half will get nothing out of the $1 they paid, but soon the other half start to compalin that this is a scam.  Caby is a smart man, he starts to alternate paying another half of the people double the return.  As far as the people concern, they pay $1 twice and they are guarantee to get back $2 in second round anyway.  So the worst is break even and if 'luck' is on their sides, they can get paid $2 for the $1 they put in.  They can stop playing and immediately earn 100% return !

But who is happy with $2 ?  Illogical but true enough, everyone realize they will keep on playing and all they will ever get is a break even, but everyone still think they can earn 100% return.

You are breaking even at best but

you still think you are winning 100%

at the same time

Finally, the business model works and sustain itself.  Caby is a smart man but he hasn't earn a single cent doing this yet.  He is calm, he waits, for the real phase to kick in.

Finally Greed kicks in.  $2 is not enough anymore.  People start to demand higher pay out.  Caby is a smart man, he starts explaining how the system work.  That if higher payout is made, less people will get paid.  People agree.  People still want higher pay out.  4, 8, 16, 32 ... very soon you start to see games like 3D, 4D, Magnum all over places.  By now, the size is just too big that people cann't keep track of who play and who get paid.  Caby is a smart man, he knows exactly how the money flow and start to get his share out of this whole business model.  As long as there are people, this business model will continue and Caby is a rich smart man.

That is not the end, that is not even the main part of the story yet ... the story starts when there are some smart people among the players.  They start calling this business model gambling and saying all the bad effects it can bring.  Despite that it is a bad thing they say, they didn't say we should stop totally.  They just say we should regulate it.  Normally people would say, "Bad ! Don't do it !", what kind of people would ever say, "Bad, do it under my control, then its ok" ? - - -  Yeap, Politician.

After regulation or in another word, under the umbrella of the protection of a country, this business model grows even bigger and sometimes its an international investment event around the globe.

Ok, now back to the good guys who say don't do it.  Which is also the juice in this story.  Caby is a smart man.  He said to these anti-gambling guys, "what if I pay out according to who need it most?"  Good guys ponder a little bit but after a long haul of exactly what need is and how to determine who need it first etc.  They settle in.  Now the business model has changed and become ...

You pay $1 a day, 365 days a year and should you has the 'need' one day, you will get $100,000 !  Different group of good guys have different needs so many different kind of variation of games are put in place.  Some said the need is 'when I lost my income', others may say 'when I die, pay my family please'.

It turns out Caby is smarter than he think he is.  Now he has one business model for all the greedy illogical guys and another model for the good guys.  Both type of people think they are well taken care off.  As long as there are people, no matter if all of them turns saints or evil, Caby is a rich baster !

Its the most long lasting business models ever built ...

~ Caby is a made up word from 2 big nations, one still exist today, another is a legend.