Who Is Tharman Shanmugaratnam

Singapore’s ruling party is celebrating a resounding re-election victory, thanks partly to its economic Tsar, an ethnic Tamil politician whose voter appeal poses an awkward question for its leaders: can a non-Chinese ever become prime minister? As the People’s Action Party (PAP) settles down to another five years in power, the guessing game of who will succeed Prime Minister Lee Hsien Loong has begun – and the name of Tharman Shanmugaratnam keeps coming up.

Life Is Love

Early in my career, a life insurance company asked me to hand-deliver a death benefit check to a widow who lived near me. The husband had been a business owner, and their livelihood depended on the continued success of the company.

On a beautiful, spring Georgia day, the couple’s daughter was married at the family home. After the nuptials, the reception was held in their backyard. While guests enjoyed the celebration, the bride’s father took a quiet moment to impart some wisdom for the journey ahead.

Just as he turned to say something to his daughter, he collapsed. The widow later told me that he had died immediately of a massive stroke.

Lesson of love
Years earlier, the patriarch had realized that money would be needed if something bad happened to him. He loved his wife and family and wanted to take care of them. That’s why he bought life insurance through his company.

When he took out the policy, the couple could never have guessed that years later one of their best days as a family would quickly turn into one of their worst. Nor could they know that because of this simple financial transaction, their tragic day emotionally wouldn’t be compounded by financial instability.

Because of his act of love, life insurance proceeds were available after his death to help pay for the wedding, provide his widow with an income and help the family wind down his business.

It turns out that this was the only life insurance death benefit I ever delivered. I’ll never forget the lesson. You buy life insurance because you love someone.

You owe it to them and to your company
Of course, love isn’t the only reason to buy life insurance. In business, there are many reasons.
Buying life insurance on a key person is one good one. You owe it to them and to your company.
If a key person dies, the company stands to lose financially. The company may have its debt called.

The loss of life may result in lost sales. Finding a replacement could be an expensive and lengthy endeavor.

And some of the company’s financial loss may be because the business owes that person’s heirs money. For example, if a key person owns stock in a closely held business, life insurance proceeds can be used to buy the stock from the key person’s estate.

Similarly, if that executive has a deferred compensation agreement with the company, life insurance proceeds can generate the liquidity needed to make good on the promised compensation.

Life For Your Children

Planning for your children’s future is an important part of parenthood, whether you’re saving for college or making sure they are taken care of if something should happen to you.

But what if you could help your child plan even farther into the future? Believe it or not, life insurance can help you do that. That’s because buying a policy on a child can provide him or her with a lifetime of benefits you might not be aware of. There’s no other type of asset that leaves children so well prepared for the future.

1. Lock in future insurability. Even if you don’t think you need a death benefit for your children now, someday your children may need one when they have a family of their own to protect. With certain policies, you can protect your children’s ability to buy more life insurance in the future at rates based on their health now. That means if they were to get a disease like diabetes, which would make it much more expensive or impossible for them to get life insurance in the future, they would be able to buy coverage based on rates as though they were healthy.

The underwriting requirements are far less stringent for children, so it’s often a lot easier to purchase life insurance when they are young. Policyowners can also buy additional coverage at specified points in the future without having another medical examination for underwriting purposes.

2. Accumulate savings. If you buy a permanent life insurance policy for your child, the policy will build cash value over time. That’s money that will grow tax free. You or your children could use that money as collateral for a policy or bank loan to pay for things like a college education, a wedding or a down payment for a house.

When you buy a policy for a child, “the premiums are much lower, and you have a longer time for the money to compound,” said Alves. “The amount initially invested in these policies is far less and the benefits far greater than if you waited to buy life insurance when you’re 30, 40 or 50.”

3. Set yourself up to have a financial talk. At some point, you will want to turn the policy over to your child, perhaps when he or she graduates from college. That’s a great opportunity to talk about the value of financial planning with your children at a time in their life when most young people aren’t concerned about the topic.

But seeing the tangible results of a policy that has accumulated a substantial amount of cash over a 10-, 15- or 20-year period can be an eye-opener for a young adult who has never thought about financial planning. You may even want to ask your financial planner to lead the discussion.

“It encourages a planning conversation at a younger age. It puts them well ahead of their peers who may not even talk to a financial planner until they’re in their 30s when they have a mortgage and kids competing for their dollars.

Managing Performance During Chaos

The life insurance industry is increasing the portion of time deposits in its investment portfolios and decreasing that of stocks after suffering a significant slump in investment returns amid the ongoing global stock market rout.

The Indonesian Life Insurance Association (AAJI) revealed Thursday that its members had decreased investment placements in stocks to 25.5 percent of overall portfolios in the second quarter this year from 29 percent in the same period last year.

Meanwhile, investment allocations for time deposits rose to 17.6 percent from 14.7 percent during the same period.That was after life insurers saw investment returns plunge by 103.4 percent to minus Rp 710 billion (US$49.96 million) in the April to June period this year from Rp 20.78 trillion in the corresponding period a year ago, according to the industry group’s report.

“The country’s economy, especially the stock market volatility, affects the decrease in investment returns. However, the life insurance industry still recorded positive growth,” AAJI chairman Hendrisman Rahim said on Thursday.

Indonesia’s six-year low of economic growth in recent quarters, international funds exiting emerging markets because of US economic improvement and China’s slowdown and yuan devaluation, have all contributed to a slump in the local stock market.

The Jakarta Composite Index (JCI), the main price indicator on the local stock exchange, has slumped 20 percent so far this year, the worst performing index in the region, with net foreign outflows amounting to Rp 6 trillion to date. The rupiah has also passed the 14,000 mark against the US dollar, a level unseen since the 1998 financial crisis.

The life insurance industry’s investment value amounted to Rp 320.51 trillion in the second quarter of this year, up 21 percent from Rp 264.97 trillion in the same period last year.Hendrisman expected that the stock market would soon rebound, hence increasing life insurers’ investment returns.

“Because investment value is high, it’s just the investment returns that have decreased,” he added.He also insisted that the industry had kept on growing despite the challenging economy, although total revenues dropped by 8.7 percent to Rp 69.97 trillion year-on-year (yoy) from Rp 76.6 trillion in the second quarter of 2014 because of the plunge in investment returns.

The AAJI is still optimistic about achieving a 20 to 30 percent total revenue growth this year.The life insurance industry recorded a premium income of Rp 67.82 trillion in the second quarter this year, a 26.6 percent increase from Rp 53.58 trillion last year. It was mostly driven by the new business premiums, which rose 28.2 percent to Rp 39.19 trillion this year.

“It means that people are more aware of the long-term nature of life insurance,” Hendrisman said. The surrendered claims growth has also decreased compared to the first quarter, as the panic stemming from the economic situation cooled off, according to AAJI alternative distribution canal department head Christine Setyabudhi. The surrendered claims rose 32.1 percent this quarter to Rp 19.63 trillion in the second quarter, but it was less than the 69.5 percent growth last quarter.

Meanwhile, partial withdrawals saw a 23.7 percent increase to Rp 10.69 trillion compared with a 61 percent growth on the first quarter.“It was driven by the policyholders’ need for cash. They got into a panic in the first quarter, but they began to calm down in the second quarter,” Christina said.

The number of policyholders has also increased by 22.9 percent to 57.02 million people from 46.41 million people last year.In a bid to further boost the still-low number of policyholders, life insurance firms have started to venture into micro-insurance for low-income people. “With the slowing economy, the industry needs to work even harder to educate the people about life insurance, but we are still on track, hopefully until the end of the year,” he said.

Partnership Insurance - Attractive Arrangement

QUESTION. I own a small business with a partner. We’ve been thinking about taking out life insurance policies on each of us so that if one dies, the surviving partner will have the money to buy the business from the other’s estate. Does this make sense to you?

ANSWER.  Arrangements like the one you are describing can make a lot of sense.
 

Screen Name or Email Now I remember!

Let’s begin with a clear understanding of the deal. Premiums will be paid to the life insurance company and the life insurance company will pay money to your beneficiary upon your death (in this case, your business partner).

 

With the money your partner receives, he/she will buy your interest in the company from your estate.

But let’s be clear, on average, your partner would have more money if, rather than buying life insurance on you, he/she wisely had invested the money that would have been spent on premiums.

If this were not true, the insurance companies would be bankrupt and they most assuredly are not. Indeed, life insurance policies are very profitable for the insurance companies.

Think about it. The insurance company takes the premiums and invests them. Assuming you live to your normal life expectancy, the insurance company will have X number of dollars at the time of your death.

Had the premiums been invested, your partner would have the same X number of dollars upon your death (assuming your partner invested as well as the insurance company).

If your partner invests the premiums, he/she gets all of the X dollars.

However, the insurance company cannot pay your partner all of the X dollars.

It first has to pay all of its operating expenses — including the salaries of its executives, back office and administrative personnel; the rent on its big office buildings; and the cost of its salesforce. After that, the company has to make a profit for its shareholders.

The company can only afford to pay your partner a number that is less than X — considerably less. For the company to remain solvent, the amount it pays your partner will be equal to X minus a pro rata share of the company’s costs and profit.

Assuming you achieve your full life expectancy and your partner invests as well as the insurance company, your partner would have more money if the premiums were invested rather than turning them over to the insurance company.

Therefore, on average, life insurance is a losing proposition — it has to be.

If you die sooner, the purchase of a life insurance policy is a better deal.

Conversely, if you live longer, the purchase of life insurance is a worse deal.

But on average, your partner will have more money upon your demise if he/she invested the premiums rather than giving them to the insurance company.

However, the reason for buying life insurance is to protect yourself and your partner in the event that one of you doesn’t live to your full life expectancy. The life insurance policies you are proposing to buy may be a very good idea to protect you and your partner from this eventuality.

There are other options you might consider. For example, each of you could agree to leave your share of the business to someone who would step in and fill your role in the company upon your demise.

Alternatively, you and your partner could agree contractually that upon either of your deaths the surviving partner would purchase the interest of the deceased partner from his/her estate with a note. The terms of the note would allow the debt to be paid over a period of time.

This would save the cost of the insurance. However, it would also mean that the decedent’s estate would be paid over time rather than in a lump sum.

If, upon the death of one of the partners, the other will purchase the decedents interest in the business from the estate, it is important to agree on how the purchase price will be set. This is true whether the purchase is to be made with a note or with the proceeds from a life insurance policy.

The life insurance policies you are proposing may be a very good idea. On the other hand, they will be a losing proposition on average.

Therefore, we suggest considering other options before purchasing the insurance. If none of these are viable, pursue the deal you described.

Internet Insurance China

Tencent Holdings Ltd will set up China's first Internet-based life insurance company with State-run firm CITIC Guoan Group, according to a report in Shanghai Securities News. The new company is positioned to be an innovative and light-asset online insurance firm, and may become the country's first Internet life insurance company if approved. 

Tencent and CITIC Guoan will hold identical stakes in the joint venture. The other shareholders include private enterprises such as Shandong Sanxing Group and Beijing Easy Home. The actual shareholding pattern for the joint venture is yet to be disclosed.

Wang Hao, former vice-president of Qian Hai Life Insurance Co Ltd, is to head the preparatory team of the new company that will be based in Beijing.

Tencent, which owns abundant high-quality user groups, could convert the users into policyholders, and master the detailed underlying data of these users.

It is noteworthy that although the company is planning to be an Internet life insurance firm, it will not totally give up other sales channels, people with direct knowledge of the matter said.

The new company will develop bank insurance and Internet selling simultaneously in the preliminary stage, while other sales channels, such as personal insurance and telemarketing with high costs, will be excluded.

"Such a channel strategy reflects how the company aims to achieve scale quickly in a very short period of time and hopes to make profits as soon as possible," an industry source said.

The company plans to achieve profit within five years of operations, and will launch property insurance and asset management companies when the time is appropriate, the sources said.

Life Update Malaysia

The life insurance industry remained steady in the first half of 2015 despite the challenging business environment, with new business weighted premiums declining only marginally, said the Life Insurance Association of Malaysia (LIAM).

According to LIAM, new business weighted premiums (100% of regular premiums plus 10% of single premiums) slipped by 0.7% to RM2.024 billion from RM2.040 billion achieved in the same
period last year.

This increase in protection is contributed by investment-linked plans, which experienced a growth of 9.6% and traditional plans with a growth of 3.5%. Toi attributed the growth in insurance coverage to the increase in consumer awareness.

According to a study commissioned by LIAM and undertaken by Universiti Kebangsaan Malaysia, the protection gap or underinsurance gap remains huge in Malaysia whereby the average protection gap for families whose primary wage earner does not have life insurance protection is RM723,000 per family. The amount is the estimated sum needed for the family of the wage earner to sustain their current lifestyle for at least five years on the demise of the wage earner.