An Article I Wrote For Business Plus Magazine

Withdrawing EPF Money For Critical Illness

The Employees Provident Fund (EPF) recently expanded the list of critical illness members can withdraw for from 39 to 55. This is great as some folks are either uninsurable or have not taken the time to get proper insurance coverage. Withdrawals can be made from whatever amount is in Account 2. 

The withdrawal is not only for the EPF member but also extends to these few categories: 

1. Spouse
2. Children/Step-children/Adopted children
3. Parents/Parents-in-law/Step-parents/Foster parents
4. Siblings

Allowed medical expenses: 

• All charges by the medical centre related to the treatment received by the patient, inclusive of the cost of buying the medical aid equipment allowed in the treatment for the approved illness.

Medical aid equipment:

• Medical aid equipment refers to the medical support equipment used for the purpose of treatment for the approved critical illness.

Email me at totalcoveragesolutions@gmail.com  to request for the full list of critical illness and withdrawal procedure.

This might interest you: Put Your EPF Money To Better Use

Thinking of Rowing Your Own Boat?

Two days ago I attended a talk at MATRADE called The New Faces of Entrepreneurship given by Prof. Rajesh Chandy of the London Business School. To say I found it interesting would be putting it mildly. After Rajesh’s talk there was a panel discussion with six really good panelists. Whilst they were all excellent, Malek Ali’s (founder of BFM 89.9) discussion points struck a chord with me.  

As an entrepreneur myself, it was a really good experience to catch a first hand glimpse into the mind of the big boys. I can’t remember who said what but I’ll highlight some of the things I heard that day.

Many of us at some point or the other toy with the idea of becoming entrepreneurs. We’ve been told, “Hey buddy, your cooking is excellent. You really should start a stall or restaurant”. Or “Dude get into business - that’s where the money is!” Things are not as simple as this.

Malek was recounting how he struggled during the first few years of setting up Jobstreet.com and then BFM89.9. While today both those ventures are mighty successful, in the early days it was difficult getting individual investors in, let alone bank funding. 

The head of CIMB Private Equity & Venture Capital, one of the panelists, commented that every month her department receives thousands of business proposals and out of these only approximately 2 in 1000 finally qualify to obtain funding. So don’t give up if your business idea gets rejected. Keep at it.

One of the things that fresh entrepreneurs overlook is creating a solid business plan. A vague idea just won’t cut it. Solid research and number crunching, especially when it comes to profits, needs to be done. When I started my first business, a computer repair and service company, I was definitely one of those guilty of not having a business plan.

Besides a business plan, an entrepreneur should know the limitations of his/her capabilities. Being optimistic is great but it is easy to become misguided and think you’re helluva great. 

Another thing that if considered early on would pay rich dividends once the business has taken off is scalability. It is pivotal that whatever product or service you have can reach its target audience via the internet. Even in politics we can see the power of new age media over traditional media like newspapers, radio and television. The internet simply reaches more people.

Many entrepreneurs hit a brick wall because they focus on products and services that are based on a business-to-individuals model. A business-to-business model is generally speaking much more profitable. Even if profit margins on an individual product might be lower, economies of scale does mean that actual profit increases.  

Your vision as an entrepreneur is an important factor in your success. You’ve got to think globally because if you truly want to make good money Malaysia is too small a market. An entrepreneur in China, India or Brazil has an immediate upper hand because of the sheer size of the market. Of course this piece of advise is not intended if you’re contented with doing a small business which settles the bills, sends the kids to school and pays for the occasional holiday.

Successful entrepreneurs are those that have got these 3 things right.

1. The right Mindset. Get over your mental barriers and the battle is half won.   

2. Risk tolerance (the ability to balance risk). Most tend towards conservatism or extreme risk taking. An example of this is spending a balance of effort to ensure healthy cash flow and at the same time budgeting money for R&D.  

3. Ability to delegate & celebrate. Research done by the London Business School found that there was a strong culture where the reward for success was substantially more than the penalty of failure in highly successful organizations. Success is celebrated. Robert Kiyosaki once said, “I hire people that are more intelligent than me.” This goes to show that smart entrepreneurs don’t do everything themselves but choose to delegate or get the best person for the job.

In a nutshell, if you’re thinking of starting out on your own, have a business plan, know the extent of your capabilities, have a good management team, ensure scalability and think globally. 

An Article I Wrote For The NST - Part 2

Click on the image to see a bigger readable version. 

An Article I Wrote For The NST - Part 1

Click on the image to see a bigger readable version.

Scratching Your Head Over Investment-Linked Insurance?

If you're in the market for life insurance, you would have inevitably bumped into something called investment-linked insurance. As with lots of things in life, the benefit or detriment accrued from something is pretty much dependent on how you use it. 

I cannot stress enough the importance of an investment-linked plan that's tailor made to your needs. A badly suited plan will be a pain in the you-know-where. In the next few posts, I will focus on investment-linked insurance. 

Investment-linked insurance is, as the title would suggest, a plan that includes an element of protection and also investment. Investment in this case means unit trust funds. The choice of fund is up to you and the mix of funds can be changed at anytime. 

Investment-linked Insurance: How It Works

1. The money you pay as premiums is used to purchase units in Unit Trust Funds. 
2. The insurance charges are then paid by selling the number of units that is needed to cover the charge.
3. The rest of your units will remain and continue to grow in the Unit Trust Fund.

When you pay your next insurance premium this 3 step process will repeat.

The Insurance Cafe Has Gone Mobile

I've decided to take The Insurance Cafe mobile! Still learning how, so if it doesn't look very pretty on your device or you've got problems accesing the mobile site please let me know. Am using mobify as the mobile site designer.

If you access The Insurance Cafe on your mobile browser it should automatically redirect you to the mobile site. If not you can find it here theinsurancecafe.mobify.me  

Dato Din (Dinesh) hope you can now read my blog at work on your HTC Desire : )

Have You Unwittingly Fallen Prey To APL?

Premium holiday is a phrase that gives a happy connotation to something you might not be so hot about if you knew its workings. I was having a discussion lately with a friend of mine and he told me that his insurance policy is still inforce despite him not paying for a few months.  How was this possible? In insurance language, he has gone on a "Premium Holiday".

However, be clear that this post only applies to traditional life insurance policies and not investment-linked policies. You can take premium holidays on an investment-linked policy but its workings are different and hence are not applicable to what we're talking about here.

Premium holiday is available to any policy that has enough cash value accumulated to pay the next premium. You then get to skip paying your insurance premium while still enjoying the coverage. You can be on this holiday until your policy runs out of cash value. If it runs out and you still cannot pay your premiums, the policy will lapse and you will not be covered anymore.

While you might think that having your premium paid through the accumulated cash value in your  policy is a good option, this may not always be the case. How detrimental or beneficial a premium holiday is depends highly on the method used to go on a premium holiday. You can think of it as taking different modes of transportation to your holiday destination. This might get a tad technical but could save you thousands in the long run so bear with me.

What method should you use?

DON'T: Take an Automatic Premium Loan (APL) as a means to go on a premium holiday. This is essentially a loan that is automatically taken against the cash value of the policy to pay your premium in the event the policy was about to lapse due to no payment. The interest you pay on this can be as high as 7%! This will undoubtedly deplete your cash value rapidly. I only suggest using this clause if all other methods of payment are exhausted.

DO: If you find yourself in a situation where you cannot pay for your insurance premium you should first ask your insurance consultant about your options. Insurance companies usually pay out cash bonuses every year. This cash bonus is reinvested into you policy (unless stated otherwise) and forms part of your Cash Value. Cash Value is the amount of money you get if you choose to surrender the policy. The great thing about this is that after a few years you could have accumulated a substantial amount which can be used to offset future premium payments. This is NOT categorized as a loan and so its almost like using money from your own savings to pay for the premium.

I hope this has given you some clarity regarding APL and prevented you from falling into its trap.

Have You Purchased A Car Too Big For Your Wallet?

Yesterday I'd shown how much interest we pay when taking a home loan. Today will talk about car loans. As an illustration I'll take the Honda City (since I recently test drove one).  You can substitute the figures I've used with the ones of you own car loan. Step 2 shows interest paid on the car. I've added other steps just to show the method to calculate monthly payment.  

Car Price (without insurance): RM88 000

Down Payment: RM10 000

Loan Amount: RM78 000

Loan Tenure: 9 years

Interest Rate: 3.95%

1. Take the loan amount and multiply it by the interest rate. 

     RM78 000 x 3.95% = RM3081

2. Take the answer from step 1 and multiple it by the loan tenure.    

     RM3081 x 9  = RM27 729 

3. Take answer from step 2 and add the loan amount. 

     RM27 729 + RM78 000 = RM105 729

4. Take answer from step 3 and divide it by the loan tenure (in months). 9 year loan works out to 108 months. 

     RM105 729/108 = RM978.972

We have deduced: 

Total Interest Paid: RM27 729

Monthly Loan Repayment: RM978.972

Actual Cost of Honda City: RM105 729

Car and home loans are very different. For a car loan the interest is calculate on a fixed principle amount (car price). Whereas for a home loan the interest is thankfully calculated on a reducing principle amount. 

If you were to calculate a home loan of RM300 000 with interest rate of 4.5% and 30 year loan tenure using the car loan method it will cost a fortune (RM705 000 to be precise). Compare this figure with the one in yesterdays post, where it was calculated that this same home loan of RM300 000 will "only" cost RM547 220.13 instead of RM705 000.  

So what can you do to reduce you car loan? The only thing you can do is take a smaller loan and thus reduce interest payment. Early settlement of a car loan will not help reduce the interest you're going to pay. 

Some financial gurus' follow this rule of thumb: Only take a car loan that you can afford to pay back in 3 years. If its more than that, you really are buying a car too big for your wallet.  

Stop Donating Your Hard Earned Money To The Bank

If you're thinking of taking a home loan to purchase a house/apartment, you should consider this useful tool called Home Loan Calculator. It's a very simple one in Microsoft Excel format. Drop me an email at totalcoveragesolutions@gmail.com with the title Home Loan and I'll send it to you.

As an illustration, I've taken a 30 year loan for RM300 000. The Base Lending Rate (BLR) is 6.3%. Most banks offer home loan packages that charge BLR - 1.8%. Needless to say this varies slightly from bank to bank. So effectively you pay about 4.5% in interest per annum.

Loan Amount: RM300 000

Interest Rate: 4.5%

Tenure of Loan: 30 years

With the Home Loan Calculator I can tell: 

Monthly Payment: RM1520.06

Total Interest Paid: RM247 220.13 

Total Amount Repaid: RM547 220.13

As you can see, for a loan of RM300 000 you end up paying almost RM250 000 in interest which brings the total amount of money out of your purse to about RM550 000. Thats is a huge sum of money to "donate" to the bank. 

The best way to reduce interest payment is to have a bigger sum of money ready as down payment thus reducing your overall loan amount. 

The other great way is to make lump sum payments over the years. You can give the bank instructions that this money is to be utilized only to pay up the Capital part of the loan and not the Interest portion.