This document provides a summary of Lesson 4 of the Azure School on financial planning. It discusses various types of investments including life insurance, life annuities, and structured products. It warns that structured products often disappoint investors with poor returns. Unregulated products like land banking, gold and wine investments may be scams. The document stresses the importance of writing a will and revising it over time to distribute one's estate appropriately.

1. Azure School
Financial Planning
Lesson 4

2. Reading materials
• Read chapters 19 to 24 of the book, Practical
Guide on Financial Planning, written by Mr.
Tan Kin Lian

3. Investing in life insurance
• You are allowed a free look period of 14 days to
cancel the policy for a full refund of the premium
• You are given a benefit illustration. Look at the
distribution cost and the effect of deduction.
• The distribution cost is the money that is taken
from your savings to pay the commission and
marketing expenses.
• The effect of deduction are the total charges,
including interest.
• Do not buy a policy that shows a deduction of
over 20% of the accumulated premium.

4. Life annuity
• The consumer pays a single premium to buy the
life annuity and receives a monthly payout for a
lifetime.
• A basic life annuity does not provide any refund
of the capital on death.
• A guaranteed life annuity provides a partial
refund of the capital on early death. The payout is
lower than a basic life annuity.
• A participating life annuity pays a lower payout
initially, but it a bonus is added each year to
increase the payout.

5. Types of structured products
• The structured products were created by
banks and were sold to consumers
• Different types of structured products
– Capital guaranteed
– Capital protected
– Equity linked
– Currency linked
– Credit linked

6. Capital guaranteed
• The consumer invests a lump sum for 5 years.
• The return on maturity depends on the
outcome of certain events. The principal is
guaranteed by a financial institution.
• Many investors had been disappointed with
the poor return on these products on
maturity, and received less than 2% in total for
5 years.

7. Capital protected
• This is similar to the capital guaranteed
product, but does not provide any guarantee
by a financial institution.
• There is a risk of loss of part of the principal, if
the investments perform poorly.
• The return is slightly better than a capital
guaranteed product, but the risk is higher
• Most investors had been disappointed with
the poor yield; some have suffered losses.

8. Equity-linked
• This contract link your investment to a specified
share.
• If the price of the linked share stays above a
certain level, the consumer earns a return of
about 5% per annum
• If it falls below that level, the consumer has to
take the delivery of the linked equity and hope
that it will recover.
• Some investors have lost a lot of money on this
type of contract.

9. Currency-linked
• This contract link your investment to a specified
currency.
• If the price of the linked currency stays above a
certain level, the consumer earns a return of
about 5% per annum
• If it falls below that level, the consumer has to
take the delivery of the linked currency and hope
that it will recover.
• Some investors have lost a lot of money on this
type of contract.

10. Credit-linked
• This contract pays an interest rate of about 5% per
annum.
• It is linked to several reference entities. If any entity
goes into default, the total principal will be lost. The
risk increases with the number of entities.
• Some investors were wrongly advised that the loss will
only be in proportion to the number of entities.
• Many investors have lost a large part of all of their
investments in these contracts during the Global
Financial Crisis of 2008

11. Leveraged investment
• Some investors are advised to take a loan from
the bank, at a low interest rate, to invest in the
structured products.
• The amount of loan offered is up to 4 times of the
initial investment
• If the linked contracts fall by 10%, the total loss
on a leveraged investment can be 50%.
• Some investors had lost half or all of their
investment in this type of leveraged investment.

12. Unregulated products
• The following products are not regulated by
the government:
– Land banking plots
– Gold investments
– Wine investments
• Investors should avoid investing in
unregulated products as they may be a scam
or a Ponzi scheme.

13. Land banking
• The land plots were in overseas locations; the
price looked attractive compared to land in
Singapore.
• The investor were told that the investment will
appreciate by 2 to 3 times, when planning
approval is obtained in 5 to 7 years.
• Most investors had waited for the period, but
found that the approval was not given.
• They learned that the actual value of the land is
less than 10% of the amount that they paid.

14. Gold bars
• The contract gives the investor a monthly return
of 2% and a full return of the invested sum at the
end of the contract period of 3 to 12 months.
• The investor can hold a gold bar as security.
However, the actual value of the gold bar is less
than the invested sum, unknown to the investor.
• The promoter uses the money from the later
investors to pay the return to the earlier investors
and keeps the differences.
• Several of these schemes have collapsed, leading
to large losses for the investors.

15. Wine investments
• The investors are asked to buy a collection of
wine and are told that the wine can be sold for a
profit at an auction to be held in 2 to 3 years
time.
• In most cases, the auction did not materialize; the
investors were pressured to add to the collection
to get a better chance at the auction.
• The wine are usually sold to the investor at twice
of the actual market price, unknown to the
investor.

16. Writing a will
• If a person dies without a will, the assets will be
distributed in accordance with the Intestate Law.
• If a person dies with a will, the estate will be
distributed in accordance with the will.
• A person can change the will at any time, or make
amendments to an existing will.
• A person can write the will on his own or have it
written by a lawyer.
• You should write a will and to revise it every few
years according to changes in circumstances.

17. End of lesson 4
• Read the chapters of the book again in more
detail.
• When you are ready, you can do the Quiz.