Dear Mr. Tan Kin Lian:
I'm a journalist. We read your blog and see many AIA policyholders seeking your advice. We are very interested. How big a problem is AIA facing? How are policyholders reacting to the problem? Do you find their worries reasonable or unreasonable?
REPLY
The policyholders of AIA (American International Assurance) were worried about the safety of their insurance savings when they heard about the financial trouble facing AIA's parent company, AIG (American International Group). At that time, they learned that AIG had to be find additional capital of USD 80 billion (not sure about the exact figure), failing which AIG had to declare bankrupcy. They were worried that their savings would be locked up during the bankrupcy or worse still, disappeared entirely.
Many policyholders queued up to terminate their policies and receive the cash values. They are willing to take a loss, as the cash value is less than the premiums that they have paid, and the penalty is quite high for policies that are terminted during the early years of the insurance policy.
A total of 5,000 policies were reported to be surrendered during the first two years. Many of these policyholders formed large queues outside of the office of AIA. This caused other policyholders to be alarmed.
Some of the AIA policyholders sent e-mails to seek my advice. I advised them not to panic and not to surrender their policies. My reasons were given in this blog:
http://tankinlian.blogspot.com/2008/09/is-your-money-safe-with-aia.html
On the following days, the regulator, i.e. Monetary Authority of Singapore, and AIA issued similar statements to assure the policyholders.
There was no need for the policyholders to panic, as their insurance savings are kept in a separate fund for Singapore policies. This fundwas, to my knowledge, solvent and in good financial state. Even if there is financial difficulty facing AIA (and there was none at that time), there is provision in the Insurance Act for the regulator to activate the Policyowners Protection Fund. This fund would guarantee 90 percent of the liability under a life insurance policy. This is much better than taking the cash value, as the penalty is higher for a surrendered policy.
I do my best to educate the public about the actual situation and to help them avoid taking the wrong action that will result in making a loss on their savings.
sorry..this is more of a question than a comment...Who or what is this policyowners Protection Fund..is it an insurance scheme. ? and if its is, what if the insurance cannot afford to pay, like what is happening now in the USA, with insurance companies like Ambac ect..Mbia not being able to cover the Cds..If it is an actual fund, how much are there in the fund to cover such eventualities ?...
ReplyDeleteMy opinion differs from Mr. Tan.
ReplyDeleteYes , AIA policyholders should not be worried about their polices becauase there is this PPF to safeguard their interest up to 90% of the cash value at A POINT IN TIME of their surrender only.Eg. if you should surrender now and the surrender value is $10,000 only $9000 is guaranteed. In so far as this the money is safe.
But I would advise the policyholders to look closely at the cash value and ask themselves whether the cash value is justifiable after having invested for so long. I heard some policies have not broken even yet despite more than 20 years.This is daylight robbery!!!For them I would advise then to cancel and consider the BTITR strategy and grow their money to catch up lost time instead of languishing by holding on to the policies.Except for those whose health is beyond insurable you bite the bullet and carry on at the mercy of the insurer.
The point here is if you have been thinking of terminating your polices but found it hard, here it is an excuse to terminate them now and let not be held to ransom by whole life products.
Remember WL , regular ILPs and endowments are the toxics of insurance. They do you no good except the insurers and their salesmen.
Fair Dealing
What if the insurance fund is invested in CDOs or Credit Linked Notes? Will the Principal Protection Fund still be effective?
ReplyDeleteAccording to the media, AIG will retain their General Business. NO mention of Life Business. If they have plans to sell, out regulatory authorities should be transparent and make public rather than last minute. Question - AIA endowment in view of their crisis, are they able to give the amount projected which I doubt as they are non guaranteed? This is one area even AIA is numb about it.
ReplyDeleteThere are policy holders who are caught into investing in their ILP with minimum lock in of 6-7 years. This is another 'time bomb'.
ILPs should have no lock in. They are linked to funds.
ReplyDeleteThere is great doubt that endowment product can deliver as projected, not only aia but also other conpanies.
You should stay away from this kind of products. They don't give good return.
I have an AIA Financial Plus plan which is pay 5 years and wait for a total of 15 years to mature. I am in the 6th year and if I surrender now, the surrender cash value is confirmed less than the total premium paid. How can I surrender now?
ReplyDeleteJasmin.
Jasmin,
ReplyDeleteyour policy is a limited pay endowment. The breakeven point is probably on the 12th year. There is not much in the return even you hold to maturity. You still have 9 years to go. You can recoup your losses and grow your investment more than the financial plus during 9 years if you can find an honest FA with a right regular investing plan with very low charges.
Remember to avoid all kind of endowment plans and whole life products. They imprison you for life without giving enough protection and return.They are now scam products.
I would like to oppose the view of 'anonymous'. While it is true that ILP should probably be avoided in general ( especially in light of recent world financial problems) it is completely untrue to suggest that whole life plans are a 'scam' and should be avoided. The main point of such a plan is protection ( normally for your loved ones after your death). The policy states as that as long the policyholder continues to pay the agreed premiums, upon death of the insured the Insurance company promises to pay the Death Benefit. Full stop. Simple. There is and can be no 'scam' involved. You want $500,000 life insurance? Pay the proposed premiums and when you die, your beneficiary will get $500,000 cash.
ReplyDeleteNow, whole life policies are usually also participating policies. So in addition to the basic sum insured, you will receive annual dividends & bonuses which will accumulate over time, giving your policy a Cash Value in addition to the basic death benefit. The insurance company will give a Guaranteed & Non-Guaranteed projection of these figures for each year of the policy. I think everyone who buys such a policy will understand that in the event of death, the beneficiary would receive an amount anywhere inbetween the guaranteed and the non-guaranteed figures.
How on earth this set-up can be considered a 'scam' is mind-boggling. The policy are telling you up-front what you will receive in the event of death. Buy it or don't. Only the investment linked products have a severe risk attached to the cash value portion. The death benefit remains the same. People should be advised to purchase these life insurance policies not as investment oppurtunities and more primarily for protection. People cashing in their whole life plans just to get back the cash value is crazy when they can usually apply to withdraw the accumulated dividends+ interest and keep the basic policy in force. Just my view!
Hi Mr,
ReplyDeleteI'm from Indonesia, I want to know which one is better. My Mom 56yo joined Endowment since 1995 will end 2015 per year pay USD 1861,7.
From aig change to aia..
Koin new insurance or extend this endowment? Can we withdraw the cash value if we want to extend? Thank you very much.