AIA Critical Year Policy

Many policyholders were affected by the missed projection under the AIA Critical Year policy. When they bought the policy long ago, they were told by the agent that they could stop paying premium after a certain number of years, called the "critical year". They were given a benefit illustration that showed the calculation. In some cases, the critical year looked "guaranteed" and contractual. In other cases, it was shown as being "projected".  When the policy reached the critical year, they were told that the projection was not valid and they had to continue paying the premium for several more years.

Here is a letter sent by AIA to its policyholders to explain the situation. 

http://www.aia.com.sg/en/resources/9be5fa004a5a702cacc2aec94f5f7968/AIA_faq_cyo_jul2011_sg.pdf

I still get questions from the public asking if they have the right to sue AIA for the missed projection. It depends on the presentation of the benefit illustration at the point of sale.

Here is a statement from MAS Money Sense
http://www.moneysense.gov.sg/en/Understanding-Financial-Products/Insurance/Guides-and-Articles/Critical-Year-Feature.aspx

Statement for Life Insurance Association
http://www.lia.org.sg/node/1653

Here is a report of a legal suit taken by an AIA policyholder
http://www.reach.gov.sg/YourSay/DiscussionForum/tabid/101/mode/3/Default.aspx?ssFormAction=%5B%5BssBlogThread_VIEW%5D%5D&tid=%5B%5B8280%5D%5D

This report from CASE indicated that 110,000 people were affected. That is a very large number of people.

LESSON ON SIMILAR POLICIES SOLD TODAY

I like to quote this example to warn consumers about the benefit illustration that are being issued today. I have seen some new policy plans that showed quite attractive maturity benefits, but a large portion of the projected values are "not guaranteed". Furthermore, the projected values were miserable for most of the duration, and were only adjusted sharply upwards during the last five years. 

I do not know what is the basis for the sharp adjustment in these projected values, and if the insurance company decide not to honor the projection, e.g. by quoting difficult investment conditions, the policyholder will not have any recourse.

It is important for the consumers to be wary about these kind of projections, which do not have any sound basis, other than to show an attractive value at a remote date. If you receive a benefit illustration, take a look at the trend of the projected values. If you find that it increased sharply during the last five years, and are "not guaranteed", you should not believe it its sustainability!