Martin Lee @ Sg
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What Should You Do With Your AIA Policies?

Over the last four days, thousands of people have gone down to the AIA office to surrender their policies. With the news so widely publicised, many more have been influenced to surrender their AIA policies.

This is a classic case of herd mentality at work. Sometimes, it’s also referred to as the “madness of crowds“.

If you have an AIA/AIG policy or hold some unit trust by AIG, you should look at all the factors carefully before you do anything.

The parent AIG had serious liquidity problems and was in danger of failing. They have been bailed out for the time being with a loan $80 billion loan from the US government.

AIA Insurance Policy Holders

If you own an endowment plan or whole life plan that has cash values, note that:

  • AIA’s insurance assets are held in a separate fund which AIA and AIG can’t touch.
  • AIA and MAS has ensured the public they have sufficient assets to pay all insurance policy holders.

However, if there is a mass cancellation of policies that AIA can’t pay with its immediate cash, they will have to sell some assets (equities or bonds) from the insurance fund to pay the redemptions. Selling at current low prices might have an impact on the performance of their funds.

If you own a whole life policy, you should also consider some of these factors:

1) Whether you still need the insurance coverage.
2) The cost of surrendering and getting a new policy.
3) Whether you are still insurable at standard terms if you want to get a new policy.

If you intend to get a new policy, it is advisable to get a new one before surrendering your old policy.

If you hold an AIA term, PA or hospitalization plan or AIG general insurance plan that has no cash value, the same thing applies. You should get the replacement cover first before you surrender them.

For endowment plans, you should decide whether it makes sense to cash out the policy now. Will you be able to achieve your original savings objectives without the plan?

AIG Unit Trust Holders

The assets of the unit trust are all held in a trust account with a separate company. While falling equity prices will affect the valuation of the underlying assets, these assets are protected from creditors should AIG fail.

Change of Mind

If you have already surrendered your policy and would like to change your mind, AIA is offering a no penalty reinstatement offer. Policy holders who surrendered their policies from Sept 15 to 19 can request for reinstatement without 14 days of their surrender.

These policies will be reinstated in full as if they have never been surrendered. No interest will be charged on back premium and cash value returned to AIA.

Before you do anything, do consult your AIA advisor. And if you finally decide to surrender your policy, you don’t really have to waste one whole day of your time queuing up to do it. Contact your AIA advisor, get the required forms from him and he can surrender your policy for you.

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8 comments
JaneRadriges says 9 years ago

Hi, very nice post. I have been wonder’n bout this issue,so thanks for posting

Reply
kopi-c says 10 years ago

Hi lioninvestor

Recent news updated that AIG is being bailed out for the third time by the US govt. Attempts to sell off its asian units i.e. AIA, has not been successful. AIA may be sold to the US govt.

From AIA policyholders’ pt of view, does it matter if ownership of AIA changed hands, or worse, be broken up and sold off to different owners? Does what is stated in your article – that the funds are ringfenced in Singapore – still hold regardless of ownership.

How about if the AIA business has to be wound up – would the ringfencing still hold?

Thanks a lot.

Reply
    lioninvestor says 10 years ago

    I think as long as AIA continues operating, policy holders should be fine.

    In the event that they are unable to meet its obligations, MAS will, as far as reasonably practicable, secure the continuity of its life insurance policies. One option that MAS may consider is to facilitate the transfer of the policy obligations to another insurer.

    In the worst case scenario where AIA has to be wound up, the Insurance Act provides for the setting up of a Policy Owner’s Protection Fund (“PPF”) to compensate policy owners. Under the current provisions, the PPF will cover up to 90% of an insurer’s liability on any life policy.

    Reply
retiree08 says 10 years ago

I am expecting to start receiving my first installment of my annuity “Dollar For Life” from December onwards which I purchased from AIA.
Do you think that I shouldn’t be worried about it and entrust that AIA would be able to fulfill its obligation. Do I have any other options, say to take it out now and place it with another insurance company like NTUC or Great Eastern. I bought this annuity seven years ago and I am reaching 62 in December.

Reply
mikepui says 10 years ago

Good article in time of need

Reply
loop says 10 years ago

AIG should be able to ride out this crisis. However, I think insurance agents should also be made to obtained CFA certification before they start selling products that are linked to investment products to protect the interest of the general public. Otherwise, they should only be allowed to sell term insurance.

Reply
Kenneth says 10 years ago

Hi LionInvestor,

Do you think AIG will survive this credit crisis? The good thing is Fed Res extended $85b to them that need to be repay back in 2 years. The bad thing is their rating will drop thus needing this handout. Given it has a large business with lots of monthly installment payment etc, I thought they can ride out of this mess if given the time.

Reply
    lioninvestor says 10 years ago

    Hi Kenneth,

    AIG will probably not go bust as the Fed cannot afford to let them fail.

    Going ahead, they will need to sell off a lot of their assets to settle their liabilities.

    The damage to their reputation will also affect their new business.

    Reply
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