AIA yesterday launched their new A$ Wealth Accumulator product.

AIA A$ Wealth Accumulator is a 4.5-year, non-participating single premium endowment plan. The guaranteed yields are as follows:

Single Premium Amount (A$)

$10,000 – $29,000 : 4.50% p.a.
$30,000 – $74,000 : 4.60% p.a.
$75,000 and above : 4.70% p.a.

As an example, a single premium of A$88k will give a guaranteed amount of A$108,204.80 on maturity.

Take note that this product is based in Australian dollars (A$) and the maturity amount will also be paid in A$. Thus, it might not be suitable for those who are averse to foreign currency exchange rate risk or who are unable to understand the implications of currency risk.

On the other hand, if you already plan to hold on to A$ long term or intend to use A$ for future needs (eg education funding or retirement), then the currency risk would be less of an issue.

This product is available for a limited period only.

As a comparison, current foreign currency fixed deposit rates for A$ is about 3-4% (depending on amount) for a 12-month duration.

So the AIA (A$) Wealth Accumulator gives a slightly higher yield but a longer lock in period. If there is an early surrender of the plan, then there will also be a slight loss in capital.

Surrender value based on A$1000 invested
End of Policy Year, Cash Value (A$)

1, 888.30
2, 982.80
3, 1,084.10
4, 1,162.70
4.5 ,1,219.10

AIA Complete Critical Cover is a new plan launched recently by AIA to provide insurance coverage against various severities of critical illnesses.

The typical 30 critical illness (CI) cover that most people have provides for a claim of 100% of the insured amount in the event a critical illness occurs. The critical illness must be included in the list of 30 CI under the plan and also fit the definition of the medical condition.

While the definitions are standardized across different insurers, meeting the definition of the medical condition would usually mean that the illness is already at a fairly developed stage.

The AIA Complete Critical Cover helps to bridge this gap by classifying the critical illness into 3 severity levels – early, major and catastrophic paying out 25%, 100% and 200% of the insured amount respectively.

Multiple claims on different critical illnesses are also possible provided the total claimable amount is not more than 200% of the insured amount.

There’s also other terms and conditions to be fulfilled (e.g. Only 1 claim for Early Critical Illness, Major Critical Illness and Catastrophic Critical Illness would be payable from each Critical Illness Group under the Basic Policy) which I will not go into details here.

The minimum age of entry for the plan is 6 months and is renewable up to age 75.

The AIA Complete Critical Care can be said to be a hybrid of Great Eastern’s Early Payout Critical Care and Prudential’s PruMultiple Crisis Cover. Providing such a comprehensive coverage would of course comes at a cost.

Another similar product in the market would be TM Asia’s Cancer Care which is something like Great Eastern’s Early Payout Critical Care but is restricted to providing coverage only for Cancer.

In the past few months, we have seen a number of single premium non-participating insurance plans being launched by different life insurance companies: AIA, NTUC, Prudential, HSBC and TM Asia Life.

The plans are either 2 or 5 year terms offering yields of between 1.4% to 2.75% p.a.

• AIA Wealth Accumulator
• HSBC Guaranteed Saver Plus
• PruInvestor Guaranteed Plus
• TM NestEgg (SP Guaranteed)
• NTUC Capital Plus

The recent trend sees the yield getting lower compared to the series that were launched earlier in the year. For example, HSBC’s current Guaranteed Saver Plus gives a yield of 1.8% to 2.0% p.a. for  a 5-year term, compared to an earlier 2.25% to 2.75%.

However, the take-up rate for these plans remains tremendous. With the plans being of “limited size”, consumers have been quick to take up the plans. The latest offering by TM Asia Life took less than a week to be fully subscribed.

Looks like this is the hot product in our market now. The liquidity fueling these products  is likely to be funds being transferred from banks.

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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Our financial markets are facing a severe test as big name financial institutions experience liqudity problems. Just a couple of days ago, we had Lehman Brothers filing for Chapter 11. The next giant facing difficulties is American International Group Inc (AIG).

AIG needs to raise more than $80 billion to keep themselves afloat. According to a latest report from CNBC, The Federal Reserve is negotiating a $85-90 billion secured bridge loan for AIG.

In Singapore, thousands of anxious AIA policy holders were at their office yesterday to make enquiries or to surrender their policies. Someone even put up a video footage of the scene in youtube.

With fear in the markets now, there might be even more people flooding AIA’s office today.

The Monetary Authority of Singapore (MAS) has urged policy holders not to rush to surrender their policies. They issed a statement that “ AIA currently has sufficient assets in its insurance funds to meet its liabilities to policyholders“. Their assets are also separate from AIG.

In Singapore, insurers are required to maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders’ funds. You can read the previous AIA’s commentary of the performance of their life funds here.

AIA has ensured the public that it has sufficient capital and reserves to meet all its obligations.

I believe this is the case but a “run on AIA” with many policy holders surrendering their policies would mean AIA will have to sell off assets in their life fund in order to pay off policy holders. This is not too good given the current market conditions and is a scenario everyone wants to avoid.

My colleague and insurance expert, Pat Lim, has posted on his blog details on the Policy Protection Fund, something that has been provided for in the Insurance Act. The fund helps to protect policy holders in the unlikely event that an insurer goes under.

I think this entire episode clearly highlights the need for diversification – even for something like insurance. Like all investments, never put all your eggs into only one basket. Personally, I have insurance policies from six different insurance companies covering all my various needs.

If you have any enquiries on your AIA policies, you can talk to your AIA agent or call the AIA hotline at 62488355.

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