Lately I bumped into two friends in a shopping mall. We chat a bit and the next question they asked me was about their AIA insurance policy. They wanted to know my opinion on next course of action - cancel or otherwise. I don't really want to share my opinion as I don't want to be responsible of negative outcome. In fact, some of my ex-colleagues in the Army were asking me what to do with their policies. Should they follow the crowd?
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So before I share my opinion, I would like to disclaim my liability (like all funds or investment products). Make no mistake please, that I'm not a professional, qualified or track-recorded financial expert. Yes I may have experience in equity investment, studied investment management but that's about all. But I have addition skill - commonsense. Like my ACCA lecture used to say: "commonsense is the least common human attirbutes".
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Anyway, if you want to cancel your policy, there are a few things you must understand. Firstly, does your policy comes with cash value? Does it comes with returns? For example, a living policy carries cash value at the end of the policy assuming the policyholder never claims it. It therefore, form part of that policyholder's retirement plan. If you cancel by monkey-see-monkey-do, most probably you'll incur a loss as the policy takes a long time to breakeven and to eventually make a positive returns. Usually it takes more than 10 years. In addition, if you want to switch to another insurance company, you'll also suffer one or both of these:
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1) Due to age and medical history, you may not be able to get the same protection with the same costs.
2) Investment in insurance products such as a living policy requires considerable amount of time to breakeven and to turn into positive contribution. The benefit of a living policy is the protection for critical illnesses and that it form part of a policyholder's retirement, if the policyholder never make a claim on it. And time is needed for it to grow into a big retirement savings. This is the power of compound interest - time is of essence. Well, if you're already 40 or 50 plus.... you certainly running out of time to see your new living policy turned into significant retirement savings at the same costs.
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AIA recently publish in the paper to calm all policyholders by assuring that they have sufficient assets to meet their obligations. Under normal circumstances, I would not take their words and will cancel the policy right away, if I have one. Simply because I don't trust the management's statement. BUT, MAS has also assured Singaporean on AIA's asset to meet obligation. I trust our government. I trust our financial system, and all the rules and regulations governing the financial industry.
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So my ultimate conclusion? Don't cancel your policy with AIA - this is what I told my friends (with disclaimers, as usual). In any case, the damage will be bad if a policyholder cancel it right away - may not get much out of many years of premiums. In that case, might as well trust the MAS and bet on it, that everything will be fine. Lastly, of course if your policy doesn't carry a cash value (no return) such as the term policy, then it doesn't matter if you want to cancel, assuming you are as healthy as before.
