Thursday, May 31, 2012

Mis-understanding on the terms of a life insurance policy




A mother bought an AIA Guardian Basic policy for each of her three children in 1992. She was told, or led to understand, that each policy would mature when her child reached 21 years old. After 20 years, she was shocked to learn that the actual maturity date for each child was on they reach aged 101.

She could not remember what had happened. She did sign the papers in 1992 but did not make any change to the policy. She remembered that during the financial crisis, she might have blindly signed some papers provided by the insurance company. Her son asked me for my views.

REPLY
From your description, it seemed that your mother had bought a whole life policy for each of the children.  If you do not wish to pay the premium, you can ask for the policy to be made paid-up for a reduced sum assured, or to be terminated for a cash value.

I do not have any comment about any possible misunderstanding between your mother and the agent on the duration of the policy. It is quite risky for consumers to commit to a long term contract, such as a life insurance policy, without proper understanding of the terms of the contract, relying only on the vague explanation of the agent.
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You should write to the insurance comapny to ask if the policy was issued on these terms, or had been changed during the past 20 years. It is quite likely that the policy was kept at the original terms, and that your mother had misunderstood the maturity date.  The agent might have told her that she can stop paying the premium at age 21, by using the accumulated bonus to fund future premiums. But, as the bonus was cut during the financial crisis, the accumulated premium was not able to fund the future premium.

2 comments:

zhummmeng said...

She should lodge a cpmplaint to MAS. She isn't the only one. Insurance agents were selling wholelife as a cure all product. Customers were told it could cure everyhting from protection, from saving to funding the children's education.I believe the policyholder was told she could stop paying at the 'critical year' which caused a lot of hooha some years ago. It was a dangerous advice to the customers because to stop paying could cause the policy to go on auto premium loan (APL) and hence the decay of the policy over time. Interest is charged at 8% for loan , worse than ah long san. This is a case of mis-selling and is a case for MAS to know that insurance agents because of commission are committing such misconduct . It is even worse today.Wonder how many of these cases go unreported. MAS should ban commission to make sure insurance agents don't sell but advise the customers in their best interest.
It is IDEAL that customers should know finance but NOT practical. At least 99.9% of consumers don't know about finance or life insurance. They don't buy but sold. They decide NOT because they understand the product after one hour listening to the presentation but because they trust the agent or they don't want to look stupid.
MAS must understand that people don't make decision based on information....how could they when they don't understand a damn.Therefore consumers should be protected against ALL insurance agents . They are accountable and liable for ANY misconduct. The signature of the customers is not proof that they understood and is not binding on them that they have agreed to the contract.

C H Yak said...

I believe it is the same as Financial Guardian. Many were tricked into believing they need not pay any more premiums after a certain no of years or "critical year". I also bought it the moment I graduated more than 20 yrs ago. After the "adjudication" I had to pay another 3 more years past the original critical year, but after that I opted to stop the policy. Due to low returns, it would break-even after I reach 90+ years old ... LOL. That was the new illustration printed out for me then.

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