Critical illness insurance / Aia pro lifetime protector (ii) thoughts?

Hi anon,

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AIA Absolute Critical Cover (ACC) is a term plan that covers CI till age 65/75 or 100 with an option to cover you for multiple claims.

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AIA Pro Lifetime protector (ii) (PLP) is an investment linked plan.

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While ACC is ok as a stand alone CI plan (there are many CI plans out there, you have to shop around and compare), I have reservations about PLP.

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You need to understand that insurance is not free. There is something called the 'Cost of Insurance' (COI). This cost is paid by you, or rather, through your policy, and is the cost to cover you for a specified amount.

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When you have an ILP, part of your premium goes towards investment linked funds. From the value of those funds, the COI for your age is deducted. As you can imagine, that means the value of investments is lower than your premium. However, for someone young, the COI is low. It will increase over time however, and the increase is exponential.

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Knowing that insurance is a product for the long run, what happens years down the road? Due to the exponential increase in the COI, there will come a point where your premiums are equal to your COI. In this case, your premiums aren't invested. And the year after that, your COI is definitely more than your premiums. To make up for this shortfall, an amount more than your premiums will be deducted from your investments to pay for the COI, and this starts to erode your investment value.

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Eventually, your investment value will fall to zero and the policy terminates, leaving you without any coverage. The only way out will be to pay increasing premiums to sustain the premium (not likely what you want to do), or else decrease your coverage (maybe for death/TPD, but unlikely you will want to reduce the coverage amount too much for CI).

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This is an 'average' scenario. Consider what if your investments don't do well? They will lose value, and yet the COI still gets deducted. Thus, the mixture of a guaranteed exponentially increasing COI with a non-guaranteed return on your investment is likely a recipe for disaster and very early lapsing of the plan. The investment part acting as a "bonus" is thus not a guarantee to happen.

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If you are looking for Death/TPD coverage, consider a term plan instead. For CI cover, you can consider a limited payment life plan, or a term/multipay plan, depending on your budget/needs. The premiums are level and the cost of insurance is already build in to the plan, in such a way that, as long as you pay your premiums, your coverage is assured. There won't be any sudden lapse or unexpected termination of coverage.

Hey Anonymous, pardon the comment as one being new here to familiarise with online discussions. In my opinion, critical illness is usually at mid-priority, for across the age demographics, with long term medical care as the first priority and investment-linked plans as the lowest priority for consumers due to the budget and price of plans. You may also find this helpful:

1. Term plans mostly have versatility with optional covers to add-on protection.
2. Whole life plans are participating with cash value but unrivals ILPs returns.
3. Par plans or ILPs' costs usually plateau at a certain year but charges vary.

Do you know if you are prioritising on protection in the formative years of your insurance plan considered, not to mention if investments are really what you want disregarding the need for cancer riders or even agreeing with your agent on ILP Sub-Funds in most cases?

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Based on what you said, an ILP may be less suitable for yourself. Nonetheless, you prefer to do further comparison on the budget, seek returns in cash value to be maximised if any based on the plan, and change priority from protection to something of monetary in nature to preserve assets or even mildly accumulate wealth.

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In conclusion, perhaps an approach would be to note the sum assured in death and terminal illness as the first line of defence in considering your cover, with types of critical illness stages, and to note the money locked-in as cash value.