AIA rolls out tweaked level policy

The formula for calculating the reduced cover value where the policy becomes paid up earlier than the full premium payment term is contained in the policy wordings, with a couple of helpful examples. The formula is: (term of premiums paid to date / full premium payment term) x Sum Assured x 0.95 Something that is not clear (to me) at this stage is whether the Sum Assured can be indexed/CPI linked and, if so, whether the indexation stops once the policy becomes paid up. The Umbrella wordings on the AIA site have not been updated to include mention of this key aspect, which is arguably of the greatest importance when considering a whole of life product.

Congrats to AIA for introducing this option. Paul Flood. Cover for Life cannot currently be indexed (As per AIA FAQ).

Great idea, a little shame that there is no built in terminal illness benefit or any ability to add this.

Hi Steve – I must be blind, as I can’t see that info in the FAQ on the AIA site. Congratulations on this offering might be premature; everything will depend on the pricing. It will be very interesting to compare the Cover For Life (C4L) premiums with those of a similar whole of life offering – Asteron Life’s Level to 100 cover (on which premiums cease at 100 and cover remains in force without the sum assured reducing). At first glance it might appear to be a no-brainer, as (assuming death occurs after age 100) the Asteron client would be paying premiums for another 20-35 years after the AIA client had ceased payments (depending on the term of the C4L cover). However, in my view it is imperative to calculate the Net Present Value (NPV) of future premiums when comparing whole of life options with differing payment term lengths. Using nominal figures creates an appearance of value, which can be used to populate marketing material with nice graphs. But sometimes appearances can be misleading. The AIA graph showing C4L next to rate-for-age and L65 options is meaningless (at best). The Y-axis has no values, while the X-axis starts at 0 (when minimum entry age is 16) and extends beyond age 120. I have whipped up a NPV calculator to compare the C4L pricing to L100 pricing (sensitive to age at death) and will report back with some general impressions (if and when I get access to pricing). Here’s hoping that the AIA option is a win for consumers that have a genuine long-term need, when accurately compared with other available options.

Hi Paul Second bullet in answer to Q 1. A few advisers have asked me about Cover for Life and as I understand it Cover for Life is a standalone product, not merely a premium structure option on Living Life Cover. It cannot currently be indexed and does not appear to pay benefits on Terminal Illness. Premium cover is also not currently available. I agree pricing will be an issue, and particularly important for advice to clients. I'm no actuary but expect level to age 65 will be most expensive (shorter premium collection period). I would love to see Severe Trauma Cover for Life but can imagine why this would not be feasible.

Backstage I agree on the terminal illness. I wonder why this was not included.

Thanks Steve, we were looking in different places. No ability to index the initial sum is a trade-off – you get the certainty of a fixed premium but lose certainty about the purchasing power of the sum at claim time. The 50-year-old who takes $1M of cover today “creates value” equivalent to $370k in today’s dollars when dying at the ripe age of 100, assuming a steady 2% inflation over that term. 3% inflation – oops, make that $230k. As far as risk transfer products go, Cover for Life is an odd one, due to the strange risk involved. That risk? Living too long to rely on traditional life insurance structures to fund intergenerational wealth transfer or other legacy requirements. Um, who is recommending life insurance for “value creation” purposes? (The legal department said we couldn’t use the word “wealth” anywhere.) Oof, here’s hoping the suitability analysis rises to the level of reasonable grounds for financial advice.

@Backstage - Excluding early payment for Terminal Illness is consistent with the primary design objective of the policy, for the target demographic. It's not designed to provide money before death. This product is for a consumer that views insurance as a moral responsibility to ensure their family will receive an inheritance when they pass away. The product is a way of building long-term security for their children, and can provide policyholders the confidence their family will receive a legacy for the future. Or at least, that's what the customer brochure says its for.