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LIFE INSURANCE

Clarification...

The following article is extracted from:

THE Star Saturday 21 June 2003

LIAM explains 'Critical Year'

Common misconception that when critical year feature is selected, no further premiums payable - LIAM president

The Life Insurance Association of Malaysia (LIAM) has released a statement explaining the workings of the critical year feature in life insurance policies in view of some recent misconceptions arising from the feature.

The critical year is a forecast of the number of years needed for dividends to be accumulated on a policy before the accumulated dividends plus future dividends become adequate to pay for the policyholder's future premiums.

Policyholders can choose to exercise the feature by accumulating the dividends and using such dividends to pay for future premiums. LIAM president, K.H. Chia, said that it was a common misconception among policyholders that when the Critical Year feature is selected, no further premiums would be payable on their policies. "By exercising the feature, the policyholder is merely withdrawing money from the accumulated dividends to pay premiums, thus reducing the fund held under the dividend accumulation account," he said.

Chia also explained that the number of years a policyholder would be required to pay for his premiums before the critical year is reached was not fixed. "This is very much dependent on the level of dividends declared and the interest credited to the accumulated dividends. Just like any other form of saving and investment products, dividends and interest depend on various factors such as the economy, market interest rates and investment environment. Over the past few years, Malaysia has been adversely affected by the worldwide financial markets' poor performance," he said.

This, he added, had resulted in poor investment yield for the life fund, which in turn has forced insurers to cut their bonuses and dividends. "With lower dividends and interest rates, the original forecasted critical year is no longer achievable and needs to be lengthened." This is when policyholders would have to continue to pay their premiums beyond the originally projected critical year. - Bernama

For MAA Policyholders, you may write to the insurance company for an official written reply.

Write to: The Call Centre, Menara MAA, 11th Floor, No. 12, Jln Dewan Bahasa, 50460 Kuala Lumpur.

or submit your request through 'Contact' at www.maa.com.my

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