Financial Guardian - a difficult decision

Dear Mr. Tan,
I purchased a life policy known as 'Financial Guardian' from AIA in 1993. My understanding from my insurance agent then was that the policy has the concept of 'critical year' where the policy will be 'self paying' from the critical year onwards, and this critical year is around the 13th year after the start date of the policy.

Recently, I received a package from AIA which listed two options which I have to choose one of them. It seems that the accumulated dividend is not sufficient to fund future premium payments after the critical year.

Option 1 is for me to continue paying the premiums. Along with this option, I have to declare that "I understand that dividends and the critical year are not guaranteed and there is both upside and downside potential depending very much on the investment experience of my policy. However after due consideration, I elect to contimue paying the premiums."

Option 2 is to stop paying the premiums. For this option, I have to agree that "I understand that accumulated dividends and interest earned will be used to fund future premium payments for my policy in accordance with Option 2 "Premium Reduction" of the Dividend Options as provided for in the policy contract.

I also understand that once/if accumulated dividends and interest are exhausted, I will have to:
* restart paying my premiums; or
* convert my policy to Reduced Paid Up status; or
* take a loan advanced against the cash values of my policy for payment of premiums for my policy.

I understand that interest at such rate as may from time to time be stipulated by AIA will also be charged on this loan. I also understand this loan will be offset against any benefits paid from my policy."

For Option 2, it also mentioned that any supplementary benefits attached to it will be terminated when my policy is converted to a paid up policy.

Could you please advise on which is the better option to choose?

For each of these options, could you please highlight what are the disadvantages/pitfalls that I should consider before making my decision?

What does it mean by my supplementary benefits would be terminated when my policy is converted to a paid up policy for Option 2? Is supplementary benefits referring to the riders?

With AIG going thru' financial crisis and requiring bail-out in the USA, is it advisable for me to choose Option 1, ie to continue paying the premiums? Or should I elect for Option 2 now and then wait and see how AIG/AIA rides out the current financial crisis?

Looking forward to hear from you. Any advice that you could provide in this area, would be very much appreciated.

REPLY
Please get advice from the AIA agent or their company. You have to decide based on your needs.

Here are some general remarks. It is better to take option 1 and continue paying the premium. Under option 2, you are probably charged a high interest rate (perhaps 6% ore more) for the loan that is taken to pay the premium. Why pay a high interest rate on the premium loan?

I think that AIA should be quite safe, as it has a separate life inurance fund protected under Singapore law. It should be sheltered from the problem of AIG.