AIA and Prudential

Dear Mr. Tan
Does the purchase of AIA by Prudential result in less choice for consumers?

REPLY
Most insurance companies offer different products which are difficult for consumers to compare. Nearly all of them have charges and give a poor return to consumers. The reduction in yield is about 3% in most cases. This could reduce the payout on maturity by more than 40%. If your premium can accumulate to $500,000 over the next 30 years, the insurance policy pays you only $300,000 - with 40% being taken away.

Consumers have a choice to invest in a low cost investment fund, such as the STI ETF available on the SGX. It offers diversification and an attractive return over the long term (by averaging out the good and bad years of the market). They can buy term insurance, decreasing term insurance or personal accident insurance to cover the risk of premature death.

This is explained in my book, Practical Guide on Financial Planning ($12). It is available in most bookstores or can be purchased from my Internet Shop. It comes with a free Shape Quiz minipack (worth $2).