ARUL JOHN (anathan@sph.com.sg) puts your most pressing questions to our financial expert Dr Larry Haverkamp, aka Doc Money

1. If AIG or AIA suddenly goes bankrupt or closes down, what will happen to my AIA policies?

Doc Money: The question is unnecessarily frightening. The US government guarantees (in the form of a two-year US$85 billion ($122bil) credit facility to AIG) reduce the chance of this happening to zero.

2. If I do get a payout, will it be what I am entitled to, or a partial payment?

Doc Money: You will get a full payment. But again, this is like asking what type of mittens you should wear in the event it snows in Singapore. AIA will not default or go broke. Even if it did, it would not affect the policyholders' fund, where whole life and endowment policies are invested.

3. If only some liabilities are paid out, which policy liabilities are those?

Doc Money: Again, you are asking about things that will not happen. The US government has pledged it will not let AIG go broke and has put up US$85bil toward that pledge.

The chances of AIA and AIG going broke are one in a billion. For the other insurers, it is, perhaps, one in a million. It is extremely unlikely for either.

4. What about endowment and term policies? How will they be affected?

Doc Money: There is some risk here, but not because AIA or AIG would go broke. The risk is in the quality of assets in the policy-holders' fund. The asset quality has probably declined in the past nine months. Still, I have a gut feeling that it has not declined enough to jeopardise the guaranteed payments plus declared bonuses.

Those are 'vested' amounts and invested very conservatively.

5. I have held an AIA life insurance policy for less than 10 years? How much can I get back?

Doc Money: It is hard to say how much you will get back after 10 years. You will get more for an endowment than for a whole life policy. The big point, however, is that AIG's near-bankruptcy does not affect the value of those policies.

There is no more reason to cash them in now than there was one year ago. In general, if you have held a whole life or endowment policy for more than two years, you are better off not to surrender it but to hold it on to maturity.

6. But what if I really lose everything?

Doc Money: Step One is to find someone who cannot cash in their whole life insurance or endowment policy. Then I will tell you where to go for help.

But this scenario will not happen.

7. I terminated my AIA policy in the light of fears about AIG's financial troubles. Can I reinstate my policy now?

Statement from AIA: Yes you can. Yesterday, AIA announced that holders of whole life and endowment policies who surrendered their policies between 15 Sep and 19 Sep can reinstate their policies without any penalties and submission of evidence of insurability.

The policies will be reinstated in full as if they had never been surrendered. No interest will be charged on back premium and/or cash value returned to AIA.

Anyone who wants to reinstate their policies must submit their written requests to AIA within 14 days from the date they surrendered their policies.

The MAS has welcomed the move.

This article was first published in The New Paper on September 19, 2008.