Investment-linked Policy - is a two-in-one deal: part insurance, part investment. Your money covers you and also goes into funds that are supposed to grow your wealth. For many people who lack confidence or are afraid to invest on their own, they tend to count on their ILP to do the work for them, relying on their agent.
Many people's first step into investing comes through ILPs sold by insurers, often by friends or family acting as agents. These products, largely agent-driven and dominated almost 50% of new life insurance business in the first half of 2025.
At first, this may seem practical. However, when the ILP fails to perform well, people often end up regretting their decision, only realising then that their investment returns were not guaranteed.
INVESTMENT RETURNS NOT GUARANTEED
ILP is positioned as a convenient and fuss-free way to invest. Many people make the mistake of assuming that it is a passive investment tool. ILP returns depend on the funds you pick, which can go up or down with the market. And no matter what happens, it is the policyholder, not the insurer, who takes on all the investment risk.
Several readers have discovered that their ILP have resulted in negative or muted returns. For example, an investment of RM60,000 over 10 years resulted in only RM50,000 if the policy is surrendered.
Many have utilized in a low-cost global exchange-traded fund (ETF) that charges less than 0.05 per cent fees every year.
THE PROBLEM WITH HIGH FEES
Even if your ILP makes money, the fees will eat into your gains. Insurers often bundle sub-funds into different portfolio options, but investing in them through an ILP means paying multiple layers of charges – you are paying fees to fund managers, insurers and commissioned agents.
In the early years, much of your premiums go towards sales commissions, administrative charges and other fees rather than your investments. Even with "welcome bonuses", usually offered by insurers for the initial years to offset this, total fees often add up to 2 per cent or more of your investment each year.
Welcome bonuses may help offset fees in the first few years, but ILPs are meant to be held for decades, which means consumers need to ask whether they are truly willing to pay these fees over decades.
Alternatively - through a brokerage, one could buy some of the same funds directly, or even a lower-cost ETF that is traded on the stock exchange and tracks a similar benchmark such as the Straits Times Index (STI). The STI is Singapore's key stock market benchmark, made up of 30 of the country's biggest listed companies including banks such as DBS, OCBC and telecommunications firm Singtel.
Fees for such ETFs are much lower, at just 0.26 to 0.30 per cent a year.Today, there are far better alternatives than when ILPs first became popular in the 1990s and early 2000s, with some plans now allowing you to start investing with as little as S$100 a month.
One can also buy ready-made funds, such as unit trusts, or even small portions of individual shares, through most brokerages or robo-advisers without needing a big sum of money.
With these options, ILPs often appear less cost-effective for those willing to learn and take a hands-on approach.
THE PROBLEM WITH HIGH FEES
Even if your ILP makes money, the fees will eat into your gains. Insurers often bundle sub-funds into different portfolio options, but investing in them through an ILP means paying multiple layers of charges – you are paying fees to fund managers, insurers and commissioned agents.
In the early years, much of your premiums go towards sales commissions, administrative charges and other fees rather than your investments. Even with "welcome bonuses", usually offered by insurers for the initial years to offset this, total fees often add up to 2 per cent or more of your investment each year.
Welcome bonuses may help offset fees in the first few years, but ILPs are meant to be held for decades, which means consumers need to ask whether they are truly willing to pay these fees over decades.
Alternatively - through a brokerage, one could buy some of the same funds directly, or even a lower-cost ETF that is traded on the stock exchange and tracks a similar benchmark such as the Straits Times Index (STI). The STI is Singapore's key stock market benchmark, made up of 30 of the country's biggest listed companies including banks such as DBS, OCBC and telecommunications firm Singtel.
Fees for such ETFs are much lower, at just 0.26 to 0.30 per cent a year.Today, there are far better alternatives than when ILPs first became popular in the 1990s and early 2000s, with some plans now allowing you to start investing with as little as S$100 a month.
One can also buy ready-made funds, such as unit trusts, or even small portions of individual shares, through most brokerages or robo-advisers without needing a big sum of money.
With these options, ILPs often appear less cost-effective for those willing to learn and take a hands-on approach.
WHEN THINGS DON'T GO AS PLANNED
There is a risk of not being able to pay ILP premium. A job loss or a new baby can quickly turn those premiums into a heavy burden. While some insurers allow "premium holidays" or "premium passes", they often come with conditions, fees and limits. Stop paying and the policy may lapse or eat into whatever cash value that have built up.
On top of that, policyholders can choose only from a limited set of funds offered by the insurer, and most ILPs require a commitment of at least 10 years, with stiff penalties for exiting early. When this happens, the surrender value may be less than the total premiums paid.
In contrast, investing through a brokerage account or robo-adviser gives me the freedom to stop or restart my investments anytime with no penalties or hidden charges.
A SMALL SILVER LINING
ILP offers retail investors a rare opportunity to put their money into select funds otherwise meant for accredited investors only, and at a lower capital outlay. This could appeal to someone specifically seeking such exposure. But for the average consumer, this is rarely the case. Many policyholders don't fully understand how ILPs work or were even mis-sold the product.
Even if disputes are resolved, they may not get all their premiums back, and the opportunity cost of not having invested earlier in cheaper options such as ETFs or robo-advisers can be painful.
Ultimately, the investment risk lies with the policyholder.
ILPs might suit people who are incapable of investing or want a forced savings mechanism, or who prefer a hands-off approach to investing and don't mind paying extra fees for it.
ILP offers retail investors a rare opportunity to put their money into select funds otherwise meant for accredited investors only, and at a lower capital outlay. This could appeal to someone specifically seeking such exposure. But for the average consumer, this is rarely the case. Many policyholders don't fully understand how ILPs work or were even mis-sold the product.
Even if disputes are resolved, they may not get all their premiums back, and the opportunity cost of not having invested earlier in cheaper options such as ETFs or robo-advisers can be painful.
Ultimately, the investment risk lies with the policyholder.
ILPs might suit people who are incapable of investing or want a forced savings mechanism, or who prefer a hands-off approach to investing and don't mind paying extra fees for it.
ILP lack of flexibility and significantly higher costs outweigh the benefits. In a world where better, cheaper and simpler tools exist, it is advisable to keep insurance and investments separate.
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