ILPs in Singapore: An Honest Review From Someone in the Industry

Investment-linked policies get a bad reputation in Singapore personal finance circles. "ILPs are scams." "The fees kill your returns." "Never buy an ILP." I have seen all of these statements online, and I understand why people feel that way. But the full picture is more nuanced, and I think you deserve an honest breakdown rather than a blanket dismissal.

Here is what an ILP actually is, how the charges work, who it makes sense for, and when you are genuinely better off with a different structure. I am not going to tell you to buy one or avoid one. I am going to give you the information to make your own call.

What an ILP Actually Is

An investment-linked policy is a life insurance product that combines two things: insurance coverage (a death benefit, sometimes with critical illness) and an investment component (units in sub-funds managed by the insurer).

You pay a single premium (or regular premiums). Part of that premium buys insurance coverage, and the rest is invested in sub-funds of your choosing: equity funds, balanced funds, bond funds, or money market funds depending on the insurer's product range.

The investment account grows (or shrinks) based on how those sub-funds perform. If you die, your beneficiaries receive the higher of the sum assured or the account value, depending on how the policy is structured.

On the surface, this sounds appealing: one product that handles protection and wealth building simultaneously. The issue is in the detail of the charges.

How ILP Charges Work

This is where most ILP discussions fail to go deep enough. There are multiple layers of charges in a typical ILP, and understanding each one is essential to evaluating the product fairly.

1. Mortality Charges (Insurance Cost of Coverage)

Every month, units are deducted from your investment account to pay for the death benefit and any riders (critical illness, total permanent disability). This is the cost of insurance.

Mortality charges increase with age. At 30, the cost of insuring S$500,000 of cover inside an ILP sub-account is modest, perhaps S$30 to S$60 per month in units. At 55, that same cover costs S$200 to S$400 per month in units. At 65, it can exceed S$600 to S$800 per month.

This is not dishonest. It reflects the actual cost of insuring older lives. But it does mean the insurance charges can consume a significant portion of your investment account in later years, especially if the sub-funds underperform.

2. Fund Management Fees

The sub-funds inside an ILP are actively managed. Annual management fees typically run 1% to 2% of the fund value per year, depending on the fund type. Equity funds are usually at the higher end.

Compare this to a low-cost index ETF with an annual expense ratio of 0.07% to 0.20%. On S$200,000 invested, a 1.5% management fee costs S$3,000 per year. A 0.15% ETF costs S$300 per year. The difference compounds significantly over 20 to 30 years.

3. Bid-Offer Spread

When you buy units in an ILP sub-fund, you buy at the offer price (higher). When you sell or when units are redeemed to pay charges, they are valued at the bid price (lower). The spread is typically 3% to 5%. On every dollar that enters the investment component, 3 to 5 cents are immediately lost to the spread.

4. Policy Fees and Administration Charges

Some ILPs also carry a fixed monthly policy fee (S$5 to S$15 per month) and a premium allocation charge, particularly in the early years. In some products, only 70% to 80% of your premium is actually invested in the first two years, with the remainder going toward distribution and setup costs.

The Real-World Impact of These Charges

Let us work through a simplified example. A 35-year-old invests S$600 per month into an ILP for 25 years (to age 60). The underlying sub-fund returns 7% per year before charges. With total charges of approximately 2.5% per year (fund management + mortality + spread amortised), the effective net return is closer to 4.5%.

At 7% for 25 years, S$600/month grows to approximately S$485,000.

At 4.5% for 25 years, S$600/month grows to approximately S$296,000.

The same 25-year investment at the same market return yields S$189,000 less inside an ILP versus a low-cost ETF structure. That gap widens as charges compound. This is the legitimate concern about ILPs, and it is a real one.

When an ILP Does Not Make Sense

For most working professionals in Singapore who are disciplined enough to invest separately, an ILP is not the optimal structure:

• You need income replacement protection during your working years. Buy a term life policy. Cover is 5 to 10 times cheaper per dollar of sum assured.
• You want to grow wealth over 20 to 30 years. Open a brokerage account and invest in low-cost ETFs. No mortality charges eating into your returns, no bid-offer spread, no 1.5% management fees.
• You want flexibility to withdraw or redirect funds. An ILP locks you in. Surrendering early often means surrendering at a loss due to the early-year charges structure.

The "buy term and invest the rest" principle has real mathematical backing for most people. A S$500,000 term policy at S$50/month plus S$550/month invested in a diversified ETF portfolio will, in most scenarios, produce a better financial outcome than an ILP at S$600/month with equivalent sum assured.

When an ILP Actually Makes Sense

ILPs are not categorically wrong. There are specific situations where they serve a genuine purpose:

• Limited financial discipline: Some people will not invest the premium difference. They will spend it. For someone who genuinely cannot maintain a separate investment account without the forced structure of an insurance product, an ILP provides a mechanism for wealth accumulation they would otherwise not have. The cost is real, but the alternative is not investing at all.
• Access to otherwise unavailable insurance: Some ILPs bundle critical illness riders or whole life elements that are genuinely hard to access at competitive pricing elsewhere, particularly for people with pre-existing conditions who have limited term options.
• Specific legacy or estate planning purposes: Certain ILP structures work inside trust arrangements for HNW clients who need flexibility in how investment assets and insurance coverage interact.
• Early accumulators with limited capital: A 25-year-old with S$300 per month total available for insurance and savings may find that an ILP provides a structured starting point that evolves over time as income grows.

The Question That Actually Matters

The debate about whether ILPs are "good" or "bad" misses the point. The right question is: does this product fit your specific situation, goals, and behaviour?

A product that is suboptimal in a spreadsheet can still be the right choice for a particular person if the alternative is no wealth accumulation at all. A product that performs well mathematically is useless if the person buying it does not understand the charges, feels locked in, and surrenders in year 4.

What I will say clearly: if someone tells you an ILP is the best option without first understanding your full financial picture, your insurance needs, and your investment behaviour, that is a red flag. The product should fit the person, not the other way around.

For a broader view of how insurance fits into your overall wealth structure, the S.H.I.F.T. Method overview explains how the Insure stage works relative to your accumulation and income goals. And if you are trying to decide between ILP and term, the term vs whole life comparison covers the insurance structure question in more depth.

* All figures, charge estimates, and projections referenced in this article are for illustrative purposes only. ILP structures, charges, and terms vary significantly across products and insurers. Past performance is not indicative of future performance. Actual outcomes will depend on sub-fund performance, individual charges, and product terms. This article does not constitute an offer, solicitation, or recommendation to buy or sell any financial product. Please consult a qualified adviser and read the product disclosure documents before making any decisions.