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

Investment-linked policies (ILPs) in Singapore combine insurance with investment funds. Premium charges, mortality charges, and fund management fees of 1.5 to 2.5% per year erode returns significantly over the first 10 to 15 years. On S$600 per month over 25 years, the charge gap versus a term plus ETF structure is S$189,000. Most disciplined investors achieve better outcomes by buying term insurance separately and investing the premium difference in low-cost index funds.

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. In your 30s, the cost of insuring a standard death benefit inside an ILP sub-account is relatively modest. By your mid-50s, the same level of cover costs materially more in units each month. By 65, mortality charges on a high sum assured can become the dominant outgoing from your investment account. The exact figures depend on your age, health classification, sum assured, and the specific insurer. Your benefit illustration will show the projected mortality charge schedule for your policy.

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.

On S$200,000 invested, an ILP fund management fee of 1.5% p.a. costs S$3,000/year versus S$300/year for a 0.15% index ETF, a 10x difference that compounds every year.

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.

ILP bid-offer spreads of 3% to 5% mean that on every S$1,000 premium payment, S$30 to S$50 is lost before the money is ever invested.

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 Cost: 10, 20 and 30-Year Simulations

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 plus mortality plus 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.

S$600/month for 25 years at 7% grows to S$485,000. After ILP charges reducing returns to 4.5%, the same investment reaches only S$296,000, a gap of S$189,000.

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.

The same logic applies across different time horizons. The table below shows S$600/month at 7% gross return before charges versus after a 2.5% total charge load:

Figures are illustrative only. Assumes consistent 7% gross return and 2.5% annual charge load. Actual ILP charges, mortality costs, and sub-fund returns will vary. Past performance is not indicative of future results.

ILP vs Term Insurance + ETF: Side-by-Side

The standard alternative to an ILP is to buy a term policy for pure protection and invest the premium difference in a low-cost ETF. Here is how the two structures compare for a 35-year-old who has S$600/month available:

Illustrative only. Term premium and ETF return assumptions vary. Actual outcomes depend on health underwriting, fund selection, and individual circumstances.

The term plus ETF structure wins on investment returns in almost every scenario for disciplined investors. The ILP wins on simplicity, automatic investment, and coverage continuity past the term period.

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 finds that an ILP provides a structured starting point that evolves over time as income grows.

How to Read Your Benefit Illustration

MAS requires every ILP in Singapore to come with a benefit illustration, a document that projects the policy's values under two gross return scenarios: 4% per year and 8% per year. Most people skip this document. It contains the most honest picture of what you are getting.

Here is what to look for:

1. Read the 4% scenario first. This is the stress test. It shows your policy value if markets perform modestly. If the projected value at your target age is below what you paid in premiums, the policy has negative real expected value in that scenario.
2. Find the surrender value column. Look at years 1 to 5. The surrender value is almost always well below your total premiums paid. This is the cost of exiting early.
3. Calculate the effective annual return. Take the projected account value at year 20 or year 25. Work backwards: what annual return on your total premiums paid produces that value? This is your net return after all charges. Compare it to a simple 4% fixed deposit to see what you are giving up for the insurance wrapper.
4. Check the mortality charge schedule. The illustration should show projected mortality charges at various ages. Note how they escalate in your 50s and 60s. If you plan to hold the policy into retirement, the mortality charges in those years matter significantly.
5. Compare the 8% projection to a direct ETF. If the same S$X/month compounded at 8% for the same period produces a materially higher value than the ILP illustration at 8% gross, the difference is the total charge drag in dollar terms.

Should You Surrender Your ILP?

This question comes up often, and the answer depends on where you are in the policy timeline.

In the first 1 to 5 years: Almost always a loss. Front-loaded charges mean your surrender value is well below premiums paid. The pain of staying is usually lower than the certain loss of surrendering now. Exception: if the policy was mis-sold and you have grounds to escalate to your insurer or the Financial Industry Disputes Resolution Centre (FIDReC).

In years 6 to 10: The break-even point varies by product. Request your current surrender value and compare it to an alternative investment using that lump sum going forward. The right question is not "how much have I lost" but "what is the best use of this money from today?"

Past year 10: The sunk cost is real but irrelevant to the forward decision. Model two scenarios: (A) continue paying premiums, project value at your target age using the benefit illustration; (B) surrender, invest proceeds plus future premiums in a term plus ETF structure, project value at target age. Whichever produces a better outcome at retirement is the right call.

If you are close to retirement: The mortality charges in an ILP escalate significantly after 60. If the policy was originally designed for a 20 to 30 year accumulation horizon and you are now 55 or 60, review whether the ongoing charges are consuming your investment gains. In some cases, reducing the sum assured (if the policy allows) lowers mortality charges significantly.

Surrendering at a loss is sometimes the right financial decision. The question is always: what do I do with the money from today forward, not how much did I lose in the past.

MAS Rules That Protect You as an ILP Buyer

MAS has tightened ILP disclosure requirements over the years. Key protections in force as of 2026:

• Product Highlights Sheet (PHS): Insurers must provide a standardised 2-page summary of every ILP before sale. It includes key risks, charges, and break-even period. Read it before signing anything.
• Benefit illustration requirement: 4% and 8% projections must be provided. The adviser must walk you through both scenarios.
• Free-look period: You have 14 days from receipt of the policy document to cancel without penalty and receive a full refund. Use this period to review the policy with someone who does not have a financial interest in whether you keep it.
• Needs analysis: Your adviser is required to conduct a financial needs analysis before recommending an ILP. This should document your income, liabilities, existing coverage, and investment objectives. If no needs analysis was conducted, the sale is non-compliant.
• FIDReC: If you believe an ILP was mis-sold, you can file a dispute with the Financial Industry Disputes Resolution Centre (FIDReC) at no cost for claims up to S$100,000.

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.

Official source: MAS — Insurance Regulation

* 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.