No.26: Is ILP a Scam? The Truth About Investment-Linked Insurance Plans (ILPs)

ILPs in Singapore: Rising Popularity and Lingering Questions

In Singapore, Investment-Linked Insurance Plans (ILPs) have seen a sharp rise in popularity—sales increased by 41% last year alone. Marketed as hybrid solutions that combine life insurance with investment, ILPs promise both protection and the potential for capital growth. But while the concept may sound compelling, questions remain: Are ILPs truly valuable financial tools, or are they cleverly designed to generate high fees for insurers and fund providers?

What Exactly Is an ILP?

An ILP is a hybrid financial product that merges life insurance coverage with investment components. When you pay premiums, a portion is allocated toward insurance charges, while the remainder is invested into selected unit trusts or funds. Policyholders typically have the flexibility to choose from a range of investment options, either managed internally by the insurer or offered from external fund providers.

However, since returns are tied to market performance, ILPs carry investment risk—your policy value may fluctuate depending on how the underlying funds perform.

Key Advantages and Drawbacks of ILPs

Like any financial product, ILPs have pros and cons that should be weighed carefully before committing.

Benefits:

• Investment Flexibility: Policyholders can choose their investment funds based on personal risk tolerance and financial goals.

• Potential for Growth: If the selected funds perform well, the policy’s cash value can grow over time.

• Bonuses and Incentives: Some ILPs offer welcome bonuses or loyalty rewards, especially for long-term commitment.

Drawbacks:

• High Fees: ILPs typically include multiple layers of charges—insurance costs, fund management fees, distribution charges, and surrender penalties—which can significantly erode net returns.

• Investment Risk: Market volatility may reduce your policy value, and you may need to inject additional premiums to maintain insurance coverage.

• Withdrawal Restrictions: Early surrender or partial withdrawals may be penalised, reducing liquidity and flexibility compared to standalone investment accounts.

Are ILPs a Good Investment?

While ILPs are often promoted as tools for wealth accumulation, they may not always be the most cost-effective option—particularly for short- to mid-term horizons. Compared to low-cost ETFs or index funds, ILPs generally have higher fees and less transparent cost structures. While favourable market conditions may yield attractive returns, poor fund performance can lead to capital losses and undermine the overall value of the plan.

Furthermore, ILP bonuses often come with conditions. If the policy is surrendered prematurely, these incentives may be forfeited. For investors who value flexibility and direct control over their investments, ILPs may not be the ideal choice.

Final Verdict: Are ILPs Worth It?

ILPs are not scams—but they are not universally suitable either. For individuals seeking a bundled solution that includes insurance and guided investment with bonus incentives, ILPs may offer value. However, for those confident in managing their own investments, more cost-efficient and flexible alternatives are widely available.

Before committing to an ILP, consider the following:

• Do you truly need to combine life insurance with investment?

• Are you comfortable bearing the cost structure and performance risk?

• Could other solutions (such as ETFs, unit trusts, or term insurance) serve you better at a lower cost?

If you are unsure whether an ILP aligns with your long-term financial strategy, seek advice from a licensed wealth adviser who can help you evaluate the right fit for your specific goals.