5 Truths About ILPs

Investment-Linked Policies (ILPs) have long been a topic of debate in Singapore. Online forums, social media “finfluencers,” and even casual advice often paint ILPs in an unflattering light. Critics call them expensive, inefficient, or risky. Many dismiss them as “complex,” or “bad deals.” Headlines and posts often fuel misconceptions, creating confusion for people who want both protection and growth.

Yet, having worked as a financial advisor for over a decade, I’ve seen the opposite. A well-structured ILP can provide comprehensive protection, flexible investment growth, and peace of mind — when properly understood and actively managed.

Drawing from real client scenarios, industry knowledge, and insights highlighted in sources like the Business Times’ Understanding ILPs Beyond the Headlines, here are 5 truths about ILPs every Singaporean should know.

Truth #1: ILPs Are Not “Bad” — They’re Just Misunderstood

If you’ve been in any financial discussion in Singapore, chances are you’ve heard someone declare, “Never buy an ILP.”
It’s one of the most repeated statements in personal finance circles — and yet, it’s also one of the most misleading.

Let’s start by understanding what an ILP actually is.

At its core, an Investment-Linked Policy (ILP) combines insurance protection with investment opportunities. Part of your premium goes into life insurance coverage, while the rest is invested into a selection of unit trust funds. That means your policy value can fluctuate based on the performance of the underlying investments — and that’s where the confusion begins.

Many people buy ILPs thinking they are purely investment tools, while others assume they’re just another insurance policy. In reality, they sit somewhere in between — a hybrid solution designed to help you grow wealth and stay protected.

Why the Bad Reputation?

Many criticisms of ILPs stem from cases where policyholders were not properly guided on what they were buying, or where the plan was mismatched with their goals.

That’s the real issue. Not the ILP itself — but the lack of understanding behind it.

Think about it this way: owning an ILP without understanding how it works is like driving a car without knowing how to use the brakes. The car itself isn’t dangerous — it’s how you handle it.

When ILPs were first introduced decades ago, many were sold with high upfront costs and opaque structures. Some early buyers ended up disappointed when their policies underperformed. Over time, these stories became urban legends — repeated so often that ILPs were branded “bad” across the board.

But in reality, ILPs have evolved significantly. Today’s versions are much more transparent, flexible, and efficient than those from the early 2000s.

What ILPs Are Really Meant For

ILPs were never designed to replace traditional investments like ETFs or endowment plans. Their purpose is to give flexibility — to combine protection and investment growth within one plan that can adapt to changing needs over time.

For example:

• A young professional might start an ILP with higher investment allocation and minimal insurance coverage, to grow wealth aggressively.

• Later in life, the same person might adjust the plan to increase protection or switch funds for stability.

The key is structure and intent. When structured correctly — with clear objectives, suitable funds, and ongoing review — an ILP can be an incredibly versatile long-term tool.

Truth #2: Not All ILPs Are the Same — Structure Matters

One of the biggest misconceptions about ILPs is that they are a single, uniform product. In reality, there are hundreds of ILP products in the market, each with unique features, fund options, and insurance coverage.

It’s like saying “all cars are the same” just because they all have wheels — the make, model, engine, and safety features vary drastically. Similarly, an ILP bought without proper structuring can underperform or fail to meet your objectives, but that doesn’t mean all ILPs are inherently flawed.

Different Types of ILPs

ILPs can generally be categorized into two main types:

• Protection-focused ILPs

  • Prioritize insurance coverage with a smaller portion allocated to investments.

  • Ideal for those who want to ensure financial security for their family while still having some investment growth.

  • Often include riders like Critical Illness (CI) or Total Permanent Disability (TPD), sometimes with premium waiver features.

• Accumulation-focused ILPs

  • Allocate more premium to investment funds with the goal of growing wealth over time.

  • Insurance coverage is still present but may be lower than protection-focused plans.

  • Best for long-term wealth accumulation while keeping basic protection in place.

Within these categories, there are further variations: single-premium ILPs, regular-premium ILPs, and multi-pay critical illness riders. Each product comes with different minimum investment periods, fund allocation rules, and surrender values.

Why Structure Matters

The structure of an ILP determines how well it aligns with your primary and secondary objectives:

• Primary objective: Is it protection, wealth accumulation, retirement funding, or a combination?

• Secondary objective: Are you looking for legacy planning, premium flexibility, or specific investment exposure?

For example, an older ILP policy from the mid-2000s might have been sold with high insurance coverage and slow investment allocation, leading to early dissatisfaction if the client didn’t understand the long-term strategy. Modern ILPs, however, are more transparent and allow gradual adjustment of protection and investment allocation.

Practice Mistakes That Hurt Clients

Many of the complaints you read online about ILPs aren’t due to the product itself, but poor advisory practices:

• Not tapering insurance coverage as clients age.

• Overloading policies with high coverage that consumes most of the premium, leaving little for investments.

• Misrepresenting projected returns, using overly optimistic figures that set unrealistic expectations.

• Failing to explain allocation mechanics, surrender value timelines, and fund choices.

When ILPs are sold or managed without considering these nuances, clients feel they’ve “lost money” or that the product is “scammy.” But when structured thoughtfully, ILPs can protect families during crises while providing steady long-term growth.

ILPs are not one-size-fits-all. Comparing them solely based on price or headline returns is like judging a car by its color rather than its engine and safety features.

The real measure of an ILP’s value lies in how it’s structured to meet your personal goals — and whether your adviser actively manages and reviews it to keep it aligned with your objectives.

Truth #3: ILPs Provide Certainty in Times of Crisis

One of the strongest arguments for ILPs — often overlooked by critics — is their ability to provide financial certainty when life throws unexpected curveballs.

The Real-Life Example

Consider two families with similar profiles:

• The BTITR Family (Buy Term, Invest the Rest)

  • Chose term insurance and invested independently in ETFs or unit trusts.

  • Premiums were lower, and expected returns seemed higher.

  • When a crisis hit — for example, retrenchment during a pandemic and market downturns — the family’s investments dropped significantly. Fear led them to cut losses, and the term policy lapsed due to inability to pay premiums.

  • When tragedy struck, there was no payout, leaving dependants financially vulnerable.

• The ILP Family

  • Chose a properly structured ILP with protection, accumulation, and premium holiday features.

  • Even when investments fell during the same crisis, the policy’s premium holiday allowed coverage to continue, using the policy value to pay the premiums.

  • In the event of death, the sum assured and investment value were paid out efficiently, and the nominee received the claims in a timely manner.

The difference? ILPs are insurance products first, designed to ensure that families are financially protected even when unforeseen events occur.

Why BTITR Can Fail During Crises

• Investment Risk: ETFs and funds fluctuate with market conditions. Sudden downturns can wipe out years of accumulated wealth.

• Income Risk: If the policyholder loses their job, term premiums might not be affordable.

• No Built-in Safeguards: BTITR strategies rely heavily on discipline and perfect timing. There’s no automatic mechanism to cover premiums or maintain coverage.

ILP Features That Make a Difference

• Premium Holiday / Waiver of Premium

  • Automatically uses policy value to pay premiums if the policyholder can’t.

  • Ensures coverage continues without interruption during financial hardship.

• Riders (CI, TPD, Waiver)

  • Multi-pay critical illness riders ensure coverage over multiple events.

  • Waivers continue to invest future premiums even if an insured event occurs.

• Nomination & Estate Planning

  • Properly nominated ILPs allow claims to bypass lengthy probate processes, ensuring funds reach dependants quickly.

The Psychological Factor

ILPs also provide peace of mind — a certainty that your family won’t be financially crippled by unforeseen events. That value cannot always be quantified, yet it is critical for long-term financial security.

While BTITR might look cheaper or offer better headline returns, ILPs deliver outcomes when they matter most. They are not just investment vehicles; they are risk management tools, designed to protect families and provide certainty amidst uncertainty.

Truth #4: ILPs Are Not Necessarily “Expensive”

One of the most common criticisms of ILPs is that they are “expensive” due to high premiums and adviser commissions. This is a narrative perpetuated by finfluencers and online forums, often without context. Let’s break it down and see the real picture.

Understanding Commission Structures

A single premium ILP may have a front-end sales charge of around 3%, and an adviser typically earns a one-time commission of 1.5% of the investment amount.

• Example: On a $100,000 single premium ILP, the adviser earns $1,500.

• Compare this with a platform like Endowus charging 0.5% per year of AUM — over 20 years, the client may pay $10,000 in platform fees, far exceeding the adviser’s one-time commission.

Key Insight: The ILP adviser’s commission is one-off, while DIY or platform fees accumulate over time. Additionally, the adviser provides ongoing support, portfolio reviews, fund reallocation, claims assistance, and estate planning guidance — services that are rarely accounted for in these “cost” comparisons.

Cost vs Value

• BTITR/DIY Approach: May appear cheaper upfront, but lacks safeguards such as premium waivers, automatic coverage continuation, and structured investment allocation.

• ILP Approach: Premiums may be higher, but the value delivered in risk protection, long-term sustainability, and peace of mind often justifies the cost.

Why the “Expensive” Narrative Persists

1. Many comparisons fail to include value-added features of ILPs, such as riders, premium holiday, or protection layering.

2. DIY investors may overlook hidden costs such as trading fees, taxes, or poor timing during market downturns.

3. Online critics rarely account for human behavior under stress — panic selling, policy lapses, or missed contributions, which ILPs are designed to mitigate.

Practical Example

Consider a 30-year ILP vs a 30-year term policy:

Difference: $19,961 over 30 years (~$665/year).

But with ILP, the client gains:

• Peace of mind: Premium holiday ensures coverage continues.

• Dual objectives: Protection + accumulation in a single plan.

• Flexible riders: CI, TPD, Waiver features add layers of protection.

Thus, the question is not cost alone, but whether the additional value justifies the difference.

ILPs are often unfairly labeled “expensive” because critics focus purely on premiums and overlook risk protection, investment continuity, and ongoing advisory support. When structured correctly, ILPs provide a cost-efficient solution for long-term objectives.

Truth #5: Adviser Competence Determines ILP Success

While ILPs come with strong built-in features, their effectiveness heavily depends on the adviser’s skill and commitment. Unlike simple DIY investing, ILPs have multiple moving parts—insurance coverage, fund allocation, riders, and account value—that need active management to achieve the intended outcomes.

1. Structuring the Policy Correctly

A poorly structured ILP can underperform or even fail to meet objectives:

• Tapering coverage over time: Insurance needs usually decrease as dependents grow up or debts are paid off. Advisers must gradually reduce coverage to prevent unnecessary charges from eroding the policy value.

• Rider integration: Choosing the right combination of waiver of premium, critical illness, and accidental death riders ensures both protection and accumulation objectives are met.

• Minimum Investment Period (MIP): Advisers must select an MIP aligned with the client’s long-term financial goals to maximize value.

Without proper structuring, even the best ILP may appear “expensive” or “inefficient,” leading to premature policy termination.

2. Portfolio Management Across Market Cycles

ILPs allow investment in actively managed sub-funds, which can outperform benchmarks if:

• The adviser allocates across asset classes according to market cycles

• Regular portfolio reviews and rebalancing are conducted

• Risk tolerance and expected returns are clearly defined and communicated

A passive “set-and-forget” approach diminishes the potential benefits of ILPs, but competent advisers can turn market volatility into an opportunity for growth.

3. Clear Communication and Client Education

Many misunderstandings about ILPs arise from poor communication:

• Clients may think their monthly premium is fully invested, when only a portion goes into the investment component initially

• Fund allocation percentages and allocation ramps over time are often misinterpreted

• Adviser competence includes the ability to explain the policy, its riders, and investment strategy in plain language

Properly educated clients are less likely to terminate policies prematurely and more likely to benefit from ILP features.

4. Long-Term Commitment and Trust

ILPs are not short-term products:

• Commitment spans decades, often longer than the adviser’s initial commission period

• Clients rely on advisers to monitor performance, adjust allocations, and address changing needs over time

• Adviser turnover can disrupt the strategy; a competent adviser ensures continuity and proper handover if needed

ILPs are not inherently “bad” or “expensive”; their performance and utility depend on the adviser’s expertise in structuring, managing, and educating. A skilled adviser transforms an ILP from a simple insurance-investment hybrid into a robust financial solution for protection, growth, and peace of mind.

Investment-Linked Policies (ILPs) are far more than just an “expensive insurance product” or a vehicle for adviser commissions. When properly structured, monitored, and aligned with your personal goals, ILPs provide certainty, protection, and growth potential that cannot be easily replicated by a simple buy-term-invest-the-rest (BTITR) strategy.

Retirement planning is not just about chasing high returns or minimizing upfront costs—it’s about certainty, risk management, and sustainability. An ILP, when properly designed and reviewed, can provide:

• Financial protection for your loved ones in case of unforeseen events

• Capital growth aligned with your risk tolerance and time horizon

• Peace of mind knowing that both protection and investment objectives are being monitored

As we have seen, two similar families faced the same economic and personal crises, yet the outcomes were vastly different because of product design and adviser support.

Your retirement and financial security deserve more than DIY strategies or following generic advice online. A structured ILP can complement your CPF, provide certainty during uncertain times, and ensure your family is protected while your investments continue to grow.

Here’s what you can do next:

1. Book a Retirement or ILP Review: Understand how your current plans align with your goals.

2. Evaluate Your Protection Needs: Ensure your coverage matches your dependents’ needs and risk profile.

3. Review Investment Allocation: Check if your ILP’s sub-funds are managed actively and aligned with your objectives.

Don’t wait for unforeseen crises to expose gaps in your planning. Take charge today — review your ILP, retirement plans, and protection strategy to secure your family’s future.