Are ILPs really that bad? A fair look at the most hated product in Singapore.
Short answer: the hate is mostly earned. In a classic ILP, early-year premium allocation means not all of your money buys units, and the insurance charges deducted from those units rise with age — which makes it an expensive way to invest. But an ILP isn’t a scam; it’s a bundle of insurance and investing in one contract. The real question is whether the bundle fits you — and for most people, buying the two halves separately is cheaper.
This guide explains the standard mechanics of investment-linked policies as described in MoneySense's consumer guidance. It deliberately quotes no product, insurer, or fee figure — every plan's actual charges are in its own product summary and benefit illustration, which is exactly where we tell you to look.
Spotted a figure that looks wrong or out of date? Report a data error— we’ll check it and correct it openly.
1
How an ILP actually works
Follow one premium through the machine. Every controversy about ILPs lives at one of these five stops.
Stop 1You pay a premiumOne payment, two jobs: it must fund your life insurance cover and your investment. That dual mandate is the whole product — and the root of every argument about it.
Stop 2Allocation: not all of it buys units at firstIn classic regular-premium ILPs, the early policy years allocate less than 100% of your premium to buying units — the allocation schedule rises over the years. This is the single biggest reason early surrender values disappoint.Early years: allocation below 100%
Stop 3The allocated money buys fund unitsYour units sit in investment-linked funds chosen from the insurer’s menu. Their value is not guaranteed — MoneySense is explicit that the investment risk is borne fully by you. Fund-level fees apply here too, on top of the policy-level charges.
Stop 4Every month, units are cancelled to pay for insuranceThe cost of your cover isn’t a separate bill — the insurer sells your unitseach month to pay the insurance charges. Those charges are age-banded: they are set by how old you are, not by how long you’ve held the policy.Cover paid by cancelling your own units
Stop 5The older-age squeezeBecause charges rise with age, a policy that felt cheap at 30 can consume a significant slice of unit value every year late in life — especially if the sum at risk stays high. This is the trap many holders only discover at 60, when the monthly deductions start racing the fund’s growth.
The one-sentence modelAn ILP is an investment account that pays its own insurance bill by selling bits of itself every month — fine while the bill is small and the account is growing, dangerous when the bill grows faster than the account.
2
Why the internet hates it
None of these criticisms require a conspiracy. They fall straight out of the mechanics above.
Cost layers compound against youAllocation drag in the early years, policy-level charges, insurance deductions, and fund-level fees all stack. Each looks small alone; compounded over decades, together they decide your outcome.
Complexity hides comparisonsA term quote or a broker’s fee schedule is comparable in minutes. An ILP’s allocation schedule, charge tables and fund fees interact — which makes “is this good value?” genuinely hard to answer, and hard questions favour the seller.
The protection is usually cheaper as termPure protection bought as term life insurance typically costs less for the same cover than protection funded by cancelling investment units — size your need first with a protection gap calculation.
The investing is usually cheaper unbundledThe same monthly investing is generally available at lower cost through a low-cost broker or a robo-adviser — with full flexibility to pause, switch or withdraw.
Rising charges at older agesAge-banded insurance charges accelerate late in life. Holders who never reviewed the policy find the monthly unit cancellations biting hardest exactly when the policy was supposed to be paying off.
Early surrender stingsBecause early-year allocation is below 100%, surrendering in the first years typically returns far less than the premiums paid. People discover this at the worst moment — when they need the money — and the resentment is understandable.
And a long lock:MoneySense’s guidance is blunt — ILPs carry investment risk borne fully by the policyholder and are generally long-horizon products. Bought for a short goal, they are the wrong tool by design.
3
The fair defence
A trust-worthy verdict has to steelman the other side. There are real people for whom an ILP has genuinely worked.
Forced discipline that survives market panicThe premium leaves your account every month whether markets are up or down, and stopping feels like breaking a contract. For someone who sold everything in the last crash — or never started — that friction is a feature, not a bug.
Bundled insurabilityThe policy carries life cover you qualified for at purchase. For someone whose health has since changed, that embedded insurability can be genuinely valuable — and is lost forever on surrender.
Newer “101” ILPs changed the dealModern investment-focused ILPs allocate close to 100% of premium from the start, keep insurance minimal, and charge platform and fund-level fees instead. Some are competitive with adviser-sold fund platforms — the old “half your first year vanishes” caricature doesn’t describe them.
Regular-premium averaging, for people who’d never startInvesting a fixed sum monthly, automatically, through ups and downs is a sound habit. If the realistic alternative was not a DIY index portfolio but nothing, an ILP holder who stayed the course can end up ahead of the person who kept meaning to open a brokerage account.
Notice what the defence has in common: every point is about behaviour and access, not raw cost. On pure arithmetic the unbundled route — term cover plus a broker or robo— is usually cheaper. The honest question is whether you’d actually execute it.
4
The maths you should demand
Never judge an ILP — for or against — without its benefit illustration. It answers with numbers what this page can only answer with mechanics.
DocumentThe benefit illustration (BI), given before you sign
Scenarios shownIndustry-standard 4.25% and 3.00% p.a. illustration rates
ColumnsGuaranteed vs non-guaranteed values, year by year
The tellThe effect-of-deductions and charge tables
Read the two scenarios as brackets, not predictionsThe 4.25% and 3.00% p.a. figures are standardised illustration rates, not promises. Their job is to let you compare one policy against another on identical assumptions — and to show how much of the projected value is guaranteed versus hoped-for.
Find the allocation scheduleLook for the table showing what percentage of each year’s premium buys units. The early years are the product’s real price tag — and the reason the early surrender values in the BI look the way they do.
Trace the insurance charges to old ageThe charge table runs by age band. Don’t stop reading at your current age — look at the bands past 60 and ask what happens to your units if the sum at risk stays high while the charges climb.
Add the fund fees on topFund-level fees are charged inside the funds, on top of policy-level charges. The BI’s “effect of deductions” figures exist precisely to show what all layers combined take from the illustrated return — it is the single most clarifying number in the document.
5
The verdict
Not a scam. Usually not the best tool either.The ILP’s sins are structural, disclosed, and real: allocation drag, layered charges, and insurance costs that rise with age. Its virtues are behavioural, and real too: discipline, bundled insurability, automation. If you can hold term insurance and invest monthly through a cheap platform on your own, the unbundled route wins on cost and flexibility. If you demonstrably can’t — and some people, honestly, can’t — a modern, high-allocation ILP you actually understand beats a perfect plan you never execute. Either way: never buy, and never surrender, on vibes. Read the charge tables first.
6
Already own one? Don’t panic-surrender
The worst response to reading an article like this is to surrender a policy the same afternoon. Early surrender crystallises the allocation drag you have already paid and typically returns far less than your premiums — and it throws away insurability you may not be able to re-buy. The right move is case-by-case, and there are usually more options than keep-or-cancel:
Paid-up optionsSome policies can stop future premiums while the existing units stay invested — ending the ongoing commitment without crystallising a surrender loss.
Partial withdrawalWithdrawing part of the unit value can free up cash while keeping the policy — and its insurability — alive. Check how it affects charges and cover first.
Reduce the sum at riskLowering the sum assured shrinks the monthly insurance deductions — often the single most effective way to defuse the older-age squeeze while staying invested.
Get the real tables reviewedAsk the insurer for your policy’s current charge tables and surrender values, then have a professional walk through them with you — speak to a licensed adviser before any irreversible decision.
What is an ILP (investment-linked policy)?An investment-linked policy is a life insurance policy where your premium buys units in investment funds, and the cost of the insurance cover is then deducted from those units — typically by cancelling units every month. The investment value is not guaranteed: it rises and falls with the funds, and the investment risk is borne entirely by you, the policyholder.
Why do ILPs have a bad reputation?Three structural reasons: in the early years of a classic regular-premium ILP, only part of your premium is allocated to buy units (the allocation schedule rises over the policy years); the insurance charges deducted from your units are age-banded and grow as you get older; and multiple layers of charges — policy-level and fund-level — all compound against your return. None of this is hidden, but it sits in tables most buyers never read.
Are ILPs a scam?No. An ILP is a regulated, disclosed product — every charge is set out in the product summary and benefit illustration, and MoneySense publishes plain-language guidance on how they work. The fair criticism is not fraud but fit and cost: the same protection is usually cheaper as term insurance, and the same investing is usually cheaper through a broker or robo-adviser. A bundle you didn't need at a price you didn't check is a bad purchase, not a scam.
Should I surrender my ILP?Not on vibes, and almost never in a panic. Surrendering in the early years typically returns far less than the premiums you have paid, and you also give up insurability you may not get back. The right move is case-by-case: options can include making the policy paid-up, taking a partial withdrawal, or reducing the sum assured so fewer units are cancelled for insurance charges. Get the actual charge tables and have a licensed adviser walk you through the specific numbers before deciding.
What is premium allocation in an ILP?Premium allocation is the fraction of each premium that is actually used to buy investment units. In classic regular-premium ILPs the allocation rate in the early policy years is below 100% — the rest covers distribution and policy costs — and the schedule rises in later years. Newer investment-focused ILPs typically allocate close to 100% from the start and charge platform or fund-level fees instead.
What are the alternatives to an ILP?Unbundle it: buy the protection as term life insurance, sized with a protection-gap calculation, and do the investing separately through a low-cost broker or a robo-adviser with automatic monthly investing. That reproduces both halves of the bundle — usually at lower total cost — while keeping each part flexible on its own.
Start with the number that actually matters
Before judging any bundle, work out how much protection you need in the first place. Our protection gap calculator sizes your cover from your income, debts and dependants — then you can price the bundle against term + investing with real numbers.
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General information, not financial advice or a recommendation to buy, keep, restructure or surrender any policy. This guide describes the standard mechanics of investment-linked policies per MoneySense consumer guidance as at 2026-08-12; it quotes no product, insurer or fee figure, and your policy’s actual allocation rates, charges and options are set out in its own product summary and benefit illustration. Confirm anything that matters with your insurer or a licensed financial adviser before acting.