Learn how investment-linked policies work, what they really cost, and whether they’re worth your money in Singapore
updated: Jun 13, 2025
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If you’ve ever tried to wrap your head around an investment-linked policy (ILP), you’re not alone. It’s like trying to figure out if kaya toast is sweet or savoury—turns out, it’s both.
ILPs combine two things Singaporeans often value: insurance and investing. Sounds like a match made in financial heaven, right? But dig a little deeper and things get murky. High fees? Confusing fund names? Surrender charges that make you want to surrender yourself?
Let’s unpack everything you need to know
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Table of contents
An investment-linked policy is a two-in-one plan: part life insurance, part investment. Every time you pay your premium, some of it covers your insurance protection (e.g. death or critical illness cover) and the rest is invested into unit trusts (also known as sub-funds).
The crucial thing to remember is, unlike your CPF or fixed deposit, there's no guaranteed return here. The value of those investment funds can go up or down depending on how the market's doing.
» More: What are unit trusts and how do they work in Singapore?
Let's break down the journey your money takes when you opt for an ILP.
You'll usually have the choice of paying your premiums monthly or annually. Most ILPs also allow you to chuck in extra bits of cash on top, called top-ups. There's usually a minimum amount you'll need to pay regularly, often starting from around S$100 a month, but this can vary depending on the policy.
Now, this is where the magic (or perhaps the slightly less magical mechanics) happens. A portion of your premium goes towards covering the cost of your life insurance. The other portion is then earmarked for investment. However, it's worth noting that in the early years of some ILPs, a fair chunk of your premium might go towards fees and charges, meaning less than half of your money might actually be invested initially. We'll delve into those pesky fees in a bit.
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Here's where you get a bit of choice. The insurance company will usually give you a list of different unit trusts (those sub-funds we mentioned) to pick from. These can invest in all sorts of things, from shares in big companies (equity funds) to a mix of shares and bonds (balanced funds), or even just government and corporate debt (fixed income funds).
You can usually choose how your investment portion is spread across these different funds, depending on your risk appetite and how you see the market doing.
The value of those funds you've chosen will then fluctuate based on market conditions and, of course, any fees that are being charged. It's a bit like the stock market – it can go up, and it can certainly go down. Remember, those values are not guaranteed, so you could end up with less than you initially invested.
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The main payout, of course, is the death benefit – the sum your beneficiaries receive if you pass away while the policy is active. Some ILPs also cover critical illnesses, but this is usually an optional extra you pay for (a rider). If you decide to cash in your policy early (surrender it), you'll receive the current value of your investment funds, minus any surrender charges (which can be quite hefty, especially in the early years). It's important to note that you don't typically get any cash back just for surviving until the end of the policy term unless you actually surrender the policy.
Term or whole life insurance — what’s the real difference, and which one makes sense for you?
Just like there's more than one way to have your eggs in the morning, there are a couple of main flavours of ILPs you'll come across here in Singapore.
These are the ones where you cough up your premiums on a regular basis, usually monthly or yearly. They're often seen as a good option for building up your pot over the long term – think things like saving for your retirement or your little one's university fees. They often come with what are called death benefit multipliers, which can boost the payout to your loved ones if the worst happens, and you can often add on extra bits called riders for things like critical illness cover.
As the name suggests, with these, you pay one big lump sum upfront. Because you've put in a chunk of cash right away, a larger proportion of your money tends to go towards the investments from the get-go, and the insurance protection is usually a bit lower. These might appeal to folks who've got a bit of spare cash lying around and fancy some investment exposure with a bit of life cover on the side.
Insurer |
Policy Name |
Min. Premium |
Death Benefit |
Investment Options |
Surrender Charges |
Best For |
AIA |
Pro Achiever |
S$100/month |
105% |
80+ sub-funds |
Yes (10Y) |
Long-term wealth builders |
Prudential |
PRUWealth Plus |
S$200/month |
110% |
ESG and balanced funds |
Yes |
Flexible top-ups |
Manulife |
InvestReady |
S$5,000 single |
101% |
Global funds |
Minimal |
Lump-sum investors |
» More: Compare investment-linked policies in Singapore
ILPs can come with a fair few charges, and it's crucial to understand what you're forking out for.
Policy fees: These are usually a small monthly charge, perhaps S$3 to S$10, just for keeping the policy going.
Fund management charges: These are an annual percentage fee (say, 0.75% to 2%) that the fund manager charges for looking after the investments.
Cost of insurance: This is the bit that pays for your life cover, and it generally increases as you get older because, well, the risk of a payout increases.
Surrender charges: These are the penalties you face if you decide to cash in your policy early. They can be eye-watering in the first year, sometimes up to 100% of your premiums paid, and they usually reduce gradually over a period of 10 years or so.
Top-up/withdrawal fees: Some ILPs might charge you for adding extra money or taking some out.
Like everything in life, ILPs have their upsides and their downsides. Let's have a look.
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Many financial experts believe that for most people, buying a term life insurance policy and investing the rest separately often gives you better value. Let’s break it down with a side-by-side comparison.
Strategy |
ILP |
Term + Invest the Rest |
Insurance |
Included |
Buy separately |
Investment |
Sub-funds (within the ILP) |
ETFs/unit trusts (chosen by you) |
Fees |
High (especially early on) |
Low (e.g., 0.3%–0.6% for robo-advisors) |
Flexibility |
Moderate |
High |
Transparency |
Low (fees and performance can be opaque) |
High (you see exactly what you're paying) |
Returns |
Variable (after fees, can be lower) |
Potentially higher (due to lower fees) |
Let's use a S$3,000 per year example:
ILP: Perhaps around S$1,000 goes towards insurance, leaving about S$2,000 to be invested (and that's after some fees).
Term + Robo: A decent term life insurance plan might cost around S$300 a year, leaving you with S$2,700 to invest in a low-cost ETF (like a broad market index fund) via a robo-advisor, potentially earning an average annualised return of, say, 6% over the long term.
Over time, the lower fees and potentially higher returns from the separate investment strategy can often leave you in a much better financial position.
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If you decide to bail out of your ILP early, here's what you need to be prepared for:
Surrender timeline:
Year 1: You could face surrender charges of up to 100% of the premiums you've paid.
Year 5: You'll likely still lose a significant chunk of your money.
Year 10+: You're more likely to have reached the break-even point, but it's still not guaranteed you'll get back everything you paid in.
Partial withdrawals: Some ILPs allow you to take out a portion of your fund value after a few years (say, 2–3), but these might also come with fees.
Premium holiday: Many ILPs let you temporarily stop paying premiums (a premium holiday), but keep in mind that charges will still apply, and your insurance coverage and fund value could be affected.
The sub-funds offered within ILPs can vary, but you'll often find options like:
Global equity funds (investing in shares worldwide)
Asian bond funds (investing in debt issued in Asia)
ESG-focused funds (prioritising environmental, social, and governance factors)
Balanced portfolios (a mix of shares and bonds to try and reduce volatility)
Keep in mind that the Monetary Authority of Singapore (MAS) has guidelines in place, so the funds offered within ILPs must be approved for sale here. You'll usually have some flexibility to switch between these funds, often with a limited number of free switches per year (say, 1–2).
To make ILPs seem more comprehensive, you can often add extra bits called riders. Common ones include:
Critical illness cover (pays out if you're diagnosed with a serious illness)
Total permanent disability (TPD) cover
Payor benefit (especially for children's ILPs, it waives premiums if the parent dies or becomes disabled)
Waiver of premium on disability (your premiums are paid if you become disabled)
Keep in mind that these riders come at an extra cost, which will reduce the amount of your premium that actually goes towards investment.
Note: Riders can be tempting, but it's crucial to properly assess whether you really need them and to compare their cost against buying standalone insurance policies. They can sometimes make the overall plan quite pricey.
» More : Critical illness insurance in Singapore: A comprehensive guide
ILP returns are not guaranteed. The value of your investment component will depend entirely on how the chosen funds perform in the market, and market performance, as we all know, can be unpredictable.
Also, remember that in the early years, those high fees can significantly eat into any potential returns, and in some cases, you might even see negative returns after fees are factored in.
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The good news is that for Singapore tax residents, the payouts from ILPs (both the insurance portion and any investment gains) are generally tax-free. However, if the underlying funds invest in overseas assets, you might be subject to some withholding tax in those jurisdictions.
ILPs in Singapore are regulated by the Monetary Authority of Singapore (MAS).
This means that distributors are required to provide you with clear benefit illustrations and product summaries before you commit to a policy, so you should have a decent understanding of what you're getting into.
You might hear about parents buying ILPs as a way to save for their children's education. The thinking is that it offers a long investment runway, allowing for potential compound growth, and the payor rider can provide some security if the parent passes away or becomes disabled.
However, there are definitely potential drawbacks to consider. The surrender penalties, especially in the early years, can be significant if you need to access the money before the policy matures. Also, it's worth comparing the projected value against other education savings options like endowment plans or even the Singapore Savings Bonds (SSBs), which offer guaranteed returns.
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ILPs in Singapore offer a bundled solution that combines life insurance with investment opportunities. This all-in-one approach can be appealing for those who want a straightforward plan and a form of disciplined, long-term saving.
However, it’s important to be aware of the trade-offs. ILPs often come with high fees in the early years, limited transparency in tracking investment performance, and steep surrender charges that reduce flexibility.
For cost-conscious Singaporeans who prefer more control, a better strategy may be to separate insurance and investment. Pairing a term life plan with low-cost investment options—such as ETFs or robo-advisors—can offer greater flexibility and potentially higher returns.
In the end, the best choice depends on your personal financial goals, risk appetite, and how much you value simplicity versus control and cost efficiency. Do your homework, compare options carefully, and consider seeking independent financial advice before committing.
How much should I invest in an ILP?
It's generally wise to start small – some plans allow premiums as low as S$100 per month. Before you commit to an ILP, make sure you've got a comfortable emergency savings fund in place and you're making sufficient contributions to your CPF. An ILP should be considered as part of your overall financial plan, not the foundation of it.
Can I pause premiums temporarily?
Yes, many ILPs offer something called a premium holiday, where you can temporarily stop paying premiums. However, keep in mind that charges will still apply, and your insurance coverage and the value of your investment funds could be reduced as a result.
Is it better to buy insurance and invest separately?
For cost-conscious or financially savvy investors, the answer is often yes. Buying a low-cost term life insurance policy to cover your protection needs and then investing the rest of your money in low-fee options like ETFs or index funds often yields better value over the long term due to lower fees and greater control over your investments.
Are ILPs protected under SDIC?
No, Investment-Linked Policies are not covered under the Singapore Deposit Insurance Corporation (SDIC) scheme, which protects deposits held in banks. The value of your ILP depends on the performance of the underlying investment funds and the financial strength of the insurance company.
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