That said, when insurance and investments intersect, the distinction blurs and often leads to disappointing outcomes.
Caroline (not her real name) had purchased an investment-linked policy (ILP) in August 2015 when she had a lump sum of money available.
The financial adviser who sold her the AXA Pulsar ILP plan left the firm shortly after the sale. Caroline found the plan attractive because of the $16,000 welcome bonus, calculated based on her $4,800 premium payment every six months. Other products, such as fixed deposits and endowments, had low rates and were less attractive.
In the early years, investment performance met expectations until Covid-19 hit, when Caroline needed to activate the “premium holiday” — a period during which policyholders can temporarily suspend their regular premiums. She also had to withdraw some $20,000 for an unforeseen matter. “At the time, I assumed that the $20,000 was the welcome bonus and the gains I received from the time I started the ILP. No one from AXA had reached out to follow up as well, since my financial adviser was no longer servicing the policy.”
See also: Inside Great Eastern’s Universal Life play
Yet, after resuming payments, Caroline found that there was “still quite a gap” between the premiums she had paid and the returns. “Growth was very slow and insignificant even though the gap had narrowed year after year,” she said.
When she asked another financial adviser to review the policy, she realised that at least 50% of her premium payments were going towards administration fees and charges, meaning less than half went towards the actual investments and protection premiums.
In March 2025, Caroline terminated the policy, resulting in an estimated loss of approximately $13,000. “In hindsight, my financial adviser’s recommendation of a 25-year ILP then was quite crazy. I wished I were more equipped to best evaluate what should have been a right-sized period for me, going into financial products with insurance coverage as such,” she adds.
See also: Winds of change in valuations for life insurance companies
Stories like Caroline’s are not rare. They are a symptom of a bigger misunderstanding about the role insurance should play in a financial portfolio.
What are ILPs?
According to insurance companies AIA Singapore, Great Eastern Holdings and Prudential Singapore, ILPs offer the best of both worlds: protection and investment opportunities in one product.
“What sets ILPs apart from pure investment products is their ability to provide both flexibility and long-term investment exposure within a single structure,” says AIA’s chief marketing and healthcare officer, Irma Hadikusuma.
Vincent Gan, director at Great Eastern Financial Advisers, says there are two types of ILPs: protection-focused and accumulation-focused.
Individuals seeking investment exposure with a baseline level of protection will find “meaningful advantages” in ILPs, such as access to a “wide range of investment-linked funds”. Advantages include receiving a death benefit even if the investment value falls below the capital at the time of death and the ability to distribute throughout the insurance nomination framework, which can simplify payouts for loved ones.
Prudential’s head of product management, Angeline Tan, also makes the case for ILPs, noting that such products offer an added “element of protection” compared to pure investments. “ILPs are designed to provide both protection and investment opportunities, supported by professional fund management and financial advice,” says Tan.
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Steven Teo, chief partnership distribution officer at Income, says ILPs provide access to more sophisticated solutions and will help policyholders adapt to their risk appetite. “ILPs today have evolved over the past 20 years and now provide more flexibility to cater to policyholders’ changing needs.”
He adds that ILPs also offer the benefit of having the funds pass to policyholders’ beneficiaries upon death. Pure investments will take a longer time to reach beneficiaries as they cannot be nominated. “ILPs are more popular now because they help you protect, grow and transfer your wealth,” says Teo.
Nethan Chew, director of Income Advisory Financial Advisers (IAFA), says ILPs can be categorised as either protection-oriented or investment-oriented, depending on clients’ needs. “All ILPs need to be managed by FA representatives as they are investments in nature”, he adds.
Chew, who owns ILPs himself, says he likes that capital is guaranteed upon his death and that there are welcome bonuses. “Gone are the days when you put in $100 and you have $50 invested. Today, you get welcome bonuses, which means you get more than what you paid for initially.”
Should insurance and investments mix?
However, not everyone is sold on the concept. According to the Financial Industry Disputes Resolution Centre (Fidrec), complaints against ILPs reached a peak of 120 cases in 2024, up from 41 in 2023 and 18 in 2022. This number moderated to 74 cases in 2025.
Overall, a bulk of the claims cited inappropriate advice, misrepresentation or disclosure issues, says Kenneth Har, director of alternative dispute resolution at Fidrec.
Industry insiders and market watchers also view ILPs as a poor investment.
Christopher Tan, CEO of fee-only wealth advisory firm Providend, believes the primary purpose of insurance should be protection.
“Buy as much insurance as you need, but pay as little as you can. Because of the distribution cost, insurance is a very expensive instrument to use for accumulation,” he tells The Edge Singapore. “As such, we believe that we should separate insurance from investment and ILPs should then have no place in a person’s investment portfolio. In today’s capital markets, there are a lot more cost-efficient ways to invest. There is no need to use ILPs. They are not ideal for protection (term insurance is more suitable and affordable for most life risks) and are also expensive and inflexible as an investment product. So, I think they actually do not meet any needs.”
There are also different types of ILPs in the market. “There are ILPs that are meant for protection, where a large portion of the premium is used to pay for the mortality/insurance charge and the lesser portion is invested. That was how ILPs started in the 90s,” says Tan.
“The newer ILPs are packaged as investment ILPs because the protection element can be as low as 1% of the premium. This means most (if not all) of the premium is invested,” he adds. “Depending on the choice of asset allocation and the underlying funds, the ILPs can be 100% in equities (which investors will experience more volatility risk) or 100% bonds (which means relatively lower volatility risk).”
To Eddy Cheong, CEO of independent insurance advisory firm Havend, the biggest issue for ILPs is the lock-in period, which can range from five to 25 years. Cheong also notes the “huge” penalties for policyholders seeking to exit before the lock-in period ends. “It’s a difficult position,” he says.
Policyholders seeking a dual product in a single policy should not assume an ILP will provide sufficient protection. According to financial adviser MoneyOwl, protection insurance is intended to provide policyholders nine times their annual income upon death or permanent disability, compared with ILPs, which cover 101% of the total premiums paid or the value of one’s investments, whichever is higher.
The article also points out that ILP costs are “very high” with policyholders losing a few “percentage points” each year in policy fees even before making a profit. Fund management fees for unit trusts in ILPs are high, typically ranging from 1% to 3% per year, compared with other investment options in the market. The article’s chosen example is the Amundi funds available on Poems, which charge fees as low as 0.10%.
ILPs will also tie policyholders down with their lock-in periods. “Should you lose a job or face an emergency, you might want to stop investing for a while … ILPs tie you down to the extent that you can’t withdraw should there be emergencies without huge penalties and there are limits on ‘premium holidays’, ” says MoneyOwl.
Defending the lock-in period, Income’s Teo says ILPs should be viewed as a long-term partnership between the insurer and the policyholder.
“The relationship is really like a partnership between both parties, just like a doctor-patient relationship,” he adds. “Financial advisors are running their own practices like a business, but the consumers should know they are also empowered to ask questions and consult their financial advisors.”
Meanwhile, Income’s Chew notes that the lock-in period is partly due to the welcome bonuses companies give.
He adds that a lock-in period is also necessary to keep consumers committed to their savings goals. “Flexibility is a double-edged sword,” he says. “When you have flexibility, you tend to use the money anytime you want. Then that becomes a case where you may not [be able to] reach your goal.”
That said, ILPs are now “much better” and offer some flexibility, including the ability to withdraw during life events such as marriage, hospitalisation and education.
However, Chew acknowledges that investing on one’s own is still cheaper compared to an ILP. “The fees that you are paying include the advisory of representatives. Financial advisers like us have to stay up-to-date on market developments and we do this through the stipulated CPD (continuous professional development) hours, which includes fund talks and advisory training.”
Instead of comparing ILPs to straight investments, Chew prefers to compare ILPs with unit trusts.
“Unit trusts are basically the underlying funds are the same as ILP, but they are not issued by insurance companies. Unit trusts charge what we call a red[emption] fee, which is an annual management fee. It can range from 1% to 2%. The usual recommended range is 1% to 5%, but it’s up to the discussion with their clients. Our ILPs [at Income] charges 2.5% for the first 10 years and 0.6% after. However, we give clients a loyalty bonus of 0.6% as well.”
Loo Cheng Chuan, founder of the 1M65 movement, believes insurance serves to protect oneself from “unpleasant, low-probability but high-impact events — death, major illness, disability or living too long without income”. The 1M65 movement refers to a couple aiming to have $1 million in combined CPF balances by age 65.
Like Tan and Cheong, Loo believes things “usually go wrong” when insurance is being sold as an investment.
He adds that protection and investment should never be combined. “Once you mix them, costs explode, performance suffers and flexibility disappears. If you separate the two cleanly, people almost always end up better off.”
Specifically, Loo says ILPs are “badly structured products” that are designed to “profit on the unclear, unsure and uninformed”.
“I have never seen a personal financial expert who supports the purchase of ILPs,” he says. “I’ll be very blunt: ILPs should not even be allowed to be sold to retail investors. The complexity, cost and long-term damage they do to compounding is enormous.”
Finance blogger Dawn Cher, better known as SG Budget Babe, has also openly shared her “painful lesson” from buying insurance that doubles as an investment. Cher purchased her first ILP in 2012 and terminated it prematurely in 2015 after she realised the fees were excessive and the returns no longer made sense.
In her Sept 20, 2025, article on CNA, Cher noted that investment returns on ILPs are not guaranteed, despite these policies often being marketed as a “convenient and fuss-free way to invest”.
“For ILPs, the biggest issue is that the fees are so much higher than if a consumer bothers to learn how to access the funds directly themselves,” Cher tells The Edge Singapore. “Even if they want a managed option, robo advisors today offer such portfolio solutions for significantly lower fees, too. ILPs are not the only option, and they’re most certainly not a low-cost one.”
When asked about ILPs versus direct investments, Cher noted that there is no compelling evidence that investing via an ILP outperforms a direct investing strategy.
The reverse, however, is true. “There are a lot of cases that have surfaced in the last decade that show ILP’s fees eat significantly into the returns that consumers would otherwise get,” she says.
On the “welcome bonuses”, Cher says the total fees from most ILPs generally still add up to up to 2% “or more” of one’s investment annually.
“Welcome bonuses may help offset fees in the first few years, but ILPs are meant to be held for decades, which means consumers need to ask whether they are truly willing to pay these fees all these years,” she wrote.
Luke (not his real name), a former insurance agent, says it is easy for consumers to “fall” for ILPs because they only look at the potential coverage amount, but forget that the premium increases as they age and the coverage amount provided by the ILP will depend on its investment performance, unlike the fixed coverage that a term policy offers.
“When you’re older, you pay higher premiums to keep your ILP going, but the coverage amount barely covers you. Lots of people fall for the ‘this is an investment type with life cover’ that many agents frame ILPs to be,” he says.
In his view, ILPs are only worthwhile in situations such as a no-frills, multi-in-one product for children. Otherwise, it is more cost-efficient to buy pure term and pure investment products separately.
Like Cheong, Luke notes the “huge” commitment for ILPs as well as the penalties. While he notes that certain investment policies are safer, he acknowledges that returns may not match the amount invested in other platforms. As such, he would recommend that consumers perform their own monthly dollar-cost averaging (DCA) in an index such as the S&P 500. “You can’t go wrong. It’s also more liquid.”
When asked about complaints about mis-selling, Teo says consumers should also take the time to understand the policy if they are unsure of anything.
Chew adds that consumers will have to really take the time to read the policy illustration and contract carefully. “Don’t get into a contract without knowing what you’re going into.”
A Fidrec spokesperson says consumers should work closely with their financial advisers to make informed decisions and fully use the 14-day free-look period to review their policy. During that period, they may cancel the policy without penalty.
Must-haves and good-to-haves
ILPs aside, some insurance policies are essential. Most experts agree that hospitalisation policies are essential, as hospital bills can add up quickly and these plans help cap out-of-pocket costs.
Such plans refer to Integrated Shield Plans (IPs), which provides coverage on top of the mandatory MediShield Life, administered by the Central Provident Fund (CPF) Board.
“This is definitely the first thing, simply because it will have a cap on your medical expenses as they are a question mark once you’re hospitalised,” says Income’s Chew.
Other must-haves include critical illness coverage and disability income protection. “These are not ‘nice to haves’ anymore. They are what keep a family financially stable when health becomes uncertain,” says Gan of Great Eastern.
For Cheong of Havend, policies serve to address needs that evolve across the different phases of life.
Parents with young children should have hospitalisation plans for them in case of a certain level of critical illness.
Individuals who have just entered the workforce should consider plans in five core areas: death, critical illness, disability income, long-term care and hospitalisation.
Death policies are for dependents, while disability products refer to conditions that will affect a working professional’s ability to earn the same income. Total disability is defined as the inability to perform the individual’s current occupation. Under medical policies, hospitalisation bills are relatively straightforward, while critical illness plans allow the policyholder to stop work for a period, says Cheong.
For broader coverage, consumers can choose a personal accident plan, which is “very optional”, according to Cheong. “When you buy personal accident plans, your concern would be small, minor events such as a fractured leg where you have to see the GP for check-ups … If it’s a major medical event, it’s usually hospitalisation.”
Prudential’s Tan believes in more comprehensive coverage. In addition to hospitalisation and critical illness plans, Tan includes savings, retirement and life plans on her list of must-haves to ensure consumers have sufficient funds to achieve their financial goals and to support loved ones in the event of death.
Hadikusuma of AIA adds that the type of protection needed depends on one’s goals. For those whose goal is to protect their income in the event of disability due to illness or accident, disability income plans are must-haves. For individuals whose goal is to have coverage in the event of an accident, they should opt for accident protection.
For Luke, the best policies are basic cover such as total and permanent disability (TPD) plans and critical illness, hospitalisation and accident policies. In his view, these are non-negotiables and should be purchased when the individual is younger and healthier, to lock in low fees for the rest of their life.
“If you are under the age of 30, I would add the CareShield upgrade as it’s practically free and you get so much coverage,” he says.
That said, consumers should note that the Ministry of Health (MOH) is taking steps to rein in rising insurance premiums and private healthcare costs. The ministry announced on Nov 26, 2025 that it is phasing out health insurance plans that cover policyholders almost “to the last dollar”. As of April 1, all IP riders available for sale will no longer cover the minimum deductible of up to $3,500 for IP plans.
The change also means the minimum co-payment cap per policy year will increase from $3,000 to $6,000.
“With minimal co-payment, there is a greater tendency for over-servicing by healthcare providers and a higher risk of over-consumption of healthcare services by patients,” MOH explained. “Our data shows that private hospital IP policyholders with riders are 1.4 times as likely to make a claim, with an average claim size of 1.4 times that of those without riders. As a result, bill sizes and claims are rising significantly; this, in turn, drives up insurance premiums, especially for riders.”
Minister for Health Ong Ye Kung also urged consumers to review what they really need in their coverage rather than chase “absolute peace of mind” by buying everything.
Prudential Singapore’s chief health officer, Dr Sidharth Kachroo, says the new requirements were “necessary”, but added that there were other factors that needed to be addressed given the “complex issue” of medical inflation.
“Fee benchmarks for doctors and hospital fees in the private sector, as well as the availability of more detailed billing data from private hospitals, would allow insurers to perform efficient claims assessment, manage costs, and provide a significantly enhanced customer experience,” he says.
MoneyOwl’s master financial literacy trainer, Felicia Yeo, in a video posted on Dec 10, 2025, says consumers who already bought a rider before Nov 27, 2025, should “do nothing” and continue to be covered by the benefits of the existing rider. Consumers may also consider switching to a new rider with no medical underwriting in 2026, which could result in lower premiums.
Consumers without existing riders should first determine whether they need one. If so, they can purchase one now and be covered before transitioning to the new rider by April 1, 2028. Alternatively, they can buy the new rider on or after April 1 this year, when insurers must launch new IP riders that comply with the revised requirements.
As consumers age, their insurance needs change. What is essential for younger, working individuals may not be the same for retirees.
How should retirees look at their policies?
Retired individuals should have two key plans: hospitalisation and long-term care, says Cheong.
Long-term care is essential, as costs can get relatively high in one’s twilight years. Long-term care will cover a person’s needs if they are unable to perform three out of six activities of daily living, the Havend CEO explains. A typical person performs six physical functions from waking to breakfast.
First, you need to be able to move from your bed to the floor, transitioning from high ground to low ground. Then, one will need to be able to use the toilet from the bed. Third, one must be able to perform one’s bodily functions on the toilet unassisted and brush one’s teeth without assistance. One will also have to be able to bathe (fourth), dress up (fifth) and eat (sixth) without aid, says Cheong.
“A person who can’t perform three out of these six activities is defined as having severe disability and will need a dedicated caregiver,” he says. “This risk is very real as a person grows older. The disability could be physical or mental, such as dementia.”
At the same time, critical illness plans are beneficial for retirees but not essential, as individuals should have sufficient retirement income. While it is good to have a bit of coverage if one can afford it, given that critical illness plans may support gaps such as traditional Chinese medicine (TCM) coverage, Cheong points out that critical illness plans are for individuals who will suffer from a loss of income and retirees would have no working income to replace.
However, he is clear that a retiree should not buy a critical illness plan, as it doesn’t make sense. If there is an existing plan, they can retain some of it to cover the gaps in the hospitalisation plan.
He adds that if there are no dependents, retirees should also consider restructuring or cashing out their life insurance policies, unless they plan to leave a legacy.
Protection, not profit
Ultimately, insurance is about protection and not profit.
“Insurance is the only financial instrument that can mitigate financial losses due to life risks such as death, disability and a medical crisis,” says Tan of Providend. “When these risks happen, there will be potential loss of income and increased medical expenses, which can disrupt lives and prevent the achievement of financial goals. So I don’t think insurance is an ‘extra’ in comprehensive financial planning.”
To Gan, he has found that most people don’t lack policies. Instead, what they lack is clarity, he says. “Over the years, I’ve found that most people don’t lack policies — what they lack is clarity. They buy different types of plans, purchased at different stages, often without knowing whether they truly fit into a bigger financial picture.”
When asked how he would rebuild someone’s financial plan from scratch today, 1M65 founder Loo says he would buy insurance policies solely for protection against disasters and use only term insurance.
He would also rely heavily on CPF LIFE and Careshield Life for longevity and disability risks. Investments would be made directly through low-cost global index funds, he says.
What would be left out entirely: ILPs, whole life policies and universal life products, which “add cost, complexity and underperformance and remove flexibility”.
When approached, MAS says it is proposing to introduce a standardised product highlight sheet for ILPs, as set out in their consultation paper published on July 1, 2025. The central bank said it is also proposing to classify ILPs as “complex products to better alert investors to the risks of the complex product and its associated costs”.
“These proposals aim to make it easier for customers to understand the key features, costs and risks of purchasing ILPs, to help them make more informed decisions. MAS aims to finalise the proposals in early 2026.”
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