askST: Thinking about buying an investment-linked plan? Here’s what you should know

SINGAPORE – Demand for investment-linked insurance policies (ILPs) is going up, but so are consumer complaints about them.

Data from the Financial Industry Disputes Resolution Centre (Fidrec) showed the number of complaints hitting a peak in 2024 at 211, with the claims dipping in the first half of 2025 but still exceeding the 2023 full-year figure.

Here are some caveats and red flags to look out for when determining if ILPs are for you:

1. What are investment-linked insurance policies and who sells them in Singapore?

These hybrid products are sold by insurance providers such as AIA, Prudential, Manulife, Singlife, Income, HSBC Life and Great Eastern. 

You can think of them as a two-in-one insurance policy, which gives you investment and life insurance coverage at the same time.

Mr Chan Wai Kit, executive director of the Life Insurance Association (LIA) Singapore, said ILPs have seen strong growth since 2022 as markets rebound and investors seek to take some investment risks for potentially higher returns.

ILPs, he added, are suitable for those who want to stay protected with life insurance and still have the flexibility to invest in professionally managed investment funds.

2. What are the different types of ILPs? 

You will see words like investment versus protection; and single premium versus annual premium.

Essentially, there are investment-oriented and protection-oriented ILPs.

Mr Alex Lee, president of the Singapore Actuarial Society (SAS), said investment-oriented ILPs have been a major driver of the recent ILP sales growth here.

These ILPs are geared towards investments and returns. 

As such, the insurance coverage is minimal at an additional 1 per cent to 5 per cent of the total premiums paid.

Mr Lee noted that such plans can often be bought without medical underwriting because the insurance risk to the insurer is small.

Protection-oriented ILPs offer substantial insurance protection in the event of death. The death benefit, in this instance, is usually expressed as a multiple of the total premiums paid, Mr Lee said.

Within the universe of investment-oriented and protection-oriented ILPs, there are also single premium and regular premium ones.

Single premium means you pay a lump-sum premium at one go, while annual premiums mean you pay the premium every year.

Mr Chan said consumers may be more inclined towards annual premium ILPs amid economic uncertainty and market volatility.

This is because they can make their premium contributions every year, meaning they mitigate their risk of entering the markets when prices are high, as opposed to a single premium where they run the risk of entering the markets at the wrong time with one full payment.

3. What are some caveats with ILPs?

The Financial Industry Disputes Resolution Centre (Fidrec) found during its mediation sessions that most consumers do not really understand what an ILP is.

“They thought that it is some kind of endowment policy or savings policy that will give them regular returns,” said Fidrec’s chief executive Eunice Chua.

She added that the returns actually fluctuate depending on how the chosen sub-funds in the ILP perform in the markets.

Sub-funds are investment funds that are managed by professional fund managers. The insurer normally provides policyholders with a range of sub-funds, and they can invest by buying units in one or more of the funds.

LIA’s Mr Chan said the sub-funds’ returns are not guaranteed, and investment risks are borne by policyholders. Consumers should ask themselves if they are comfortable with the possibility of their ILP returns being affected by market ups and downs, he added.

SAS’ Mr Lee said consumers will also have to pay for the cost of insurance under an ILP.

He added that the cost is either met by selling some of the units purchased in the sub-funds or embedded in other product charges.

Insurance charges typically go up as one ages, as the risk of disability and chronic illnesses increases.

The higher cost of insurance simply means that more units in the sub-funds may have to be sold to pay for the higher charges, therefore reducing the amount invested for growing wealth.

4. Are ILPs suitable for me?

Mr Lee Meng Choe, executive director at Gen Financial Advisory, said ILPs products are not designed for short to mid-term investments. 

He added that these products suit those who can commit to an investment horizon of at least 10 years or more.

SAS’ Mr Alex Lee said some customers prefer the convenience of an ILP, combining protection and investment under a single plan. However, this comes at a cost because customers will have to pay for the insurance coverage. 

Alternatively, he said, others may prefer to “buy term, invest the rest”, which essentially means separating their insurance protection from their investments.

This typically involves purchasing affordable term life insurance and investing the rest of the money, which would otherwise have gone into an ILP.

There is no one-size-fits-all. Regardless of choice, customers should review their investment and insurance portfolios regularly and seek professional financial advice if necessary, Mr Alex Lee added.

5. Before I sign on the dotted line for an ILP, what red flags should I watch out for?

Mr Lee Meng Choe from Gen Financial Advisory noted that ILPs are often marketed with attractive customer incentives that result in overcommitments or impulse buying.

Fidrec’s Ms Chua said consumers should look out for phrases like “not guaranteed” and “possible loss of the principal amount invested” in the policy documents.

She added that they can also watch out for certain behaviours that are red flags.

“For example, if the financial adviser is pressuring them to sign quickly because the promotion will expire, this is a red flag.”

There is a free-look period of 14 days from the receipt of the policy document and consumers can decide to cancel the policy during that period so there is “no real reason to have to hurry to make an investment decision”, she said.

Ms Chua noted that another red flag consumers should watch out for is whether their financial adviser takes the signing of policy documents as a checkbox exercise, telling them to “sign here, here and here”, without going through the documents.

Fidrec handles disputes between consumers and licensed financial institutions. Consumers try to resolve the issue with their financial institution or insurer first. If they cannot come to a solution after four weeks, they can approach Fidrec for help. The claim limit is set at $150,000.