Questions to Ask Before You Buy an ILP
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If you are considering an ILP, here are the questions worth asking first.
You may be looking at an ILP after a planning meeting, after reading a brochure, or after comparing insurance options on your own. The question is the same either way: does this product fit what you need, and do you understand what you are paying for?
That question is worth taking seriously.
An ILP is a real, MAS-regulated financial product. It is also one of the more complex products sold to young professionals in Singapore, and the fee structure can be genuinely hard to understand without asking the right questions. Many people sign without fully grasping what they are paying.
This guide gives you seven specific questions to bring into that conversation. They are not “gotcha” questions. They are the questions that help you understand whether the product is suitable, how the charges work, and what the alternatives look like. Along the way, you will find interactive tools that let you visualise how ILP fees work and a short quiz to help you think through whether an ILP fits your situation.
What is an ILP, actually?
An ILP is a life insurance policy that bundles two things together: insurance protection (typically death and critical illness coverage) and investment sub-funds that you choose. When you pay your premium each month, part of it goes toward insurance charges, and the rest is invested into funds managed by the insurer. Think of it as buying insurance and a unit trust in one package.
ILPs are one of the most commonly sold insurance products in Singapore. One reason is that adviser compensation can differ across product types, including compared with recommending term life plus a separate investment account. That does not automatically make ILPs unsuitable. It does mean you should understand exactly what you are paying for and how this product compares with simpler alternatives.
There are two main types. Single-premium ILPs take a lump sum (say, $50,000) and invest it, with a small insurance component. Regular-premium ILPs collect monthly or annual premiums over many years, sometimes 25 years or more. Regular-premium ILPs tend to have higher total fees because distribution costs are front-loaded into the early years. That distinction matters a lot when you’re evaluating costs.
MoneySense, Singapore’s national financial education programme, specifically recommends understanding all fees before committing to an ILP. The single most important fee concept to grasp is the Premium Allocation Rate, which determines how much of each premium payment actually gets invested versus absorbed by distribution costs. The visualiser below shows exactly how this works.
Premium Allocation Breakdown
Each month in Year 1, only $60 of your $200 premium is invested.
7 Questions to Ask Your Financial Adviser
These are the questions that matter most. Bring this list to your next meeting.
1. “What is the Premium Allocation Rate in each year?”
A typical answer: “The Premium Allocation Rate starts at 15% and increases to 100% by year 4.”
What that means in practice: If the PA rate is 15% in year 1, only $30 of your $200 monthly premium actually gets invested. The other $170 goes to distribution costs. According to MoneySense, at a 20% PA rate, only $200 of a $1,000 premium buys units. PA rates typically rise over the years toward 100% or higher (with bonus units), but those early-year deductions are real money that never enters your investment.
What to look for: Ask your FA to show you the full PA rate schedule for every year of the policy. If the first 2-3 years are below 50%, calculate the dollar amount that gets absorbed. On a $300/month premium with a 20% PA rate, you’re losing $240/month to distribution costs in year one alone.
2. “What are the total annual fees, including fund-level charges?”
A typical answer: “The fund management fee is about 1.5% per year.”
What that means in practice: That 1.5% is just one layer. ILPs stack multiple fees on top of each other: insurance coverage charges (which increase as you age), fund management fees, policy administration charges, and a bid-offer spread (usually around 5%) every time you buy units. MoneySense lists at least six distinct fee types for ILPs. Hearing one number alone does not give you the full picture.
What to look for: Ask your FA to add up every fee into one total annual cost percentage. Then compare it to a low-cost ETF portfolio, which typically runs 0.2-0.3% per year. ILP all-in costs vary widely, from around 1.3% for newer, competitively priced products to 3.5% or more for older front-loaded plans. The difference matters: even a 1% fee gap compounds to meaningful money over a 25-year policy.
3. “What happens if I surrender the policy in year 3? Year 5? Year 10?”
A typical answer: “There’s a small surrender charge in the early years, but it reduces over time.”
What that means in practice: In the early years of a regular-premium ILP, your surrender value can be far less than the total premiums you have paid. This is not just the surrender charge; it is the cumulative effect of low PA rates, insurance deductions, and fees. If you have paid $14,400 over three years ($400/month) and your surrender value is $5,000, you would be walking away with a 65% loss.
What to look for: Ask your FA to show you the projected surrender value at year 3, year 5, and year 10. Get the actual numbers, not just percentages. If you’d lose money in the first five years, you need to be very confident you won’t need to exit early. Life changes: job loss, moving overseas, career breaks. MoneySense notes that all ILPs come with a 14-day free-look period after purchase, but after that window closes, surrender penalties apply.
4. “What insurance coverage am I getting, and what would equivalent term life cost?”
A typical answer: “You’re getting $200,000 of life coverage built into this plan.”
What that means in practice: The insurance component of an ILP provides death and sometimes critical illness coverage. But the cost of that coverage is deducted from your invested units every month, and it increases as you age. You could buy the exact same $200,000 of coverage through a standalone term life policy, often at a significantly lower premium, because term life has no investment component and lower distribution costs.
What to look for: Ask your FA to quote you a comparable standalone term life policy for the same coverage amount. Compare that annual premium to the insurance charges being deducted inside the ILP. The difference is what you’re paying for the convenience of bundling. In some cases, buying term life and investing the savings separately (“buy term, invest the rest”) can be cheaper for many people on a pure cost basis.
5. “What are the sub-fund options, and can I switch them without cost?”
A typical answer: “You can choose from over 40 sub-funds and switch between them anytime.”
What that means in practice: ILP sub-funds are similar to unit trusts but only available within the policy wrapper. The “40 funds” sounds flexible, but each fund carries its own management fee (the Ongoing Charges Figure, or OCF), typically 1.0-2.0% per year. That is on top of the policy-level charges you are already paying. And “switch anytime” usually means a limited number of free switches per year, with a fee for each additional switch.
What to look for: Ask for the full fund menu with each fund’s OCF. Check whether the funds overlap with cheaper options available through a regular brokerage account. MoneySense recommends asking about “fund objectives, risks, performance, and charges” before choosing. If the sub-funds are just repackaged versions of publicly available unit trusts with an extra fee layer, that’s worth knowing.
6. “Is there a bonus or loyalty benefit, and does it offset the fees?”
A typical answer: “After 10 years, you’ll receive bonus units worth 20% of your annual premium.”
What that means in practice: Loyalty bonuses are extra units added to your account if you keep the policy active for a specified period. They are real value. But they also exist partly to offset the higher fees charged in the early years. The question is whether the bonus closes the gap meaningfully, or whether a simpler product would still have left you better off.
What to look for: Ask your FA to show you two numbers side by side. First: your projected net value after all fees, with the bonus included. Second: what that same money would have grown to in a low-cost ETF portfolio with no bonus but also no ILP-level fees. If the bonus closes the gap, the ILP is competitive. If there is still a significant shortfall, the bonus is only a partial offset to earlier charges.
7. “If I wanted the same investment exposure and insurance coverage separately, what would the total cost be?”
A typical answer: “An ILP is more convenient because everything is in one place.”
What that means in practice: Convenience is a real benefit, but it has a price. This question forces a direct comparison: what does the ILP cost in total (premiums, fees, charges, forgone returns) versus buying term life insurance separately and investing the difference in a low-cost portfolio? Your adviser should be able to model both scenarios for you. MoneySense recommends asking “Why is this product suitable for me?” as the very first question. If the answer is mostly about convenience rather than cost or suitability, it is worth digging deeper.
What to look for: Ask your FA to prepare a side-by-side projection: ILP total cost and projected value at year 10, 20, and 25 versus term life + DIY investing over the same period. If that comparison is hard to get, consider how much clarity you really have on the recommendation.
When an ILP may make sense
Not every ILP is a bad deal. Here are situations where one could genuinely work for you:
- You know you won’t invest on your own. Be honest with yourself. If the money that doesn’t go to an ILP premium will sit in a savings account earning 0.05%, then an ILP’s forced savings mechanism is a real benefit. The best financial plan is the one you actually follow, even if it’s not the cheapest on paper.
- It’s a single-premium ILP with 100% allocation and low ongoing fees. Some single-premium ILPs are competitive with unit trusts, especially if you want a small insurance component included. Without the front-loaded distribution costs of regular-premium ILPs, the fee picture looks very different.
- You want access to specific fund managers or strategies only available through the ILP wrapper. Some institutional-grade funds are only accessible via insurance platforms. If a particular fund strategy aligns with your goals and isn’t available retail, that’s a legitimate reason.
- You’ve done the comparison and the cost gap is small. If you’ve run the numbers on ILP total cost versus term life plus DIY investing, and the difference over your time horizon is modest, then convenience and having one point of contact might be worth it to you. Some modern ILPs with all-in fees around 1.3% narrow this gap considerably.
When an ILP may be less suitable
For most cost-conscious investors, an ILP is harder to justify when:
- The PA rate in the early years is below 50%. If more than half of your premiums are going to distribution costs rather than investments for the first 2-3 years, you’re starting in a deep hole. On a $300/month premium with a 20% PA rate, that’s $2,880 per year absorbed by costs before your money even starts growing.
- You’re comfortable opening a brokerage account and buying low-cost ETFs. Even a 1% annual fee difference compounds significantly over time. Over 25 years on a $300/month contribution, the gap between a 2% all-in ILP and a 0.25% ETF portfolio can reach $20,000-$30,000 in forgone returns. For higher-fee ILPs, the gap widens further. Use the fee calculator to see the exact numbers for your policy.
- You only need insurance coverage, not an investment wrapper. If your goal is protecting your dependents, a standalone term life policy gives you the same coverage at a fraction of the cost. The investment component is optional, not mandatory.
- You’re 23 and your life is about to change a lot. A 25-year regular-premium commitment is a long time. Job changes, career breaks, postgraduate study overseas, starting a business: all of these could make a rigid premium schedule inconvenient or unaffordable. Surrender penalties mean exiting early is expensive.
Fee Comparison: ILP vs Term Life + ETF
How we calculated this
- ILP annual fee: 1.3% of portfolio (you can adjust this above)
- ETF expense ratio: 0.22% (e.g. VWRA)
- Term life premium: $30/mo (healthy non-smoker, 20s, ~$200K coverage)
- Expected annual return: 6% (both paths)
- Contributions: $200/mo for 25 years
Fee and premium figures are illustrative. ILP all-in fees range from ~1.3% to 3.5%+ depending on the product. The slider uses 2% as a mid-range estimate. Term life premium ($30/mo) is based on a healthy non-smoker in their 20s for ~$200K coverage. Your actual figures will vary.
Want the full breakdown with your actual ILP? Try the fee calculatorA framework to decide
After reading through all of that, you might still be unsure. That’s normal. The decision depends on your personal situation, not just the maths.
The short quiz below asks about your investing experience, your insurance needs, and your preferences around convenience versus cost. It’s not a test. There are no wrong answers, and it doesn’t collect any data. Think of it as a structured way to organise your own thinking before your next conversation about the product. The result is a structured prompt, not financial advice.
ILP Information Checklist
1. Would you invest regularly on your own without a policy forcing you to?
2. Are you comfortable opening a brokerage account and buying ETFs?
3. Do you already have term life or other insurance coverage?
4. Would you keep up with managing insurance and investments separately?
5. Has your FA shown you the total fees over the full policy term?
6. Do you have an emergency fund of 3-6 months' expenses?
Sources
These resources from MoneySense (Singapore’s national financial education programme) provide official guidance on ILPs and insurance products: