How an ILP works: units, charges and who it suits

Definition: a life policy with a unit account inside

An investment-linked policy (ILP) is a long-term life insurance policy that has both a protection component and an investment component. MoneySense describes the mechanism in three steps: premiums are used to buy units in one or more sub-funds chosen by the policyholder; some of those units are then sold to pay for insurance and other charges; the rest remain invested (MoneySense, updated 28 September 2026). The value of the policy therefore moves with the prices of the units it holds.

Two consequences follow from this design. First, ILPs usually have no guaranteed cash value, and MoneySense warns that a policyholder can lose the entire value of the investment. Second, the policyholder, not the insurer, bears the investment risk. That is the main difference from a participating (par) policy, where premiums go into the insurer's participating fund and the insurer bears the investment risk on guaranteed benefits.

ILPs are a large part of Singapore's life market. In 2025, investment-linked products made up 44% of total weighted new business premiums, and ILP weighted new business premiums rose 27.8% to S$2.88 billion (LIA, 11 February 2026). Weighted premiums count 10% of single premiums plus 100% of annualised regular premiums, with an adjustment for payment terms under ten years, so the figure is an industry measure of new business, not a measure of assets held.

How the money flows

A sub-fund pools premiums from many policyholders and invests in a portfolio of assets. It may be managed by the insurer or by external fund managers (LIA guide, March 2026), and many sub-funds feed into an underlying unit trust. Under MAS Notice 307, the unit price is the sub-fund's NAV divided by the number of units in issue, and every ILP issued from 8 October 2021 uses single pricing, so the old bid-offer spread does not apply to new policies.

The key point for a reader is the direction of the charge flow. Insurance charges are not added to the premium; they are taken from the account by selling units. When markets fall, more units must be sold to pay the same charge. When the policyholder grows older, the charge itself usually rises. If the remaining units cannot cover the charges, the policy lapses. LIA requires illustrations to state that the policy value may drop to zero and the policy will then be terminated, and that topping up can prevent a lapse.

Charges in three layers

For policies issued from 8 October 2021, Notice 307 requires insurers to consolidate all upfront deductions other than insurance charges into a single "premium charge" and prohibits the older term "premium allocation rate". The LIA guide shows how front-end and back-end structures compare, using an example in which the premium charge is 85%, 70% and 50% in years one to three, or, alternatively, surrender charges of 90%, 60% and 20% over the same period. These are LIA examples rather than market norms, and LIA notes that the overall effect of the two structures is similar.

The expense ratio excludes insurance charges, transaction costs, performance fees and several other items (Notice 307, Appendix A), so it does not represent the total cost of a policy. Some regular-premium ILPs add welcome or loyalty bonuses as extra units. These are conditional, can be clawed back under some conditions, and are not investment returns.

Two ways to classify ILPs

By payment, an ILP is either single premium (one lump sum, including recurring single premium options) or regular premium. MoneySense notes that most single-premium ILPs provide less insurance cover than regular-premium ILPs. The CPF Investment Scheme accepts only single-premium ILPs, and insurance bought with SRS money is also limited to single-premium products.

By purpose, ILPs divide into investment-oriented and protection-oriented designs. The investment type is often called a "101 ILP" in the market, because the death benefit is commonly the higher of 101% of premiums paid and the account value. This is a market nickname rather than a regulatory term, and the formula varies by product. A protection ILP sets a separate sum assured, so a larger share of each premium goes towards insurance charges.

The difference matters for illustrations. Under an LIA circular, insurers stopped issuing policy illustrations for single and recurring single premium ILPs from 1 February 2014, except for protection-oriented policies whose death and critical illness benefits total at least 150% of the single premium. Where an illustration is given, it shows three investment rates of return: 0%, a higher rate (currently capped at 8%) and a lower rate (currently capped at 4%), subject to the latest LIA circulars. LIA's current template (28 July 2026) states that the rates are before the funds' annual management charges and do not represent upper or lower limits on investment performance; they are neither floors nor expected returns. The 0% column is the most useful, because it shows how charges alone erode the policy.

Main risks and protections

Rules in Singapore

MAS Notice 307 is the core product rule: it covers disclosure documents, valuation, compliance with the LIA sub-fund pricing standard, the premium charge, policyholder statements and investment guidelines that mirror the Code on Collective Investment Schemes. Sales are governed separately. Since 1 January 2012, intermediaries have had to carry out a Customer Knowledge Assessment (CKA) before recommending an ILP to a retail customer; customers who do not pass must receive advice if they still wish to buy.

Complaints have been a policy concern. MAS told Parliament on 25 September 2025 that FIDReC received an average of 83 ILP-related cases a year in 2017–2024, about 0.06% of ILPs sold, rising to 211 cases in 2024, or 0.1% of ILPs sold that year. On 15 May 2026, MAS concluded a consultation and decided that ILPs will require a standardised Product Highlights Sheet and be classified as complex products, while "selected clients" (already defined under the current Notice FAA-N16 since 29 December 2025) must still receive advice. Legislative amendments will be consulted on later, so the new framework is not yet in force.

Who an ILP may suit, and where to go next

An ILP can make sense for someone with a long horizon, stable cash flow to sustain regular premiums, a need for some life cover, and a willingness to review the policy each year. It is usually a poor fit for money needed within a few years, for anyone who cannot accept a total loss, and for people who only need protection, for whom term insurance with separate investing is more direct. The Chinese pages of this site go into detail on how an ILP works, ILP charges, 101 and protection ILPs and ILP versus neighbouring products. VUL, IUL and participating whole life are covered by sister sites in this network.

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