ILP charges: premium charge, insurance charges, fund management fees, surrender charges and bonus units

ILP charges are the amounts an insurer deducts from premiums, units or sub-fund assets to pay for distribution, administration, cover and investment management. Unlike a participating policy, where costs are "bundled" into the premium, an ILP discloses the insurance charges, the portion used to buy units and other charges separately (LIA guide, March 2026). Each item can be checked, but the reader has to add them up. For how the money moves, see How an ILP works.

A map of charges: where each layer is deducted

Appendix A of MAS Notice 307 requires the Product Summary to list two groups of charges separately, those "levied by deduction from premiums or cancellation of units" and those "deducted from the assets of the sub-fund", and to highlight the contractual maximums:

MoneySense cautions that ILP charges may not be guaranteed and may change; the LIA adds that most policy contracts state the maximum that can be charged. When checking, record both the current rate and the contractual maximum.

Premium charge: from "premium allocation rate" to a single "premium charge"

Older ILPs often used a "premium allocation rate" to describe how much of the early premiums went into buying units. MoneySense's example: with an allocation rate of 20%, only S$200 of a S$1,000 premium buys units. "20%" sounds like a charge, but it is actually the proportion used to buy units.

Paragraph 27A of Notice 307 requires that, for ILPs issued on or after 8 October 2021, insurers combine all upfront charges other than insurance charges, whether deducted from premiums or by cancelling units; paragraph 27B requires them to be disclosed as a single "premium charge", and the term "premium allocation rate" may no longer be used. In the example above, an allocation rate of 20% is equivalent to a premium charge of 80%.

The front-end loading example in the LIA guide is: a premium charge of 85% in year 1, 70% in year 2, 50% in year 3 and 0% from year 4. This is an example, not a market standard, but it shows a common feature: on regular-premium ILPs, upfront charges are concentrated in the first few years, and the earlier premiums stop or the policy is surrendered, the higher charges are as a share of premiums paid. Older policies issued before 8 October 2021 may still use allocation rates or a bid-offer spread, so convert to a common basis first when reading older documents.

Insurance charges: rising with age and revisable within limits

The insurance coverage charge (also called the cost of insurance) is the charge for death and other cover. It is calculated on the sum assured, age, gender and smoking status, is usually paid by selling units monthly, and rises with age (LIA, MoneySense).

It has three features that are easy to overlook:

1. It is not necessarily fixed. The LIA notes that if claims rise persistently, the insurer may raise insurance charges within the limits stated in the policy contract, and the revision applies to the whole class of policies, not to individual policies.
2. It is tied directly to the sum assured. The higher the sum assured, the more units are sold each period; with a fixed premium, fewer units remain to build value.
3. The pressure is greatest in later years. The older you are, the higher the insurance charges; if sub-fund performance is poor at that stage, the units may not cover them, and the policyholder must top up premiums or reduce the sum assured to avoid a lapse.

Riders paid by cancelling units (such as a critical illness rider) use up units even faster. ILPs and term insurance price the cost of cover differently, so any comparison should set the two documents side by side year by year for the same sum assured, age band and term.

Fund-level charges: management fee, expense ratio and turnover

The fund management fee is charged as a percentage of the sub-fund's asset value, and the LIA notes that it is deducted at sub-fund level. Because the unit price is calculated after fund charges, this cost does not appear separately in the itemised charges on the policy statement; it shows up as slower growth in the unit price.

The usual measure of fund-level cost is the expense ratio. Appendix A of Notice 307 requires it to be calculated under the Investment Management Association of Singapore (IMAS) guidelines and to exclude insurance charges, transaction costs, performance fees, foreign exchange gains and losses, charges for buying and selling other funds, and tax deducted at source, so it reflects only the recurring operating expenses of the fund. Appendix A also requires disclosure of the turnover ratio: the higher the turnover, the higher the transaction costs that the expense ratio leaves out may be.

A publicly available reference point is the expense ratio caps set by the CPF Investment Scheme (CPFIS) for ILP sub-funds and unit trusts included under the scheme (CPF Board, updated March 2022):

These caps apply only to sub-funds included under the CPFIS and do not represent the level for ILP sub-funds bought with cash. The rules for buying an ILP with CPF are covered in Buying an ILP with CPF or SRS.

Surrender charges, partial withdrawal charges and switching fees

Surrender charges and partial withdrawal charges are payable when units are sold before a certain period has passed (MoneySense). In the LIA guide's example, a back-end loaded policy has surrender charges of 90%, 60% and 20% of the account value in years 1, 2 and 3, and 0% from year 4 (an example, not a market standard). A partial withdrawal also reduces the number of units, so after withdrawing, check whether the remaining units can sustain the sum assured.

Switching fees and other transaction charges: most insurers allow a limited number of free switches each year and charge beyond that; top-ups, withdrawals and starting a premium holiday may also incur charges (LIA guide), and units continue to be sold to pay insurance charges during a premium holiday.

To judge "how much would I lose by surrendering now", compare the net cash surrender value on the statement with total premiums paid, not the account value; premium charges already paid in the early years are not refunded.

Bonus units: welcome bonuses, loyalty bonuses and premium bonuses

Some regular-premium ILPs offer a welcome bonus (a percentage of the first-year premium), a loyalty bonus (a percentage of the account value from a certain policy year) or a premium bonus in the form of additional units; the rates and conditions are set out in the Product Summary.

Four points matter when looking at bonus units:

1. They are not investment returns. Bonus units rise and fall with the unit price like any other units; the LIA guide states that ILPs do not pay bonuses in the sense that participating policies do.
2. They come with conditions. Common conditions include paying premiums continuously, maintaining a minimum premium level, and making no withdrawals or premium holidays within a set period.
3. They can be clawed back. If the conditions are not met, bonus units already awarded may be cancelled or deducted.
4. They must be read together with charges. Compare the net result after all charges and including bonuses, not the bonus rate alone.

How charges affect long-term outcomes: which document, which column

The document that brings the charges "together" is the Policy Illustration, which shows guaranteed and non-guaranteed benefits, distribution costs and insurance charges. It is provided only for regular-premium ILPs and for protection-oriented single-premium and recurring single-premium ILPs (see 101 ILPs and protection ILPs).

The illustration shows three investment rates of return, one of which is always 0%. Under current LIA rules, illustration rates are assumed rates before the funds' annual management charges, and the other two are currently capped at 8% (the higher illustrated rate) and 4% (the lower illustrated rate), subject to the latest LIA circulars. Both are illustrative caps, not floors, not expected returns, and do not represent upper or lower limits on investment performance (LIA ILP illustration template, 28 July 2026). The 0% column shows in which year the policy value, after charges, falls to zero if there is no growth, and is the most direct way to see the long-term effect of charges.

Before and after signing, check charges against the following documents:

If you would like this interpreted against your own circumstances, you can register your request through the contact details on this site.