Recently, I have seen many articles, posts, and videos discussing ILPs. Probably because of rising business volume and a higher number of cases reported to Fidrec. I am here to provide my personal view on this issue.
Disclaimer: I am a licensed financial advisor but I am also an educator, co-founder of Dr Wealth. In this article, I am sharing in the capacity of an educator. This does not represent my firm view nor does it have any intention to sell you any investment products. There is no call-to-action link or buy button in this article.
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I will address the ILP debates in 5 pointers:
1) Fee in ILP vs Other Investment Instruments
To address the fee in ILPs, we have to look at three main points.
First, we need to exclude protection-type ILPs as these come with protection, which should not be used as a comparison for a pure investment plan or investment platform. We will leave this protection-type ILP debate for the future. For the comparison below, I will be using pure investment ILPs, more commonly called 101 ILPs, which do not include the cost of insurance.
Second, investments generally have two fees. First, I call them execution fees. Execution fees will be incurred upon execution. For ILPs, the execution fee will be the plan itself, which provides some bonuses and charges some fees. Execution fees are also imposed for DIY, robo-advisor, or advisory accounts. For DIY investments, the execution fees will be brokerage, custodian, or platform fees. For robo-advisory or advisory accounts, the execution fees will be the advisory fees imposed by the platform or the advisor.
To compare the fee structure in ILPs, given that there are bonuses provided and costs charged by the plan, the most straightforward way is to compare the gross illustrated return in the policy document versus the net return to investors using internal rate of return (IRR) calculation. As there are so many plans in the market, with various bonuses and cost structures, I will not be able to provide a comparison for all ILPs. Based on our analysis, one of the more cost-effective plans is from company F. The gross illustrated return vs IRR return is as follows:
| 15 years Premium Term | |||
| Holding period | Gross Illustrated Return | IRR (net investor return) | Execution cost per year |
| 15 years | 6.70% | 6.00% | 0.70% |
| 20 years | 6.70% | 6.39% | 0.31% |
| 25 years | 6.70% | 6.60% | 0.10% |
As you can see, the execution cost in this plan could be as low as 0.10%, and if your holding period is longer, the execution cost could be even lower. As a comparison, robo-advisors or advisory accounts typically have costs ranging from 0.4% to 1% or more per year. The execution cost will be straightforward—it is simply the advisory fee per year that the platform or account charges. The execution for these platform will thus be 0.4% to 1% or more per year.
So do ILPs come with a higher fee? Yes and no—it depends on the plan and a combination of factors such as holding period and premium amount.
Third, there is another fee imposed by the fund manager. Unless you are buying the underlying stock or bond directly, there will be a fund manager managing a fund. Whether it is an ETF or an actively managed unit trust, the management fee is usually referred to as the fund expense ratio. For ILPs, most illustrations assume a 1.2%–1.3% fund expense ratio. However, this is just an illustration—you are able to choose a lower fund expense ratio in an ILP if your main selection criterion is cost. As the industry has evolved, there are ILPs that carry index funds as well, with expense ratios as low as 0.475%. This fund expense ratio also applies to robo-advisors or advisory accounts. It really depends on what type of underlying fund you are investing in. Personally, I look at the better net return after management fees, instead of focusing solely on the lowest fund expense ratio. I will leave fund selection criteria discussion for the future, as this article is not meant to address the best funds to invest in.
2) Lock-in Period in ILP vs Other Investment Instruments
This is easier to discuss on the surface, but there are some other considerations we should look at.
First, investment platforms like DIY, robo-advisors, or advisory accounts should not have lock-in periods. This offers flexibility to stop or withdraw investments anytime. In contrast, ILPs usually come with lock-in periods. Some may be just a few years, while others could be longer. Ideally, having no lock-in period with flexibility should be viewed as an advantage, as most do not like to have commitments or restrictions.
However, when it comes to investment psychology, having the flexibility to stop or withdraw could become a critical factor. Humans are emotional—when markets are bad, we tend not to invest or may even sell at the wrong time. Having flexibility could allow investors to act on emotions and make poor timing decisions.
Let’s be neutral here: whether there is a lock-in period or not depends on individual circumstances. For a working professional who doesn’t mind having a structured investment plan, he or she may have the capacity to invest and commit for a longer term. As shown above, the execution cost could also be lower for a longer plan. On the other hand, someone with uncertain income or cash flow may prefer flexibility, making investments without a lock-in period more suitable.
3) Function of ILP vs Investment Instruments in Financial Planning
As I always emphasize in holistic wealth planning—a product is just a tool. We cannot analyze a product as a standalone plan. We need to conduct holistic planning and determine the best tool to use in financial planning.
Just like when seeking medical advice: a doctor will check and diagnose before prescribing medicine. The medicine is simply the tool to cure the illness. Similarly, a financial product is just a tool to achieve goals.
ILPs or investment instruments usually play a role in wealth accumulation, wealth distribution, or even legacy planning. For ILPs, you are allowed to make a nomination, and the executor/beneficiary can go straight to the insurance company to claim proceeds—most likely without going through probate, which could take months. Some plans even provide capital guarantees upon demise, which can be used as part of legacy planning. Of course, if someone does not need this benefit, then direct investment makes more sense than investing through an ILP.
4) A Bad Product or a Bad Practice?
“There is a rise in complaints on ILPs recently reported to Fidrec.” With the surge in business volume, the absolute number of cases is higher. I do not have full statistics, but in terms of percentage, the complaint rate may actually be lower given the larger volume of cases.
In my personal view, there is no bad product—only bad practice. If today I propose a 20-year lock-in investment plan to a 70-year-old client, that is bad advice. This has nothing to do with the product itself. Similarly, if a single client with a mortgage loan comes to me for mortgage insurance, and I directly propose a term plan without first checking if the client has medical or critical illness insurance, that is also bad advice. Again, it has nothing to do with the product—the term plan itself is not a bad product.
For me, I would like to advocate for increasing the qualification requirements for financial advisors. Currently, by completing regulatory papers, one can become a financial advisor after a due diligence check. I believe that beyond regulatory papers, there should be more training and certification before advisors are allowed to provide advice. In Singapore, we do have certification bodies such as Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), and Chartered Financial Analyst (CFA), to name a few. We should aim to raise qualifications and certifications for advisors. While having these titles does not 100% ensure credibility, it does offer more complete training and knowledge for financial advisors.
5) How Can Consumers, Financial Advisors, and Finfluencers Find Common Ground?
After reading multiple sources and articles from practitioners, finfluencers, and consumers, I cannot help but feel sad about why we cannot find a common ground.
We are all human beings, and we should strive to do good for society. Of course, every party has its own objective when producing content—whether to gain more traffic as a finfluencer, to “promote” certain financial instruments, or simply to share a personal opinion. But I do hope we avoid being too extreme in our presentation. We never know how readers or viewers will interpret our content.
Regulators could impose more rules requiring us to follow proper disclaimers and presentation standards. But in my personal view, there is only so much regulators can do. If we ourselves focus on doing good for others, there will be no need for more regulation.
I will end my article here. Again, there is no call to action, no product promotion—just sharing as an educator, with my personal voice, and of course, edited by AI.
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I agree with the idea of raising qualification requirements for financial advisors, but I remain skeptical that it will bring about meaningful change.
The bigger issue lies in how the financial advisory industry is structured. Advisors are largely compensated through commissions, while insurers and advisory firms emphasize sales culture—pushing agents to chase leads, rewarding them with flashy titles such as MDRT, offering sales-driven incentives, and setting management targets that revolve around sales numbers.
This environment encourages selling rather than prioritizing good advice as a company’s core value. There is nothing wrong with profit being a key driver for a business, but it feels as though the focus has shifted entirely to revenue, at the expense of providing reasonable products and genuine service to clients.
The article does raise useful points, but I find it incomplete, especially for everyday consumers trying to weigh the risks and trade-offs of investment-linked policies (ILPs). For instance, on the subject of fees, the piece points out that some 101 ILPs (pure investment ILPs) appear cost-efficient over the long term.
The example cited shows that execution costs could fall to nearly 0.1% annually after 25 years, which seems lower than what brokerages or robo-advisors typically charge. On paper, this looks appealing, but reality is far less straightforward.
To achieve those cost benefits, policyholders must stay invested for very long periods, commit to high premiums, and carefully manage sub-funds. Yet life is unpredictable—events like job loss, illness, raising a child, or other financial obligations can easily derail such a commitment. That is why the claim that ILPs are “cheaper than other investment instruments” is true only under very specific conditions that most consumers cannot fully control.
The article also highlights that ILPs sometimes offer low-cost index funds, with expense ratios as low as 0.475%. While this sounds promising, the reality is that not all insurers provide index funds as options. Many only offer actively managed funds, which come with higher costs.
Even when index funds are available, insurers reserve the right to delist or remove them, forcing policyholders into other funds that may be more expensive. Given the long lock-in contracts attached to ILPs, such changes can become a serious problem for consumers.
Achieving good investor returns also requires more than just low fees. One must pick the right funds and monitor them consistently to align with evolving financial goals. But most consumers are not equipped to do this themselves, and it is unrealistic to expect financial advisors to actively manage portfolios over decades when the commission-driven compensation system does not reward such effort.
On the matter of lock-in periods, the article frames them as potentially useful for preventing impulsive withdrawals, but that perspective feels one-sided. Lock-ins primarily exist because insurers face high upfront costs, especially in paying hefty commissions to agents.
Early surrender charges are designed to claw back these expenses if customers leave too soon. This arrangement benefits insurers but leaves policyholders penalized if their circumstances change.
To use an analogy, it is like disciplining children by caning them—effective in controlling behavior but hardly the only or best solution. If the aim is truly to help clients stay invested, why not strengthen investor education, risk coaching, or behavioral guidance instead of relying on punitive measures?
In the end, the article serves as a decent starting point but omits important warnings. While ILPs may look competitive on paper, the practical reality is full of conditions, uncertainties, and risks. For the average consumer, these complexities make ILPs far less attractive than the “low-fee” solution they are sometimes marketed as.
Hi Alex,
Thanks for sharing your views. I agree that the article itself is not complete, as it’s not possible to cover every single point in just one piece. Ultimately, every instrument has its pros and cons. Our role, whether as educators or financial advisors, is to provide clear explanations and enable investors to make informed decisions.
Regards
Louis
Thank you Louis and Alex for sharing both sides of the same coin. Compensation tends to drive behavior. When pressured to perform, self-justification often becomes a tool that I’ve seen even well-meaning advisers use to account for their recommendations. In the end, is the adviser’s heart guided by clients’ interest or self-interest? Time will reveal, but clients’ timeline does not get reset. A client’s financial future is not a house of cards. The adviser has to embrace a strong sense of fiduciary responsibility and exercise it with great care.