ILPs Uncovered – Insurance, Investment, and the Fine Print

Following up on our previous article "Debunking ILP Myths – Here’s the truth about ILPs", here are three other common misconceptions about ILPs.

We would also like to once again reiterate that at FSMOne, we do not offer ILPs. Instead, the purpose of this series of articles is to shed light on this complex product and educate individuals who are new to ILPs and would like to better understand this complex product.

#1 I only need to pay premiums for a few years and my ILP can give me “free” insurance coverage for the rest of my life.

Most ILPs will offer a death benefit equivalent to 101% of your account value or 101% of your total premiums paid. A fee (the Cost of Insurance) is payable on this coverage given. If your account value is greater than the total premiums paid less withdrawal, your Cost of Insurance will be $0.

You may choose to stop paying basic premiums after the minimum investment period (MIP) of your ILP. Should your chosen fund perform well, this will allow you to enjoy insurance coverage for the rest of your life without having to top up any additional premiums. However, while you can stop paying for premiums after the MIP, you are likely to incur the Cost of Insurance if your chosen fund gives a return of 4% or less as shown in the table below. If your ILP continues to perform at 4% return, your account value will eventually be reduced to $0, and additional premiums is required to continue the ILP and coverage.

Information retrieved on 26 September 2025. For illustration purposes only.

#2 ILPs are a good way to get insured.

With an ILP, you often need to commit to higher premiums to secure a relatively smaller coverage amount. This is because part of your premiums goes into investments and policy charges, leaving less for insurance protection. Deviations made to this premium commitment would not yield the same result and could incur additional costs if premiums are not regularly paid during the Minimum Investment Period.

Separating your insurance and investment will give you greater flexibility and control over how you want to structure each component. A term insurance will provide high coverage at a fraction of the cost compared to an ILP.

For example, in the table below, while the insurance rider itself may only amount to $31,758 in lifetime premiums, you would need to commit a total of $175,000 into the ILP to sustain this coverage. This is compared to a term life plan which only requires a lifetime premium of $20,850.

	ILP with an insurance rider for death and terminal illness	Term Life Plan
Coverage at age 70	$606,586 ($400,000 from rider + $176,750 guaranteed death benefit of main plan + $29,836 from the non-guaranteed death benefit projected at 4% illustrated return)	$600,000
Policy Term	Up to age 99 ($400,000 rider coverage will only cover up at age 85). Premiums must be paid for the first 10 years to avoid incurring premium shortfall charges.	35 years
Total premiums paid up to age 70	Premiums paid for insurance rider: $31,758^ Total basic premiums paid to date: $175,000	$20,850

Profile: Non-smoker Singaporean male (date of birth: 1 January 1990). For death and terminal illness coverage to age 70.

^Assumption is made that the account value is greater than the premiums paid and thus cost of insurance is $0. Information generated on 26 September 2025, for illustration purposes only.

Alternatively, if we were to rely solely on the 101% death benefit from an ILP for coverage, the difference in lifetime total premiums required would be even greater as shown in the table below. Moreover, as ILPs have an investment component, returns are not guaranteed and are subjected to market performance. This means your coverage can fluctuate depending on investment performance and account value, and you may need to top up additional premiums to cover the Cost of Insurance. Term insurance on the other hand provides level coverage, providing a consistent coverage amount throughout the policy term and allow you predictability on your insurance.

	ILP	Term Life Plan
Coverage at 99	$495,284* ($232,704 guaranteed death benefit of main plan + $262,580 from the non-guaranteed death benefit projected at 4% illustrated return)	$500,000 ($500,000 guaranteed death benefit)
Policy Term	Up to age 99 Age Last Birthday. Premiums must be paid for the first 10 years to avoid incurring premium shortfall charges.	Up to age 99 Age Next Birthday. 10 year premium payment term.
Total premiums paid	Total basic premiums paid to date: $230,400 (Premiums include amount allocated to investment component)	Total premiums: $82,835
Surrender value at age 99	Guaranteed value: $0 Non-guaranteed value projected at 4% illustrated return: $495,284	$82,835 (A guaranteed maturity value of 100% the total basic premiums paid is given if policy is held to maturity.)

Profile: Non-smoker Singaporean male (date of birth: 1 January 1990). For Death and Terminal Illness cover to age 99. ILP uses age last birthday basis, whereas term plan used age next birthday basis. Information generated on 25 September 2025,  for illustration purposes only.
*Coverage increases over the years and correlates to the premiums paid. A lower death benefit may be payable if the funds under-perform projected returns.

#3 ILP is “superior” as it gives you access to exclusive restricted funds not available to the general public

While this pitch leverages the idea you can tap into a more elite class of investment fund, offering a perceived edge over what a retail investor could buy on their own.  

The idea of an ILP providing an entry point to other institutional funds like Hedge Funds may also been marketed every now and then, but this access comes with a catch. Can a standard retail investor adequately manage the risks associated with the fund, such as leverage and short-selling, with limited information to go on? These types of funds are restricted for a reason, for Accredited Investors and Institutional Investors who have the size and expertise to negotiate terms and ride out the risk. Offering it to a retail investor via an ILP arguably compromises the core principle of suitability, as the average person is potentially in no position to assess or withstand these risks.

Our Takeaway

• For insurance protection:

  Choose a Term Life plan for pure protection and invest the rest separately. Not only will this allow you greater flexibility to adjust your insurance coverage and investments as required, doing so could also allow you to obtain more comprehensive coverage if required.

  At FSMOne, we offer up to 45% commission rebates on eligible insurance products allowing you to save more when you get insured with us. Reach out to us here to learn more.

• For investments:

  With access to 291 ETFs, 2,058 Unit Trusts, and 10 Managed Portfolios via FSMOne’s Regular Saving Plan. Worry less about timing the market and build and automate your portfolio on a weekly, bi-weekly, or monthly basis. Start from as little as S$50 for ETF, and S$100 for Unit Trust and MAPS.

  Moreover, FSMOne charges 0% sales fees for buying, selling, switching, or RSP into unit trusts (a quarterly platform fee may apply). More information on RSPs can be found here.