How it works
The premium buys units, though not always all of it. The share that does is the premium allocation rate, and in the early years of a regular premium ILP it can be well under 100%. The insurer sells units to the owner at the offer price and buys them back at the bid price, and MoneySense says the gap is usually around 5%.
Every month, some units are sold to pay:
- the cost of insurance, which rises with age even if the cover stays the same
- policy administration
- fund management, taken inside the fund
That's the catch MoneySense points to. With high cover and weak funds, the units may not be enough to pay the charges, and the owner has to top up or cut the cover.
The death benefit depends on the policy. It may be the higher of the sum assured and the unit value, or a mix of the two. ILPs usually have no guaranteed cash value, so the whole value can be lost.
The owner picks the sub-funds, which is how an ILP differs from par whole life or endowment, where the insurer runs the fund. Most ILPs allow fund switches, top-ups and withdrawals, with a fee after a set number of free switches. An ILP included in the CPF Investment Scheme can be bought with CPF savings.
In the free-look period, the refund on an ILP can be adjusted for any change in the units' market value.
Worked example, with made-up figures: a client pays S$300 a month. In year one, at a 40% allocation rate, S$120 a month buys units. Some are sold each month to pay for the cover. When the funds fall and her age pushes the insurance charge up at the same time, she's left with fewer units every year.
Where it shows up in your week
An ILP statement arrives at least once a year, and that's when clients ask why the value moved. The CRM keeps each client's review dates on their page, so you go through it together.
Related terms
Questions advisors ask
Sources
- MoneySense, Understanding investment-linked insurance policies, last updated 2 July 2026, read 27 September 2026
- MoneySense, Investment-linked policies: guide to fees and pricing: allocation rate, bid-offer spread, charges, last updated 2 July 2026, read 27 September 2026
- MoneySense, Investment-linked versus participating life insurance policies, last updated 2 July 2026, read 27 September 2026
- Insurance (General Provisions) Regulations, regulation 8: the ILP refund adjustment, current version as at 27 September 2026, read 27 September 2026