Investment-Linked Policies (ILPs)

What it is

An ILP is structurally different from every other product on this site: your premiums buy units in investment-linked sub-funds (often resembling unit trusts), and the insurance charges are deducted by cancelling units rather than through a separate premium. There's no guaranteed cash value, no guaranteed bonus, and no capital guarantee at all -- your account value is simply the market value of the units you hold, minus ongoing fees.

This is the "market-linked" end of the continuum by design, not by accident -- it's meant to give market exposure inside an insurance wrapper, and it carries market risk in full.

How it's structured

• Units in one or more sub-funds you select, similar in structure to unit trusts, spanning equity, bond, or balanced mandates depending on the fund.
• Insurance charges deducted by cancelling units monthly to pay for the attached life/health coverage -- these increase with age, which quietly erodes the investment portion over time, especially later in the policy.
• Fund management fees charged inside each sub-fund, plus policy-level charges (which can include premium allocation charges in the early years that route a smaller share of your premium into units at first).
• No guaranteed component whatsoever -- illustrated figures are pure projections at standardised assumed rates, and the actual account value can be lower than total premiums paid at any point, including at a bad time to need the money.

What kind of return to actually expect

Illustrated returns follow the same standardised industry scenarios used for other insurance products, commonly shown near 4%–8% p.a. at the upper assumption -- but unlike a par fund, there's no bonus mechanism smoothing the ride; you get whatever the underlying sub-funds actually return, which can be sharply negative in a down year and does not average out to the illustrated line on any guaranteed schedule.

The honest comparison point isn't the illustrated ILP return -- it's a low-cost index fund or ETF pursuing the same market exposure directly, since insurance charges and fund fees inside an ILP are usually higher than buying the underlying exposure yourself.

The risks, plainly

• Full market risk, zero capital guarantee -- account value can fall meaningfully below premiums paid, at any time, including right when you need to surrender.
• Rising insurance charges with age -- the cost of coverage increases over time and is deducted from unit value, which can erode returns more heavily in later policy years.
• Layered fees -- fund management fees plus policy charges compound against you over a multi-decade holding period, more so than in a comparably invested unit trust or ETF held outside an insurance wrapper.
• Illustrated ≠ historical ≠ future -- the standardised 4%/8%-style scenarios are regulatory conventions for comparability, not a forecast, and not derived from the specific sub-funds' actual track record.
• Complexity in comparing across insurers -- fund choices, charge structures, and coverage terms vary widely, making a fair side-by-side genuinely difficult without professional help.

Who it tends to suit

Suits someone who specifically wants market exposure bundled with insurance coverage inside one policy and understands they're accepting full market risk on the investment portion -- worth comparing carefully against holding low-cost index funds separately from a standalone term life policy, which is a common alternative to raise with a licensed adviser.

This describes how this type of product is typically used -- it isn't a recommendation for your specific situation. Talk to a licensed adviser before deciding.

Common questions

Can I lose money in an ILP?

Yes. There's no capital guarantee -- your account value tracks the underlying sub-funds' market performance minus fees, and can fall below what you've paid in.

Are ILP charges higher than a regular unit trust?

Often, yes, once you account for both the insurance charges and fund-level fees layered on top of each other -- worth asking for the total expense ratio and comparing it against a comparable standalone fund.

How is an ILP different from the other insurance products on this site?

Every other product here has some guaranteed component. An ILP has none -- it's the only fully market-linked product in this comparison, which is why it sits at the far end of the risk continuum.