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RECENT articles and online discussions have painted investment-linked policies (ILPs) as costly and irrelevant. Many consumers, including those who bought ILPs years ago, may feel anxious after reading such views and wonder if they should terminate their plans. 

As a certified financial planner with over 20 years of advisory and teaching experience, I believe ILPs are often misunderstood – and that the issues lie more with how they are explained and managed, rather than with the products themselves.

Not all ILPs are the same. Since their introduction in the 1990s, ILPs have evolved into several categories: dual-objective ILPs, which combine protection and investment goals; protection ILPs, focused on providing insurance coverage; accumulation ILPs, geared towards building wealth; and single-premium ILPs, typically used for lump-sum investments.

Each comes with different structures, charges, and suitability profiles. However, critics often lump them together, which can create confusion among policyholders.

Why older policies seem costly

Much of the criticism targets the older dual-objective ILPs. These plans allowed flexibility – policyholders could adjust how much of their premium went to insurance versus investment. However, advisers sometimes failed to reduce the protection portion as clients aged. As insurance charges rise with age, this neglect led to policies depleting faster than expected.

Other common problems included:

• Overly optimistic projections: Advisers once illustrated returns using 9 per cent growth assumptions, creating unrealistic expectations.
• Premium allocation misunderstanding: Early-year allocations were low (for example, 20 per cent in year one), but increased significantly in later years (up to 108 per cent or higher). Many clients were not told of these long-term benefits.
• Portfolio mismanagement: ILP sub-funds can be used strategically across market cycles. But often, advisers did not guide clients properly, leaving portfolios mismatched to goals.

These were not flaws in ILPs themselves, but lapses in professional advice.

Benefits often overlooked

Despite higher upfront costs, dual-objective ILPs offered unique advantages. For example, many plans paid both the sum assured and the account value upon death – a feature not seen in today’s ILPs. Premium waiver riders also meant that in the event of disability or critical illness, premiums continued to be funded, protecting the client’s long-term financial goals. Such features provided resilience that simple “buy-term-invest-the-rest” strategies could not match.

What consumers could do

If you own an ILP, especially an older one, do not rush to surrender it based on broad generalisations. Instead, have it reviewed by a qualified planner to see if adjustments can improve its value. Terminating a plan prematurely could mean losing out on benefits built into its design.

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Here are some questions to consider:

• What type of ILP do you own: dual-objective, protection, accumulation, or single-premium?
• Has your adviser helped adjust coverage as your needs changed?
• Do you understand how premium allocations and long-term benefits work in your plan?
• What protection features (for instance, premium waiver riders) would you lose if you cancel the plan?
• Would keeping the plan better serve your retirement or protection goals compared to alternatives?

ILPs are not suitable for everyone, and like any financial product, they require proper structuring and regular review. But dismissing them outright as “bad products” risks oversimplifying the issue. 

Ultimately, what matters is not just the product chosen, but the quality of advice and the fit with individual needs and goals.

Ronald Wong
Managing director, Financial Perspectives