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Pros & Cons of Investment-Linked Policies for Life Insurance

Investment-Linked Insurance Policies

Investment-linked life insurance policies are a unique set of insurance products. Unlike other products, they come with an investment component in addition to providing insurance coverage. These life insurance plans allow people to earn higher returns while enjoying the benefits of insurance coverage.

Investment-linked policies are in high demand in Singapore. However, very few people have a clear understanding of what the products are about. The structuring of the products essentially means they are not as straightforward as other life insurance products.

Additionally, it is essential to remember that every investment product comes with its pros and cons. The same is the case with investment-linked life insurance products in Singapore.

Below are some of the pros and cons to consider before signing an agreement for an investment-linked life insurance policy.

Investment-Linked Life insurance Policies Pros

Higher Returns

The investment aspect tied to the life insurance policy provides a way for people to earn returns while remaining covered. Compared to other insurance policies, ILPs come with higher returns that make them lucrative.

What happens is that each premium made every month goes towards the purchase of fund units. Fund managers hold the units on behalf of policyholders until they decide to redeem them. The amount of returns that one gets to walk away with depends on market forces as well as the investment period.

Insurance Coverage Flexibility

Unlike other types of life insurance policies, ILPs come with higher levels of flexibility on coverage. One can use each of the units bought on the investment front to cover for charges of insurance premium. Such a play goes a long way in increasing one’s insurance coverage and covering the higher cost of insurance.

Using fund units to cover for insurance coverage to some extent, reduces the amount one has to pay on premiums for higher coverage. Using the units to cover for premiums, however negatively affects one’s final returns on the investment front.

Premium Payment Break

Investment-Linked life insurance policies come with a provision that allows people to enjoy premium payment breaks. During premium payment holidays, invested units cater for premiums as well as other fees.

Premium holiday applies mostly on people who have invested in a significant amount of fund units. The provision is of great help as it allows one to continue enjoying coverage even on failing to make monthly premium donations.

Investment-Linked Life insurance Policies Cons

Return Risk

Unlike other investment products, there is usually no guarantee that one will get returns with Investment-Linked Life insurance policies. However, it does not mean that one stands the risk of losing their invested capital.

The use of units to pay for premiums at times reduces the number of returns that one stands to walk away with. Likewise, the fact that market forces affect the performance of the invested units can, at times lead to lower returns in one way or another.

Reduced Insurance Coverage Risk

The cost of insurance coverage tends to increase with age. The cost of insuring a 50-year-old tends to be much higher compared to insuring a 25-year-old. Conversely, there reaches a point whereby ILP fund units are insufficient in catering for both coverage and investments.

If this were to happen, then one would only be able to pay for insurance and struggle to make payments for investments. The result would be paying for a glorified life insurance plan without any monetary benefit or growth. To enjoy the investment aspect of the life insurance policy, one would have to pay more premiums, which makes the policy outwardly expensive.


Conducting due diligence and analysing the pros and cons is of utmost importance before investing in, Investment-linked Life insurance Policies. One should avoid the temptation of picking an investment product solely on promised returns without considering the risks involved.

Dennis Lee

Financial Services Manager

Dennis Lee’s experience spans over 27 years in the Life Insurance Industry. He began his journey in Pana Harrison back in 2000 and is a competent Financial Services Manager.

Specializing in both Commercial & Individual insurance needs, his clients has been with him for the past 20 years and counting.