Concerns raised over investment-linked insurance plans as demand for them goes up in S’pore

Consumer complaints against investment-linked insurance policies (ILPs), hybrid products which allow one to invest and get insurance coverage at the same time, are at a high.

The number of complaints hit a peak in 2024 at 211, from 55 claims in 2023, according to the Financial Industry Disputes Resolution Centre (Fidrec).

In the first half of 2025, the claims dipped to 57, but still exceeds the 2023 full-year figure.

Many of the complaints pertain to market misconduct, which refers to practices like mis-selling or misrepresentation, inadequate disclosure of information about the ILP product or giving inappropriate financial advice, said Fidrec’s chief executive Eunice Chua. 

The rise in the complaints was first highlighted at the annual conference of the Association of Financial Advisers Singapore on July 24.

Consumers try to resolve the issue with their financial institution or insurer, failing which they can approach Fidrec for help.

Ms Chua said the majority or 57 per cent of ILP-related claimants are aged 50 and below, according to claims data from 2022 to the first half of 2025.

Those who are in the 61 and above age cohort comprise 16 per cent of claimants, while the remaining 27 per cent of complaints are made by those who are between 51 and 60 years old. 

ILPs have seen strong growth since 2022 as consumers turn to them for their investment and insurance needs, said Mr Chan Wai Kit, executive director of the Life Insurance Association (LIA) Singapore.

He added that new ILP business grew by 72 per cent to $2.25 billion in 2024, from $1.31 billion in 2022.

The positive momentum for ILPs continued into the first half of 2025, with new business increasing 31.3 per cent from the same period a year earlier to $1.28 billion.

Mr Alex Lee, president of the Singapore Actuarial Society (SAS), said investment-oriented ILPs have been a major driver of the recent ILP sales growth here.

These ILPs are geared towards investments and returns. As such, the insurance coverage is minimal at an additional 1 per cent to 5 per cent of the total premiums paid.

Mr Lee noted that such plans can often be bought without medical underwriting because the insurance risk to the insurer is small.

The other type of ILPs, the protection-oriented ones, offer substantial insurance protection in the event of death. The death benefit, in this instance, is usually expressed as a multiple of the total premiums paid, Mr Lee said.

The variety of ILP options in the market can be confusing for the consumer, noted Mr Kenneth Har, Fidrec’s assistant director of alternative dispute resolution.

Fidrec found during its mediation sessions that most consumers do not really understand what an ILP is.

“They thought that it is some kind of endowment policy or savings policy that will give them regular returns,” Ms Chua said.

But the returns actually fluctuate depending on how the chosen sub-funds in the ILP perform in the markets, she added.

Sub-funds are investment funds that are managed by professional fund managers and available only to policyholders of the ILP plan. 

The Monetary Authority of Singapore (MAS) is seeking feedback on whether these ILPs should be classified as complex products, with a prominent red band to alert customers of such.

A spokesperson said the returns of an ILP are subject to the sub-funds’ performance and ongoing insurance premium charges.

These factors, the spokesperson noted, are generally beyond investors’ control and are not known beforehand, so it is difficult for them to get a gauge of the ILP’s risk and return characteristics.

Ms Chua said the role of the financial adviser takes on greater importance, especially for ILPs.

In Singapore, financial advisers are regulated under the Financial Advisers Act. 

The MAS spokesperson said that financial institutions (FIs) and their representatives are required to demonstrate that they have considered their clients’ needs and financial circumstances before recommending suitable investment products to them.

“Material information, such as a product’s features, fees and charges, as well as associated risks, must also be clearly communicated and disclosed,” the spokesperson added.

Ms Chua cited a real-life case study where a financial adviser had failed in his duty to his clients. 

The adviser mis-sold an ILP as a plan that would allow the customer to earn relatively higher interest rates than what fixed deposits offer. 

The client, Mr Goh (not his real name), is a 63-year-old stallholder with primary school education and is not proficient in English. He planned to retire in about five years’ time and was looking for a stable source of income after retirement.

Mr Goh took up the policy and later realised that he had purchased an investment-linked plan that is invested in high-risk equity funds.

The capital was not guaranteed and he realised he could potentially get back less than what he put in at the end of the 10-year term.

Fidrec further found out during the mediation session that the financial adviser had put in the sales documentation that Mr Goh has a high risk appetite and a long investment horizon, which is inconsistent with his profile.

The financial adviser had also conducted the sale in Mandarin but had documented that Mr Goh is proficient in English.

The customer was subsequently awarded a refund amounting to 70 per cent of the premiums paid less any dividends received.

Mr Lee Meng Choe, executive director at Gen Financial Advisory, said some financial advisers may have focused on “selling the ILP product” instead of taking a planning approach.

He added that financial advisers are supposed to map out a financial plan with clients and from that plan, determine suitable financial products for them. 

A product-led rather than planning-led approach could lead to bad outcomes for ILP sales, he said.

Mr Lee added that ILPs are often marketed with attractive customer incentives that result in overcommitments or impulse buying.

In the context of the above case study, Mr Goh, the stallholder, is a selected client. Selected clients refer to those who meet any two of the following criteria:

• They are 62 or older

• They are not proficient in spoken or written English

• They have below O- or N-level certifications, or equivalent academic qualifications

The MAS spokesperson said financial institutions must implement additional safeguards when recommending products to selected clients. 

For instance, before the sale can be completed, a supervisor from the financial institution must call the customer to check if he understood the product features and its associated risks, the spokesperson added.

From Dec 29, 2025, there will be additional requirements, including having a trusted individual such as a family member or caregiver present with the selected client, during the sales and advisory process.

MAS will take firm enforcement action against an errant financial institution and its representative, if there is any wrongdoing.

The spokesperson said enforcement actions taken range from public reprimands and composition penalties, such as monetary fines, to prohibition orders.

MAS also publishes its enforcement actions on its website to send a deterrence signal to the industry.

The regulations are in place to protect investors. They too, can play a part in their own investments. Ms Chua said they should not sign off on any documents that they have not read or that they do not understand.

“It is important for people to realise that when they sign off on the document, it means that they have read and accepted the terms,” she added.

While some may say that the policy documents are too long and not possible to read, Ms Chua noted that consumers can look out for phrases like “not guaranteed” and “possible loss of the principal amount invested”.

She added that they can also watch out for certain behaviours that are red flags.

“For example, if the financial adviser is pressuring them to sign quickly because the promotion will expire, this is a red flag.”

There is a free-look period of 14 days from the receipt of the policy document and consumers can decide to cancel the policy during that period so there is “no real reason to have to hurry to make an investment decision”, she said.

Ms Chua noted that another red flag consumers should watch out for is whether their financial adviser takes the signing of policy documents as a checkbox exercise, telling them to “sign here, here and here”, without going through the documents.

Ultimately, consumers could consider three factors when deciding whether an ILP is suitable for them, said LIA’s Mr Chan.

First is whether one has the risk appetite for the product. ILP returns are not guaranteed and investment risks are borne by policyholders, he noted, adding that consumers should ask themselves if they are comfortable with the possibility of their ILP returns being affected by market volatility.  

Consumers also need to consider their financial situation. Do they have enough savings and a stable income to maintain premium payments over the planned long term, he said.

And lastly, Mr Chan said they will need to consider their insurance protection needs. What is the level of insurance coverage they need from the ILP, bearing in mind that higher insurance coverage may reduce the amount invested for growth. 

Mr Lee Meng Choe from Gen Financial Advisory noted that ILPs are not designed for short- to mid-term investments and are more suitable for customers who have an investment horizon of at least 10 years or more.

There is no one-size-fits-all. SAS’ Mr Alex Lee said some customers prefer the convenience of an ILP, combining protection and investment under a single plan. However, this comes at a cost because customers will have to pay for the insurance coverage. 

Alternatively, he said, others may prefer to “buy term, invest the rest”, which essentially means separating their insurance protection from their investments.

This typically involves purchasing affordable term life insurance and investing the rest of the money, which would otherwise have gone into an ILP.

Regardless of choice, customers should review their investment and insurance portfolios regularly and seek professional financial advice if necessary, Mr Alex Lee added.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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