Reading an ILP fund fact sheet
An investment-linked policy's fund fact sheet tells you where your premiums are actually invested and what it costs. Here is what to look for before you sign.
An investment-linked policy (ILP) bundles life cover with an investment in one or more sub-funds, and the document that tells you exactly which sub-funds are involved, how they have performed and what they cost is the fund fact sheet. Insurers are required to send you regular updates on the sub-funds you hold, but the fact sheet you should read most carefully is the one attached before you buy, because it is where the assumptions behind your quotation live.
What a fact sheet is actually showing you
A fund fact sheet describes a single sub-fund: its investment objective, the asset classes and markets it holds, its historical performance over a few time horizons, and its charges. None of this tells you what your policy itself will pay out, because that depends on your premium, your sum assured, your age, and how much of each premium is used to buy units versus pay for insurance and other charges. Treat the fact sheet as information about the engine, and the Policy Illustration and Product Summary as the documents that tell you what the whole vehicle does with your money.
The sections worth slowing down for
- Investment objective and strategy. This states what the fund is trying to achieve and how, for example an equity fund targeting long-term growth versus a cash or bond fund targeting capital stability. Check that it matches what you think you are buying; fund names can be marketed in ways that oversell how adventurous or conservative they are.
- Asset allocation. A breakdown of where the money actually sits, by asset class, sector and geography. Two funds with similar names can have very different concentrations.
- Historical performance. Shown over several periods, usually including since inception. Past returns say nothing about future performance, and the fact sheet itself will normally say so. Use it to understand the fund's volatility and behaviour in down markets, not to project future gains.
- Charges. Sub-fund charges reduce the units you hold regardless of performance, and are separate from the insurance charges that fund your death or disability cover. Ask specifically for the total expense ratio or equivalent, and compare it against similar funds.
- Risk classification. For sub-funds under the CPF Investment Scheme, the CPF Board assigns a risk rating as a broad guide. It is a starting point for whether the fund suits your risk profile, not a substitute for your own judgement.
Why the insurance side changes the picture
Every year, some of your ILP's units are sold to pay for the cost of insurance, and that cost typically rises as you get older even if your sum assured stays the same. If the sub-fund performs poorly in a year when insurance charges are climbing, more units are sold to cover the shortfall, leaving fewer units invested going forward. In a bad enough combination of high coverage and weak fund performance, your units may not be sufficient to cover the charges, and you would need to top up your premium or reduce your coverage to keep the policy going. None of this is visible on the fund fact sheet alone. It is why the fact sheet has to be read alongside the Policy Illustration, which shows the insurance charge deductions at both a guaranteed and an illustrated rate of return.
Questions to bring to the sales discussion
- What proportion of my premium buys units versus pays for insurance and other charges, in year one and in a later year?
- What is this sub-fund's expense ratio, and how does it compare with similar funds available under the same policy?
- How many free fund switches do I get a year, and what does a switch cost after that?
- If the sub-fund underperforms for several years in a row, what happens to my death benefit and my ability to keep paying premiums?
- Is this sub-fund categorised as a Specified Investment Product, and if so, has my knowledge and experience been assessed for it?
When an ILP is, and is not, the right tool
An ILP suits someone with a long investment horizon who wants to combine protection with market exposure and values the flexibility to switch funds, vary coverage, or top up and withdraw as circumstances change. It is a weaker fit if your main goal is either pure protection at the lowest cost, where a term plan usually wins on price, or straightforward investing, where a unit trust or ETF without the insurance wrapper may cost less and be simpler to track. Before comparing ILPs against each other, it is worth asking whether an ILP is the right category at all for what you are trying to do, and our coverage gap check is a reasonable place to start that conversation.
Talk to an advisor
Fund fact sheets are written for comparison, not for a decision on their own, and pairing the investment side with the insurance charges takes some arithmetic most buyers do not do unprompted. A licensed advisor can walk through both halves of an ILP quotation with you and show how the numbers move under different fund performance assumptions. Find one through the portal's advisor matching, or bring a specific fact sheet to our assistant and ask it to explain a section you are unsure about.
Sources
This content is educational information from a licensed advisor, not financial advice. Product details vary by insurer — verify specifics with an advisor.
