Insurance

Investment-Linked Insurance: Types, Fees & Risks

Author Bowtie Team

Updated on 2025-06-19

Disclaimer: This article is translated with the assistance of AI.

What is investment-linked insurance? Dive in as the Bowtie team compares various types, highlights the pros, cons, and fees, and explores other life insurance options to help you make smarter choices.

What is Investment-Linked Insurance?

Investment-linked insurance generally refers to life insurance plans tied to investments, often called Investment-linked Assurance Scheme (ILAS) or simply ILAS. It offers life protection while providing investment options in a long-term life insurance policy. This type of insurance is ideal for investors who plan to hold it long-term and are okay with potential surrender charges.

For these policies, if the insured passes away, the insurance company will pay a lump-sum death benefit. Policyholders can also withdraw the policy account value, which fluctuates based on investment performance, when surrendering the policy or at maturity.

The policy value of ILAS depends on the performance of the “related or reference funds” linked to your investment choices (usually funds approved by the Hong Kong Securities and Futures Commission). Returns can swing with market conditions and come with risks. Keep in mind, though, that as a policyholder, you only own the ILAS policy itself—not the assets in those funds; the insurance company holds that.

Beyond the life insurance premiums, ILAS charges include administrative fees and other costs for the investment platform. Plus, these products come with a 21-day cooling-off period, giving you the option to cancel the policy contract if needed.

Types of Investment-Linked Insurance

Investment-linked life insurance available in Hong Kong can generally be divided into three categories based on the level of life protection and death benefit features.

1. Protection Linked Plans (PLP)

Classification: High Protection ILAS
Suitable for: Those who want higher life protection and aim to invest through a life insurance policy
Death Benefit Features: If the insured passes away before age 65, they receive at least 150% of total premiums paid (minus withdrawals); for age 65 or older, it’s at least 105% of the policy value or total premiums paid (minus withdrawals), whichever is higher. This means death benefits could drop significantly after age 65 (or another specified age in the policy).
Premium Level: Higher compared to low-protection ILAS

2. Capital-Protected Investment-Linked Insurance

Classification: Low Protection ILAS
Suitable for: Those who want to invest via a life insurance policy and ensure premiums are passed on as a death benefit to designated beneficiaries
Death Benefit Features: Death benefits are calculated on a capital-protected basis: 100% or 105% of premiums paid (minus withdrawals), or 105% of the account value, whichever is higher.
Premium Level: Lower compared to high-protection ILAS

3. Light Protection Investment-Linked Insurance

Classification: Low Protection ILAS
Suitable for: Those who want to invest through a life insurance policy and pass on the policy’s investment value as a death benefit to designated beneficiaries
Death Benefit Features: Death benefits are set at 105% of the account value.
Premium Level: Lower compared to high-protection ILAS

Fees and Other Charges for Investment-Linked Insurance

Unlike participating life insurance and term life insurance products, investment-linked insurance comes with the following different fees and charges:

Policy Charges

Paid to the underwriting insurance company, including insurance fees, platform fees, and charges for early surrender or withdrawal of funds
In the first year, policy charges can reach up to 26%–100% of the regular premium*
Insurance fees: Cover the costs for the insurance company to provide coverage
Platform fees: Cover the expenses for the insurance company to handle investment transactions, communicate with investors, and provide administrative and other related services. For individual investment-linked policies, administrative fees range from a fixed annual amount of 50–90 USD, or as a percentage of regular contributions or account value (ranging from 0.5%–9% annually)*
Early surrender or withdrawal charges: For some investment-linked policies, the first-year surrender fee can be as high as 100% of the surrender or withdrawal amount, meaning you might not get any money back if you surrender in the first year*

Related or Reference Fund Charges

Paid to the management company of the corresponding investment options
For example, management fees, trust fees, custody fees, performance fees, and switching fees
Fund management fees can range from 0.2%–3% of the net asset value*

* The figures for related fees are sourced from the Consumer Council’s press release “Many Types of Charges for Investment-Linked Insurance”

Risks of Investment-Linked Insurance

While investment-linked insurance offers the dual benefits of investment and life coverage, it comes with several potential risks. In fact, Hong Kong has seen numerous cases where policyholders faced significant losses:

According to Local newspaper reports, between 2013 and 2019, a scam syndicate used a platform from a major Hong Kong insurance company to defraud over 260 investors, involving losses of around HK$4.75 billion
As reported by Local financial media , a policyholder in their late 40s was misled by an insurance intermediary into buying a 30-year investment-linked policy, ultimately leading to a lapse and a loss of over HK$300,000 in premiums. In another case, an intermediary failed to clearly explain policy details and risks to a couple, even exaggerating their family income and assets, resulting in the couple losing HK$1 million in paid premiums

To avoid potential losses, anyone considering a policy should pay close attention to the following before signing:

The policy account value is tied to investment performance, so poor results could affect the account value and life benefits. It’s wise to have solid investment knowledge and market awareness, and carefully select your policy’s investment mix
Any return rates mentioned by intermediaries or in policy documents are just hypothetical and not guaranteed; actual performance can fluctuate, potentially causing significant changes in account value
If you choose to surrender or withdraw early, especially in the first few years, the fees can be steep, leading to substantial losses on premiums paid—so this might not suit those needing liquidity in the short or medium term
If the value of your chosen investment options drops, you might not recover the full amount of premiums paid
The insurance company charges various fees on investment-linked policies, which means overall returns could be lower than investing directly in the “related or reference funds”
Policies or investments might be denominated in currencies other than Hong Kong dollars, so returns could involve exchange rate risks

Pure Life Insurance Might Be More Suitable for You

If you’re after straightforward, cost-effective life coverage without the bells and whistles of savings or investments, term life insurance (pure life) could be your best bet. Bowtie Term Life provides a one-time payout to your beneficiaries if the unthinkable happens, and its standout features include:

Pure protection, with absolutely no savings element
For the same premium, get up to 40 times more coverage than standard savings-based life insurance*
For every HK$1,000,000 in coverage, the monthly premium is as low as HK$38

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* Based on the standard premium for a 35-year-old non-smoking female insuring HK$1,000,000; Term Life Insurance: Data as of July 1, 2020, for standard premiums of term life insurance (20-year coverage period) in the market

Sources

Author

Bowtie Team

The Bowtie Life Insurance Company Limited is an authorized life insurance company and Hong Kong’s very first virtual insurer approved. Through the use of modern technology and medical expertise, Bowtie offers an agent-free, commission-free and more convenient online platform for customers to quote, apply and claim for Voluntary Health Insurance Scheme (VHIS) anytime anywhere. Bowtie is ranked first in the direct channel sales throughout 2021. Stay up to date at www.bowtie.com.hk