Is bundling insurance and investment a good idea?
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Is bundling insurance and investment a good idea?

27 Nov
2 Jun

Most of us in Hong Kong have probably been approached by salespeople to make regular monthly payments into an insurance-linked investment plan, also known as Insurance Linked Assurance Schemes (ILAS).

They are often touted as an all-in-one solution, satisfying both your investment and insurance needs. But ILAS in recent years have faced criticisms and scrutiny around the lack of fee transparency, high fees and lacklustre returns not meeting initial expectations.

Increasingly, many are looking to adopt a"buy term, invest the rest" strategy instead, whereby you unbundle the two needs: insurance and investments.

Let's take a closer look to why it might be a sound strategy for you to consider.

Keeping cost of wealth protection low — "buying term"

Essentially, insurance is for wealth protection and income replacement. In the unfortunate event of your death, disability or terminal illnesses, the policy delivers a payout to alleviate financial stress on you and your loved ones.

In the market, there are two main types of plans which provide such coverage, generally known as term life and whole life plans. 

Term life insurance covers a fixed period say 10 or 20 years, whereas whole life coverage can go up to 100 years of age, or until death, depending on the plan.

The key difference between the two is that a term life policy has no investment or savings feature. For whole life insurance, the savings function include both guaranteed and non-guaranteed returns, which can come in the form of cash value or sometimes dividend payouts.

The concept of "buying term" is as literal as choosing to buy term life insurance and not co-mingling with other objectives such as investments or healtchare, and as a result you pay less in premiums for your life insurance coverage.

Flexibility of funds for wealth growth — "invest the rest" 

Another common type of insurance-linked investment plan in Hong Kong are Insurance Linked Assurance Schemes (ILAS). An ILAS is a life insurance policy with investment elements that provides both insurance protection and investment options but are generally more complicated than whole life in structure.

However, as with all hybrid insurance-investment products, there are key considerations of long lock-up periods, double layer of fees (both on policy and investment fund levels), high early surrender charges etc.

Hence, increasingly more people are looking at “Buy Term, Invest the Rest” as an alternative strategy - i.e. unbundling your insurance and investments needs.

Advantages of "Buy Term, Invest the Rest"

Instead of combining your investment with insurance through whole life policies, separately investing also gives you more flexibility when growing your money and lower cost. Let's take a look at the advantages of this strategy:

1. No lock up period

Firstly, the investment period is at your own discretion. Unlike whole life insurance where you have to commit to the entire policy duration, term insurance has no lock in period. As long as you’re paying, you will be covered.

Similarly, investing separately gives you the flexibility to decide if you want to stay invested. Anytime you wish to invest more money, you can. Anytime you wish to stop your investment, you can liquidate it as well.

2. Lower cost

Next, the built-in cost of investing into a investment-linked insurance policy is likely to be higher than that of a "buy term invest the rest" strategy.

An insurance company has to price in distribution, agent’s commission and investment cost into the whole life policy. These costs are often high and may not be obvious as they are embedded in the policy.

Hence, by buying term insurance and investing the premiums saved, you can opt for low-cost investment options at your own choice, such as investing in mutual funds or ETFs. This puts you in a better position to reap the best potential returns.

3. No penalties upon early withdrawal or surrender

Your financial circumstances may change anytime. Unlike investment-linked insurance where you may have to pay hefty early surrender charges, you can stop your investment and liquidate your investments in stocks or funds without losing to penalties or termination charges.

4. Choosing your investment strategy 

Finally, you can choose the investment strategy that suits your personality and lifestyle.

You can choose to invest a lump sum or setting up a fixed amount to deposit every month — also known as dollar-cost averaging (DCA).  Regardless of the investment strategy you choose, it is encouraged to give yourself exposure to different asset classes and diversify to reduce risks.

Hence, instead of investing through the insurer from a whole life policy, getting term life insurance and investing the rest allows you to diversify your investment portfolio. 

Is this the best strategy for everyone?

When it comes to personal finances, there is never a one-size-fits-all method. Below are three factors to consider if the “buy term, invest the rest” strategy will best serve you for years to come.

Protection needs

If you’re concerned about coverage at old age — like 99 years old, you’ll have to consider a renewable term life plan or whole life plan.

However, if you’re looking for protection over a fixed duration due to your priorities, having a fixed term instead of whole life coverage could be more suitable for you. Buying term insurance at the lowest premium leaves you more money available for investment, while maintaining suitable protection at various stages of your life.

Financial goals

Everyone has different financial goals. On top of wealth protection, it is important to generate investment returns for wealth growth to reach your goals. With the amount you save from getting term life instead of whole life, it can significantly generate more available cash for investment.

Investment knowledge and expertise

For some, the downside to utilising "buy Term, invest the rest" might be the burden to have to research and monitor your investments as opposed to relying on your insurance plan to do so.

The good news is, with digital wealth platforms such as Endowus, you can easily build your investment portfolios, leveraging our already templated Endowus model portfolios. You may also choose to DIY using over 200 Best-in-Class funds curated by our Investment Office through our Fund Smart platform.

Click here to get started with Endowus or schedule a 1-on-1 appointment with our SFC-licensed financial advisors at any time if you have any questions. on how to get started have your personalised investment portfolio when you choose to implement "Buy term, Invest the rest".


Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance or returns. Projected performance or returns is not guaranteed to materialise. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

General risk warnings relating to collective investment schemes 

Before making an investment decision, you are reminded to refer to the relevant prospectus/ offering document for specific risk considerations and related fees and charges. Funds are not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Some of the funds also involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them.

Complex Products

Some of the funds contained in this article are complex products and investors should exercise caution when investing in these products. Though these products have been authorised by the SFC, authorization does not imply official recommendation. SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance.


Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.  Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus HK Limited (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus HK Limited, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

No invitation or solicitation

Nothing contained in this article should be construed as a solicitation, an offer to buy or sale, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction in any jurisdiction in which such solicitation, offer to buy or sale would be unlawful under the securities laws in such jurisdiction. No information included in this article is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any advisory product or service; or an offer to buy or sell, or the solicitation of an offer to buy or sell, any security, financial product, or instrument; or to participate in any particular trading strategy. Investors should seek independent financial and tax advice before making any investment decision.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

This article  has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

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