winpieTaiwan-focused

Investment-Linked Insurance vs ETF

Investment-linked insurance is heavily marketed in Taiwan as a 'protection + investment' combo. But its expense layers — first-year front load, ongoing account management fee, cost-of-insurance charges — severely erode long-term returns. This tool compares same-contribution accumulation side by side.

Inputs

Both strategies invest the same amount for a fair comparison.

Investment-linked insurance (ILI) parameters

ILI policies often charge a 30–100% front-end load in year one, plus ~1–2.5% in ongoing expenses. Check your policy terms.

ETF parameters

Broad-market ETFs are typically 0.03–0.5% (VT 0.07%, 0050 0.35%, VTI 0.03%).

Results (after 20 years)
ILI balance
NT$3.68M
ETF balance
NT$4.37M
Difference
ETF ahead by NT$685.6K(+18.6%)
Total contributed: NT$2.4M

Calculation: contributions compound each year at the gross return minus the product's expense ratio. Under ILI, only 70% of the first-year contribution is actually invested due to the front-end load. This is a simplified model — real ILI policies also include cost of insurance, surrender charges, and policy administration fees, so the gap is usually larger.

Balance growth comparison

Typical long-term difference: 20-year accumulation gap of 30–60% favoring direct ETF investing. See Investment-linked insurance pitfalls for a detailed breakdown.

Better alternative for most: separate protection (term life insurance) + investment (low-cost ETF). Cheaper, more flexible, better returns.

Frequently asked

How is ILI different from savings insurance?
ILI lets the policyholder pick the underlying investments (mutual funds, ETF-like sub-accounts) and bear the performance risk; it's marketed as 'protection + investing combined'. Savings insurance pays a fixed amount specified in the contract — closer to a CD wrapped in an insurance policy. Both layer on front loads and management fees, but ILI's variable upside is more eroded by fees than buyers realize.
Why does direct ETF investing outperform so much over the long run?
Three fee layers: (1) front load: ILI takes 30-100% of year-1 premium; ETFs take 0%; (2) ongoing fees: ILI account management 1.5-2.5% annually; ETF expense ratio 0.03-0.5% (VTI is 0.03%); (3) cost-of-insurance: ILI deducts a rising charge with age; ETFs don't. Over 20 years the gap is typically 30-60%.
Can I trust the 'minimum guaranteed accumulation' claims?
Usually marketing language. Read which number is 'guaranteed' — it's typically a percentage of total premiums paid or account value, not a return. Returning 100% of premiums after fees is effectively 0% return; meanwhile ETFs over the same 20-year period historically returned 200-300% gross. The guarantee is rarely worth what it appears.
If I already have ILI, should I cancel?
Depends on holding period. Years 1-10 have heavy surrender penalties (you may get back only 30-50% of premiums) — surrender losses outweigh future fee savings. After year 10, front loads are amortized and ongoing fees are lower; consider (1) stop paying premiums but keep the protection; (2) partial surrender and redeploy into ETFs. Run this tool and /en/tools/savings-vs-etf side by side.
What's wrong with the 'protection + investing' combo concept?
It conflates two independent decisions: how much protection (amount, duration) versus what investments to hold (risk profile, goal). The cost of bundling is being locked into the insurer's investment menu and fee structure. Unbundling (term life insurance + low-cost ETF) costs 5-10× less and offers far more flexibility.
Does this tool store my policy data?
No. All math runs locally in your browser. Nothing is uploaded.

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