Investment-Linked Assurance Scheme (ILAS) Fees Lack Clarity: How to Enhance Transparency? | 10Life

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As mentioned in a previous article, if the benefit illustration document for Investment-Linked Assurance Schemes (ILAS) could disclose the expected surrender value under a loss scenario, it would help manage consumer expectations. Furthermore, if such documents could include an additional column showing the “actual fees and charges” of ILAS under different scenarios, it would enable policyholders to gain a clearer understanding of the product costs.

According to the Guideline on Benefit Illustrations for Long Term Insurance Policies (Guideline 28) (Note 1) issued by the Insurance Authority, benefit illustration documents should reflect all policy-level fees and charges (excluding fund management fees). However, these fees and charges are incorporated into the expected surrender value and death benefit, without a separate column for independent disclosure. This makes it difficult for policyholders to understand how much the insurance company has charged in fees over the policy term and under different return assumptions.

Adding a Column for Actual Fees to Enhance Policyholder Understanding

Using AIA’s ILAS product “卓達智悅” as an example, consider a 40-year-old male who invests a lump sum of HKD 1 million. In addition to listing the expected surrender value in the 20th year under annual returns of 0% and 3% as per the benefit illustration document, the 10Life actuarial team was tasked to estimate the expected surrender value for the same period under a 3% annual loss scenario.

This expected surrender value includes fees and charges. To determine the specific fees and charges for the aforementioned ILAS, the 10Life actuarial team was asked to calculate the expected surrender value in the 20th year under different return scenarios, excluding fees and charges. By subtracting the two figures, the specific amount of fees and charges can be presented from an independent and clear perspective. (See the chart below)

Chart 1: Expected Surrender Value of the Above ILAS Under Different Return Scenarios (With and Without Fees)

Notes:

The above ILAS benefit illustration document assumes the insured is a 40-year-old male, with a lump sum premium of HKD 1 million, and the policy term is the 20th year. The expected surrender value listed is calculated based on the net return rate. For instance, with a 3% return, the 10Life actuarial team simulated a maximum TFCD percentage of 24.27%, which slightly differs from the 24% stated in the product fact sheet;
The net return rate is calculated after deducting the fees and charges of the reference fund levied by the fund company, and these fees and charges may vary depending on the reference fund;
10Life collects publicly available information from insurance companies through various channels, including product fact sheets and benefit illustration documents, striving for the highest accuracy in calculating the above figures. These figures are for reference only and do not consider your personal needs. They are absolutely not sales advice. Users should discuss with a licensed insurance advisor before purchasing a policy;
The above information is updated as of 16 September 2021.

Based on the chart above, with an annual return of 3%, the expected surrender value in the 20th year is HKD 1.45 million. If fees and charges are excluded, the expected surrender value rises to HKD 1.87 million, a difference of up to HKD 420,000 (see Chart 1).

For an annual loss of 3%, the expected surrender value in the 20th year is only HKD 430,000. After excluding fees and charges, the remaining value is HKD 570,000, meaning that in addition to the loss, fees and charges further erode approximately HKD 140,000. If these specific fees could be clearly and independently listed in the benefit illustration document, it would greatly enhance policyholders’ understanding of the product.

Last month, the author enquired with the Insurance Authority whether a column should be added to the benefit illustration document to highlight the actual fees and charges of ILAS under different policy terms and assumed returns, allowing policyholders to have a clearer picture of the product’s reality.

The Insurance Authority responded that it has consistently strived to balance transparency with avoiding overwhelming general customers with excessive information, in order to promote the healthy and sustainable development of the insurance industry. It will periodically review the current regulatory framework to ensure alignment with international regulatory standards and industry developments.

TFCD Formula Not Disclosed in Product Fact Sheet

In 2013, the Securities and Futures Commission (SFC) enhanced disclosure requirements for ILAS by implementing the Total Fees and Charges Disclosure (TFCD) requirement (Note 2). The Key Facts Statement (KFS) must list the percentage of fees and charges paid to the insurance company relative to the total contributions (TFCD percentage), making it easier for consumers to identify ILAS charges. However, several issues remain:

The TFCD percentage formula is quite complex (Note 3). Whether an insurance company adopts a front-end or back-end charging model affects the percentage, failing to reflect the actual charging situation;
The comparability of TFCD percentages is limited. For example, “lump sum premium” and “regular premium” ILAS already have inherent differences in assumptions. The former involves a one-off payment held for 20 years, while the latter involves instalment payments over a longer period;
In some cases, “Product A” may have lower charges for most fee items compared to “Product B”, yet its TFCD percentage is higher;
The TFCD percentage only reflects policy-level charges and does not account for fund-level charges;
ILAS charge items are numerous, such as administrative fees, portfolio management fees, withdrawal fees, etc., and the terminology is not standardised, making it difficult for consumers to compare.

10Life Suggestions for Improving Benefit Illustration Disclosure

According to media reports, the Insurance Authority is currently discussing with the industry the development of ILAS with higher protection elements, with death benefits expected to reach 150% of the policy value. Termed Protection-Linked Plan (PLP), it is currently in the guideline drafting stage for consultation.

The author welcomes all measures by the Insurance Authority that enhance consumer rights and suggests that the authority seize this opportunity to improve ILAS disclosure requirements:

A loss scenario should be added to the benefit illustration document, allowing policyholders to clearly understand potential loss risks and manage expectations more easily;
The benefit illustration document should explicitly list the actual fees and charges incurred by ILAS under different years and assumed returns, presented in a separate column to enhance product transparency;
For each ILAS product, the issuing insurance company should be required to disclose the detailed TFCD formula in the product fact sheet to increase transparency;
Standardise the terminology of fee and charge items in the product fact sheet to avoid consumer confusion, making it easier for them to compare and reducing misunderstandings.

Notes:

Guideline on Benefit Illustrations for Long Term Insurance Policies;
SFC updated ILAS disclosure requirements in 2013;
The SFC’s Total Fees and Charges Disclosure outlines the TFCD formula.

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.

Last updated: 9 Apr 2026

10Life Editorial Team

Our team of professional content researchers focussing on insurance

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10Life Editorial Team

Our team of professional content researchers focussing on insurance

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