Where the costs of whole life sit: how to read illustration rates, effect of deductions and total distribution cost in a policy illustration

The form costs take: allowed for in the premium, not absent

The costs of participating whole life are not deducted item by item as explicit management fees or policy fees. MAS Notice 320 requires the product summary to give examples of the types of expenses the participating fund may incur, and to state that these expenses have been allowed for in calculating the premium and are not charged to policyholders separately (Appendix B). The expense types listed in Etiqa's summary include investment expenses paid to fund managers; claims such as death and surrender; marketing and distribution-related costs; administrative costs of underwriting new business; management and overhead expenses; and commission paid to advisers or intermediaries (Etiqa Version 2.25). Not charged explicitly does not mean no cost: these expenses affect the non-guaranteed bonuses declared each year through the fund's total expense ratio and distribution costs.

At the regulatory level, MAS requires expenses allocated to the participating fund to be fair and reasonable and not to prejudice the interests of participating policyholders; the insurer must carry out an expense study at least once a year and have its methodology audited by an independent party at least every three years (Notice 320, 16 November 2020).

The two illustration rates: what 4.25% and 3.00% are, and are not

A policy illustration (利益说明) must illustrate the non-guaranteed portion at two investment rates of return to show a reasonable range. LIA announced on 2 June 2021 that from 1 July 2021 the upper tier for Singapore-dollar participating policies may not exceed 4.25% p.a. and the lower tier may not exceed 3.00% p.a., with the lower tier at least 1.25 percentage points below the upper; the previous caps were 4.75% and 3.25%. The two LIA documents differ on review frequency: MU 22/18 clauses 2.5 and 2.13 originally provided for LIA to review the caps every three years, while the 2 June 2021 media release and LIA's current explanation page say annually, and the latter prevails; LIA's explanation page (accessed October 2026) still lists the revision effective 1 July 2021 as the most recent, so for current figures refer to the latest LIA announcement and the policy illustration issued by the insurer.

What it is not: not a forecast for the fund, not the expected return on the policy, and not a ceiling or floor. YGTPP states explicitly that the two rates should not be taken as a forecast of the policy's return on surrender, maturity or claim (May 2020). MU 22/18 also requires that bonuses illustrated under the upper scenario may not exceed current bonus levels unless the reason is explained, and MAS Notice 320 requires that the assumptions in the full policy illustration provided with the annual bonus update may not exceed the industry's best estimate of long-term investment returns.

How to read the cover page and the effect-of-deductions table

Under MU 22/18 clause 1.1, the cover page, policy illustration and product summary are provided in that order together with Your Guide to Life Insurance. MoneySense explains that the cover page is there to let you see the most important information at a glance (11 May 2026). The 2018-edition cover page for participating whole life included: the total illustrated yield on surrender at a given age under each of the two illustration rates, where age N is the later of entry age plus 40 years and age 65 (clause 2.6); the fund's investment returns and total expense ratio for the past 3 years; total distribution cost and its percentage of total premiums payable; a warning about early surrender; and an explanation of the free-look period. MU 22/24 has superseded the 2018 edition; the current columns follow the documents the insurer issues.

The effect of deductions (扣减影响, Effect of Deductions) is defined as the value of premiums accumulated at the illustration rate less the total surrender value; it is the cumulative total of the cost of insurance, distribution costs, expenses, surrender charges, expected tax and transfers to shareholders (MU 22/18 Appendix IV(a)). The table below is a worked example, continuing Illustrative Policy A from Cash value and bonuses, with premiums paid at the start of each policy year and accumulated at 3.00%; the figures are made up and are not a quotation.

Two points on reading it. First, in this example the effect of deductions rises and then falls: costs are front-loaded, and the gap narrows as bonuses accumulate; the curve for a real product is whatever the policy illustration shows. Second, it is not all avoidable cost, because it includes the cost of insurance that pays for your cover.

Total distribution cost: definition and how to read it

Total distribution cost (总分销成本, Total Distribution Cost) is the sum of the distribution expenses the insurer expects to incur in relation to the policy, excluding interest; LIA's guidelines explain that it includes cash payments to the distribution channel, such as commission, as well as benefits and the cost of servicing, and stress that it is not an additional charge but has already been allowed for in the premium (MU 22/18). It is shown in a table of its own and disclosed on the cover page as a percentage of total premiums payable (2018-edition template). Only the disclosure basis is discussed here; no company's internal rates are involved.

Two reminders: distribution costs are calculated separately for each channel's remuneration structure, and the guidelines require the actuary to use best estimates; in addition, Direct Purchase Insurance (DPI) is outside the scope of this distribution-cost disclosure (MU 22/18 Appendix I). Total distribution cost answers how much the sales and advice process is expected to cost; it does not answer whether the product is good.

Three figures in the product summary

Taking Great Eastern's update for 2025 as an example: the SGD portfolio's net investment return for 2025 was 8.83% and the 3-year average 6.47%; the total fund TER excluding the USD portfolio was 1.13%, with a 3-year average of 1.28%. These figures show only how to read the columns, say nothing about the company's merits, and past performance is not indicative of future results. Different companies group their funds by currency or product series in different ways, and the scope of the TER statistic may also differ, so align the bases before setting them side by side.

Eight checks when reading a policy illustration

1. Which illustration rate tier, and which age, the total illustrated yield is taken from.
2. What the two illustration rates are, and whether they are within the LIA caps.
3. Whether the guaranteed column at years 10 and 20 is still below cumulative premiums paid.
4. The share of the surrender value that is non-guaranteed.
5. The year in which the effect of deductions is largest.
6. Total distribution cost as a percentage of total premiums payable.
7. Net investment returns, TER and bonus rates for the past 3 years, remembering that they describe the fund, not your policy.
8. When comparing with other options, whether the same currency, basic sum assured, premium term and illustration rate tier were used.

The full pre-purchase checks are in the Pre-purchase checklist, and the six-product comparison in Like-for-like comparison. If you need help interpreting a particular policy illustration against your own circumstances, you can register your request through the contact details on this site.