An investment or insurance bond is a basic type of a life insurance policy for investment purposes, which has a single premium. Life insurance companies offer this as an investment instrument, as it helps investors with long-term savings.
If the bond is held by investors for more than 10 years and no withdrawal has been made within that time, their earnings will be free of tax. These bonds are popular in countries like the United Kingdom, and some offshore locations, due to provisions of tax laws.
Conventionally, insurance bonds were termed as with-profits policies and were known as with-profit(s) bonds. However, unitized insurance funds have been introduced, the bonds have often been sold as unit-linked or investment bonds.
The number of bond insurers has increased over the years, the major providers being:
Investing in these bonds can be profitable because they offer income or growth and facilitate investors with the access to a variety of investment funds.
After the implementation of tax free ISA (Individual Savings Account) limit, they presently offer a large amount of tax benefits, attracting investment. Insurance bonds were typically invested only on the with-profit fund of the life insurance company, yet, since the latter part of the 1970s, insurance companies attempted to compete with the unit trust market directly. At that time, they offered a comprehensive range of unit-linked investment funds, with geographic and themed funds available for most sectors.
In 1979, Sun Life, a Canadian life insurance company, introduced the distribution fund. This was considered as an innovative step from other companies. A distribution fund is planned in such a way that investors can receive regular income,which will increase over time. This is accomplished by creating a balance between income generating assets, like corporate bonds and/or real estate that has equities, with the equity element facilitating growth, and the assets generating income. Distribution bonds have become highly popular since 2000. They replaced with-profit bonds because they were considered as the choice of low risk investment in the United Kingdom.
Last Updated on : 10th July 2013