Investment Bond

 

An Insurance Bond (or Investment Bond) is a single premium Life Assurance policy for the purposes of investment . Due to tax laws they are a common form of investment in the UK and some offshore centres. Investment Bonds can provide income or growth and have access to a wide range of investment funds.

 

Investment Bonds offer access to a wide choice of unit-linked investment funds. Geographic and themed funds for almost every sector are available, similar to OEICs and Unit Trusts.

 

Like open-ended investment funds investment can be made by by investing a one-off lump sum (a single premium). Some single premium policies also have a fixed term but most are open-ended.

 

 

Investment in a life assurance policy results in a proportion of the initial contribution being used to buy life assurance that pays a fixed sum of money on death before the end of the policy. For single premium policies the amount of life assurance is usually minimal.

 

Most life assurance policies allow you to switch between funds once a year without charge. Some companies make a charge for more than one switch per year, while others allow several switches without charge.

 

Your single premium (after any costs) buys units, which give you the right to share in the return from your chosen fund(s). The return you achieve, and the risk you take, will depend upon the amount of costs taken from your contribution, the quality of the insurance company's investment management and on the underlying investments – the asset classes chosen. For further details on Risk Analysis and Portfolio Planning, please have a look at the Portfolio Planning page under the Services section.

 

The risk to your money is similar to the risk with open-ended investment funds. Most single premium Life Assurance bonds are open-ended like funds; that is they don't have any fixed term. However, it is generally best to hold them (and open-ended investment funds) for at least five years. Some Life Assurance bonds do have a fixed term and this is likely to mean penalties if you cash in early. Also, some bonds, although they do not have a fixed term, have penalties if you cash it in within, say, five years.

 

 
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Like many open-ended investment funds there is normally a bid/offer spread of, typically, 5% which is the effective cost. However, Life Assurance investments also have an allocation rate.

 

An allocation rate of 100% means that all of your investment is put into the contract. An allocation rate of 102% means that you get an extra 2%. However, the bid/offer spread will still come off your investment. In addition, an Annual Management Charge will also be taken from the fund to pay for the management of your investment.

 

Any income or capital gain within a Life Assurance fund is taxed at different rates depending on the type of investment. If you withdraw your money and are a basic rate, lower rate or non-taxpayer then you are not subject to further taxation. Higher-rate taxpayers will have to pay an extra 20% tax on the gains. Lower rate and non-taxpayers cannot reclaim the tax paid within the fund.

 

You are able to withdraw 5% of the original investment each year without any immediate tax liability and so may defer the payment of tax for up to 20 years. Higher-rate tax payers, therefore, may receive a 5% per annum income each year (for up to 20 years) which has only been taxed at around the basic rate. The tax deferred will not be paid until the policy is finally cashed in.