- Insurance bond
An insurance bond (or investment bond) is a single premium
life assurancepolicy for the purposes of investment.
Traditionally insurance bonds were with-profits policies and were often called "with-profit(s) bonds". Since the introduction of
unitised insurance funds they have often been marketed as "unit-linked bonds" or "investment bonds".
Why invest in an insurance bond?
There are many reasons why bonds would provide a suitable investment vehicle for your money, though for most people Unit Trusts and Oeics are more tax-efficient. This has become even clearer since changes to Capital Gain Tax in the 2008 budget. Useful features of Bonds for more specialist planning scenarios include the tax deferred status, the ability to write the investment in trust and reduce the inheritance tax liability on an estate, and exclusive access to expensive investment links like guaranteed or protected profits funds are to name a few. Bonds can provide income or growth and when income is required there are now bonds that can offer a set minimum guaranteed income for life of the plan holder.
Many financial advisers prefer insurance bonds to Unit Trusts and Oeics because they typically pay 7% commission.
Range of investment funds
Traditionally investment bonds only invested in the with-profit fund of the insurance company. However, since the late 1970s the insurers have tried to compete directly with the
unit trustmarket in offering a wide choice of unit-linked investment funds. Geographic and themed funds for almost every sector are available.
One innovation from the insurers is the distribution fund introduced by Sun Life in 1979. A distribution fund is designed to provide a regular rising income for investors. This is achieved by carefully balancing income generating assets such as
corporate bonds and/or property with equities. The equity element provides some growth and the other assets the income. Since 2000distribution bonds have been very popular and have provided another option to with-profit bonds as the low risk investment of choice in the UK.
Collective Investment Scheme
Unitised insurance funds
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Look at other dictionaries:
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