An insurance bond is a type of life assurance policy that has one single premium and is used as a tax free investment vehicle in countries such as U.K. After the introduction of unitized insurance funds such bonds are called unit linked bonds or investment bonds.

• An insurance bond may be a tax deferred vehicle for investment; however other more efficient methods of investments include Unit Trusts and Oeics (ICVC). ICVC’s are open ended collective investment formed as a corporation in the U.K.
• Some useful features of insurance bonds are tax deferred investments, avoiding tax liability on an estate, and provide income or growth and may even provide guaranteed set minimum income for life.
• Usually insurance bonds used to invest in the with-profit fund of the insurance company; however now they have started to compete with unit link insurance companies. They have done this by offering various unit linked products to the consumer.
• One of the innovations in this field was by Sun Life in 1979 when it set up a distribution fund. A distribution fund is one which provides a regular rising income for investors. This is done by balancing income generating assets such as corporate bonds and property with stocks or equities.
• Distribution bonds have become popular in this millennium and provide the consumers with an alternative as a low risk investment vehicle in the U.K. The minimum investment amount in a distribution bond is £ 5000; however there is no upper limit to the amount that can be invested in such bonds.
• Basically insurance bonds are whole life policies offered by insurance companies with a single premium which is then invested by the company. A major advantage of such bonds is that they offer the option of cash withdrawal up to a certain amount as and when required. Moreover up to five percent can be withdrawn annually until original investment is withdrawn.
• Investment bonds act as an effective tax shelter and provide tax deferral till the consumers tax brackets decrease (for example, after retirement). Furthermore these can be “topped up”, unlike capital conversion plans, to provide additional funds in the investment.
• Insurance Bonds have been around for a lot of years and can be used efficiently where specific goals and objectives might mean superannuation and other investment vehicles are not a suitable option.
• As discussed, insurance Bonds are best suited to investors with a ten-year plus time-frame. They permit you to invest without mounting your personal taxable earnings. In particular insurance Bond strategies might be of significant advantage in estate planning or social security considerations.

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