Investment Bonds

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Investment bonds, also known as insurance bonds, are long-term, tax-effective investment options. They are issued by life insurance companies and enable investors to invest in a variety of funds that are managed by professional fund managers. Investment bonds are used for making one-off, lump sum investments.

An added feature of investment bonds is that they include an element of life insurance and can be viewed as single-premium life insurance policies. When an investment bond is taken out, the investor’s life is insured and the investor has to nominate a beneficiary.

How Investment Bonds Work

Investment bonds are issued by insurance companies. They typically have a minimum term of ten years. Investors have the option of extending this term at any time before the maturity of the investment bond, while retaining the right to withdraw the investment at any time. The term can be extended to a maximum of 40 years. Investment bonds are tax paid options, which means that taxes on the earnings are paid by the insurance company itself.

When one purchases investment bonds, s/he gets a certain number of units in particular funds. Each fund uses investors’ moneyto make investments into a variety of financial instruments, such as shares or bonds. The price of the units owned by investorswould fluctuate in synch with how the portfolio of investments performs.

In case the unit holder dies before the term ends, an additional payment is made when the investment bond matures. However,this additional payment is typically a very small percentage of the value of the investment.

Benefits of Investment Bonds

The benefits of investment bonds are:

  • Long term capital growth as well as income generation
  • Funds are managed by professional investment managers.
  • Life insurance.

Risks Associated with Investment Bonds

Some of the inherent risks of investment bonds are:

  • Value of investment can fluctuate.
  • A tax charge is applicable if the investment bond is cashed in before maturity.

Investment bonds are ideal for higher-rate taxpayers. If you fall into this category, but would become a basic-rate taxpayer when you retire, you could opt for investment bonds maturing after retirement.

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