An insurance bond (or investment bond) is a single premium life assurance policy for the purposes of

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

. Due to

tax law Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the case of the US) use a body of rules and procedures (laws) to assess and collect taxes in a ...

s they are a common form of investment in the UK and some offshore centres to avoid tax. Traditionally insurance bonds were with-profits policies and were often called ''with-profit(s) bonds''. Since the introduction of

unitised insurance fund Unitised insurance funds or unit-linked insurance funds are a form of collective investment offered life assurance policies. An insurance company's contract may offer a choice of unit-linked funds to invest in. Insurers that offer these contracts ...

s they have often been marketed as ''unit-linked bonds'' or ''investment bonds''.

History

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 trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...

market 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 bond A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, mergers & acquisitions, or to expand business. It is a longer-term debt instrument indicating that a corpo ...

s and/or property with

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

. The equity element provides some growth and the other assets the income. Since 2000 ''distribution bonds'' have been popular and have provided another option to with-profit bonds as the low risk investment of choice in the UK.

Tax impact

The decision of which 'wrapper' to place funds within (i.e. onshore bond, offshore bond or collective) can be complex and is based upon the tax position of the investor, the treatment of each tax wrapper, the likely growth and investment term. Insurance bonds can be useful in the United Kingdom for minimizing tax as they do not incur the 50%

Capital Gains Tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. In South Africa, capital g ...

(CGT) reduction on assets held for 12 months or more. The advantages of Insurance Bonds for tax planning scenarios include the tax deferred status, the ability to write the investment in trust and reduce the

inheritance tax International tax law distinguishes between an estate tax and an inheritance tax. An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and pro ...

liability on an estate, and exclusive access to expensive investment links like guaranteed or protected profits funds. Bonds can provide income or growth and when income is required there are bonds that can offer a set minimum guaranteed income for life of the plan holder.

Offshore Insurance Bonds

While the use of offshore insurance bonds in the UK allows tax deferral and can be a useful financial planning tool, this is not always the case when sold to non-UK tax residents. Concerns have been raised about the suitability and even legality of their sale in some EU countries, where there are likely no specific tax advantages. There are exceptions and some countries allow investment into tax compliant offshore insurance bonds where tax reporting is automatic to the local tax authorities. Examples include Spanish compliant bonds and Life Assurance Vie in France

References

External links

* http://www.investopedia.com/articles/pf/05/SinglePremLife.asp Insurance {{insurance-stub

History

Tax impact

Offshore Insurance Bonds

See also

References

External links