Insurance 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.
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.
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[edit] Why invest in an insurance bond?
Bonds can provide income or growth and have access to a wide range of investment funds. The tax advantages offered by bonds attract investment after the tax free ISA limit has been used.
[edit] 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 trust 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 bonds and/or property with equities. The equity element provides some growth and the other assets the income. Since 2000 distribution bonds have been very popular and have replaced with-profit bonds as the low risk investment of choice in the UK.