What Does Bond Mean?
A bond, in the context of insurance, is a form of investment instrument issued by life insurance companies wherein a person invests their life insurance policy as a single premium or a lump sum in a variety of funds to save for the long term and receive regular income. Commonly used in the U.K., these bonds could be held for a fixed term. When not withdrawn for more than 10 years, earnings may be received tax-free.
An insurance bond is also known as investment bond.
Insuranceopedia Explains Bond
In investing an insurance bond, the investor pays a single or a lump sum amount. The financial adviser then invests the bonds in a single or in many various funds. The bond can be withdrawn at any time but could be subject to surrender penalty and tax charge if withdrawn in the first few years. Meanwhile, if the investment bond is not cashed in for at least 10 years, tax charges may be waived.
Some of the reasons investors prefer to use bonds instead of other forms of investment instruments is because of the tax-free earnings they could get after at least 10 years. Another reason is because of the life insurance element that comes with the investment bond.