INSURANCE

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.

WHY INVEST IN AN INSURANCE BOND

There are many reasons why bonds would provide a suitable investment vehicle for your money, though for most people Unit Trusts and Oeics are more tax-efficient. This has become even clearer since changes to Capital Gain Tax in the 2008 budget. Useful features of Bonds for more specialist planning scenarios include the tax deferred status, the ability to write the investment in trust and reduce the inheritance tax liability on an estate, and exclusive access to expensive investment links like guaranteed or protected profits funds are to name a few. Bonds can provide income or growth and when income is required there are now bonds that can offer a set minimum guaranteed income for life of the plan holder.

Many financial advisers prefer insurance bonds to Unit Trusts and Oeics because they typically pay 7% commission.

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 provided another option to with-profit bonds as the low risk investment of choice in the UK.

General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance. It is called property and casualty insurance in the USA.

In the UK, General insurance is broadly divided into three areas; personal lines, commercial lines and London market.

The London market insures large commercial risks, for example insuring supermarkets, football players and other very specific risks. It consists of a number of insurers, reinsurers, [P&I Clubs], brokers and other companies that are typically physically located in the City of London. The Lloyd's of London is a big participant in this market. The London Market also participates in personal lines and commercial lines, domestic and foreign, through reinsurance.

Commercial lines products are usually designed for relatively small legal entities. These would include workers comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organisations.

Personal lines products are designed to be sold in large quantities. This would include autos (private car), homeowners (household), pet insurance, creditor insurance and others.