Bond

What Does Bond Mean?

A bond, in the context of insurance, refers to an investment instrument issued by life insurance companies. It allows individuals to invest their life insurance policy as a single premium or lump sum into various funds to save for the long term and generate regular income. Commonly used in the U.K., these bonds may be held for a fixed term. If not withdrawn for over 10 years, the earnings may be received tax-free.

An insurance bond is also known as an investment bond.

Insuranceopedia Explains Bond

When investing in an insurance bond, the investor pays a single premium or lump sum amount. A financial adviser then allocates the funds into one or multiple investments. While the bond can be withdrawn at any time, early withdrawals may incur surrender penalties and tax charges, especially within the first few years. However, if the bond is held for at least 10 years, tax charges may be waived.

Investors often prefer insurance bonds over other investment options for two main reasons: the potential for tax-free earnings after 10 years and the life insurance component included with the bond.