Life Insurance Bonds – What Are They?

Life Insurance Bonds

Life insurance bonds are an investment contract that incorporates a small portion of life insurance that is paid when the account balance is paid out.

Normally, the life insurance that will be paid under this arrangement will be a percentage of the value of the account. You can buy a life insurance bond for a specified period of time at an agreed interest rate.

The insurance company will then pay you the interest at regular intervals as per the agreement.

Investment options

Insurance companies usually have various options from which you can select to make an investment. You can decide to invest in capital guaranteed, international shares or cash. Usually, the investments are a one-off affair, but there are insurance companies that may allow you to increase your investments.

Features of life insurance bonds

Life insurance bonds are recognized as life insurance policies, but the major difference is that they are treated as investments intended to generate wealth. You can purchase life insurance bonds from societies and insurance providers that offer them.

Investing in bonds

It is advisable to invest in life insurance bonds as a long term investment plan. They are also appropriate for individuals who have never worked and are unable to access the superannuation fund. Those who do not require a regular income can decide to invest in the bonds, and those who do not meet the superannuation work test (usually those aged between 65 and 74) should also invest in bonds.

Tax implications

If you individually hold an insurance bond, the earnings from this investment are not subject to personal income tax. You also do not have to declare the earnings you get from the insurance bond when making your tax returns. However, you will be required to declare the earnings if you withdraw the bond within the first ten years. Making a withdrawal within this time may also attract personal income tax on your earnings. You may also be able to switch between investments without attracting any personal income tax.


When you invest in life insurance bonds, you are allowed to nominate the beneficiaries that can receive the surrender value. The benefit is paid out free of tax and there are few restrictions when picking beneficiaries. Some of the life insurance bonds offer you a death benefit, and you will know the exact amount your beneficiaries will get in the event of your death.

Some policies will offer you additional features including adventure and leisure or health insurance. The child advancement feature enables you to save for your children without attracting tax. You are allowed to withdraw your funds at any time, but it is advisable to withdraw after ten years to avoid taxation. Click here for more information about life insurance cover. Read: How to Refinance your Car Loan with Bad Credit

Additional investment

Once you make the initial investment, you will be allowed to continue increasing your investment to a maximum of 125 per cent of your initial investment. The additional investments will be treated as having the original investment date when you finally make a withdrawal.

Ownership of bonds

Life insurance bonds can be owned not only by individuals, but also entities like companies and partnerships. Unlike contributions to the superannuation funds, life insurance bonds do not have a restriction on the amount of contributions you can make.