Life insurance and investment bonds described ?
While the switching facility offers scope, it is a mistake to invest on the assumption that you will use it and then neglect to do so. If you do not want to make regular reviews of your investment and take the appropriate switching action, then it is better to plan for this at the outset. Whereas the switching investor might put all his money into a gilt fund with the intention of switching it into the equity fund when conditions changed, the inactive investor would be ill advised to put all his money into a gilt, property or equity fund and would probably be better off either putting some money in each or putting the larger proportion in the managed fund.
Because they are life insurance policies, investment bonds also have useful applications that other investments do not. For example, they may be written under trust, as policies under the Married Women’s Property Act, possibly to provide for a child’s education. A different group of single-premium policies is based on traditional policies. They are aimed at generating the highest possible guaranteed net return, both over short periods of two to five years and for longer terms up to 15 years. There are two types, those aimed at producing a guaranteed capital sum at the end of the term and those aimed at generating a high net income over the period with return of the original capital at the end.
Partly because of their ability to offset their expenses against taxable income, life insurance companies can often generate a very attractive return on such contracts. For example, in late 1978 when long-term interest rates were about 13%, several companies were offering net returns of up to 9% p.a. over periods from one to three years. The growth bond is based either on a non-profit endowment policy or on a deferred annuity. In both cases, the gain on the original investment is subject to tax at the higher income tax rates but in the case of the deferred annuity basic-rate income tax is also chargeable on the gain.
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