The Pros and Cons of Using Investment Bonds as Cheap Life In

As they get older, many people begin to make life considerations related to their finances and health.  They think about how they impact their loved ones and the way they live their lives.  For family breadwinners, it is especially true that they begin to get concerned about how their loved ones will survive after they pass.

The last thing a person wants to do is leave their loved ones with a financial burden when they die.  One way to assure that the family doesn't struggle is to consider some sort of life cover.  Life insurance payouts can help family members pay for funeral costs and invest in education for future generations.

Life insurance policies, however, come with premiums.  Depending on the policy, premiums can be extremely costly and have to be paid monthly.  Some people simply do not have the means to constantly pay into monthly premiums for a life insurance policy.

Investment Bonds

A cheap way to assure some insurance when a person dies is to invest in a bond.  An investment bond is paid into once, at the beginning, when the money is used to invest in the market through a wide variety of funds.  There are no monthly premiums to pay, saving the investor regular, mandatory cash-out-of-pocket.

With investment bonds, a lump sum of cash, usually between £5,000 and £10,000 is used to open an account.  The policyholder and financial adviser will then decide on the funds to invest in, make the purchases, and let the market determine the end results.  As the market strengthens, the value of the investment increases, and vice versa.

When the policyholder is ready to withdraw money from the account, prior to or at death, they can do so at any time.  When the money that is paid out, it can be used to serve the same purpose as regular life insurance.

The Pros of Investment Bonds

People are able to take advantage of using investment bonds as cheap life insurance, benefitting in the following ways:

· Investment bonds are considered safer than any other method, if growing an account over time is the desired result.

· Over time, the return on investment is likely going to be higher than what a cash savings account might offer.

· Investors can typically withdraw up to 5% of their investment at any given time without a tax liability or penalty.

· Money can be invested in a variety of funds, diversifying where the money goes.  This gives investors more options when choosing their investments.

·  If capital holds, the money paid out at the end can be used to cover funeral costs, pay for grandchildren's educations, or dissolve debt.

·  Investors can switch their money between funds within the investment portfolio, allowing them to adjust according to the market.

The Cons of Investment Bonds

Cheap life insurance through investment bonds comes with potential high risk; higher than a life insurance policy.  The negative aspects include:

· Invested money would be tied up for a minimum amount of time before there is a possibility of withdrawal.  Typically, this is a five-year period.

· Huge penalties may be assessed if the policy is cashed-in early, before the contracted expiration date.

· There is a chance the investment goes under since it depends on the market.  With a volatile market, there is not predicting whether it will go up or down at a given time.

· Investment bonds are taxed when they are cashed in.  Therefore, the investment is not tax-free, but rather, tax-deferred.

Where to Purchase Investment Bonds

Most of the time, investors can purchase investment bonds from life insurance companies.  It is best, however, to work closely with a financial adviser who can guide the process.  With such a huge investment at stake, it is better to seek information and guidance from and educated expert than to try to go solo on the process.

A financial adviser cannot only help the investor find the right bond policy to purchase, but also guide the diversification process.  This would assure that the policyholder invests their money well for the greatest potential return possible.  Since there is no knowing what the market may bear, working with a knowledgeable adviser can help tremendously.

Sam Jones the author suggests to readers who frequently ask themselves what are bonds uk? to visit the help and advice pages at uSwitch.