This guide explains general concepts for educational purposes. It is not financial, tax or legal advice, or a recommendation to buy, sell, hold or change a financial product or strategy. It does not take into account your objectives, financial situation or needs. Rules, caps, thresholds and product terms can change. Check the current official information and obtain advice appropriate to your circumstances before making a financial decision.
An investment held through a life policy
An investment bond, also called an insurance bond, is a long-term investment issued by a life insurance company or friendly society. Money is invested in selected options within the policy, and its value can rise or fall with those investments.
Investment bonds are not the same as government or corporate bonds. Returns are not guaranteed unless the product expressly provides a guarantee, and fees, investment risk and issuer terms still apply.
Tax is generally paid within the bond
The issuer generally pays tax on earnings within the bond. If the policy has been held for at least 10 years and the relevant conditions are met, withdrawals are generally not included as assessable life-insurance bonuses in the investor’s tax return.
Earlier withdrawals may have personal tax consequences. Additional contributions, ownership changes, withdrawals and other policy events can affect the tax outcome or eligible period, so the current rules must be checked before acting.
Tax should not be the only reason to invest
Compare the available investments, fees, access to capital, estate-planning features and likely after-tax outcome with alternatives held personally, through superannuation or through another structure.
Product terms and tax rules can change. Read the current Product Disclosure Statement and obtain financial and tax advice based on the intended owner, beneficiary, investment period and contribution pattern.
The policy and the investment option
An investment bond is an insurance-based investment structure. Its investment options determine the underlying exposure, which can range from more defensive portfolios to growth assets. It is different from lending money to a government or company through a conventional fixed-interest bond.
Ownership, beneficiary arrangements and investment selection are separate features of the policy. The product's terms explain what can be changed and how benefits are paid. The word bond does not mean that the capital is guaranteed or that investment returns are fixed.
The holding period is part of the tax treatment
The tax treatment depends on the holding period and compliance with contribution rules, including rules governing later additions. Withdrawals before the relevant period has been completed can have different consequences. The headline long-term treatment therefore cannot be applied to every withdrawal from every policy.
A comparison with investments held personally, in super or through another structure depends on the owner's circumstances and the underlying investment. The structure can affect administration and taxation, while the investment option drives market exposure. Both need to be understood to explain how a bond might fit within a broader plan.