Investment Bonds are classed as life insurance product. You can save money in Investment Bonds to pass on to your loved ones if you die. Investment Bonds are usually a whole-of-life product, so they won’t mature, and you don’t need to cash in until you actively choose to. Any money you keep in Investment Bonds will stay locked away until you choose to access it.
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Investment Bonds are not the same as life insurance policies. You might find that one of these products is far more suited to your needs. You can, of course, choose to have both Investment Bonds and life insurance.
When you take out a life insurance policy, it comes with an assured sum. From the moment your policy begins, your life is fully insured for the agreed amount.
Many life insurance policies are ‘level term policies’. If you die after one month, your policy pays the full agreed amount. If you die just a day before the end of your policy, the same amount of money is paid out.
Some life insurance policies are ‘decreasing term policies’. This means that if you die early, you’ll get more money than if you died later in the term. Some people choose these policies as they’re often a bit cheaper, and most people don’t need as much cover once their mortgage is reduced and their children have grown and moved out.
With standard life insurance, there’s usually a fixed length of time that your cover applies for. Once your time has run out, your policy is cancelled, and you won’t get back the money you’ve put in. On the plus side, you’re still alive. As a negative, you might have made monthly payments for decades with nothing to show for it.
With Investment Bonds, there’s no fixed term length, and your money doesn’t go anywhere. You deposit the money, and your investments might grow, or they might get smaller over time, but any money that’s within your Investment Bonds will still be held in your name. In the event of your death, the Investment Bonds are given to a chosen beneficiary.
There’s no risk that you’ll outlive your Investment Bonds unless you choose to cash them in. Even if you’ve chosen bonds that will mature, you’ll be given all the money at the end of the Investment Bond term.
With life insurance, your loved ones could receive a lot more than you ever paid in. You might choose cover for £250k but could pass away when you’ve only paid £10,000 in. Your loved ones would still get the £250,000 included in your cover.
Life insurance doesn’t have a high upfront cost. Instead of paying lots of money in advance, you’ll be charged a monthly premium. This option is very affordable, though premiums are higher for older people and those with preexisting health conditions.
Of course, with life insurance outliving your policy means losing all the money you've paid in.
Investments can grow, or you could lose money if your investments don't do well, but you can roughly expect your investments to grow by up to 7% annually. You'll only get back what you've invested, plus any capital gains, so there's no real chance that your loved ones could receive £250k from an initial £10k investment. Where life insurance pays out a lot of money even if you've hardly paid money in, Investment Bond gains are closely linked to how much you initially invested.
Investment Bonds are lump-sum products. You can't make small deposits monthly. You'll need to invest all your money upfront, so you can't spread the cost to make this option more affordable.
On the plus side, you don't lose all your money if you outlive your Investment Bonds. Even if your investment matures, you're able to cash in and get your money back.
If you don't have a lot of money to invest upfront, you're likely to be best with a standard life insurance policy. You can get cover with small monthly payments, as little as £10 per month. Even low premiums could provide your loved ones with money to clear the mortgage or with everything your family might need to see your children into adulthood.
If you have a lot of money to invest initially, you might want to choose Investment Bonds. If you can afford to set money aside to support your loved ones if you die, then Investment Bonds can help protect your money, so there's no chance that you'll lose everything. Just be prepared for the possibility that your investments result in some losses, as this will happen in approximately 10% of cases.
Unless you have a lot of money spare, Investment Bonds might not be that helpful. Most Investment Bonds have a minimum deposit of £5,000, but if you stick to the minimum, then the money you've invested won't provide a lot of help to your loved ones. If you died, £5,000 might not even pay for your funeral.
If you can, consider the option of having life insurance and Investment Bonds. It's possible to have both products side by side, offering the instant assurance of a life insurance payout with Investment Bonds' benefits.
If you can use Investment Bonds to set aside some money securely, then you'll have peace of mind with the awareness that some money is always kept safe for your loved ones. That way, it doesn't matter as much if you reach the end of your life insurance term and lose every bit of money you've paid in.
Having the protection of life insurance means that, as long as you're within your policy term, your loved ones can expect a significant payout to help them manage day-to-day living costs. Meanwhile, your Investment Bonds can be a valuable tool in investment planning and in reducing inheritance tax.
When you purchase an investment bond, your sales advisor can only offer you a suitable product for you. That involves weighing up a number of criteria about your current circumstances, including existing investments and financial products you own. They also need to understand your financial goals when it comes to your investment.
So, for example, if you have a life insurance policy that covers you for £200,000 and you only have £200,000 remaining on your mortgage at the time of speaking to an advisor, there’s no reason for them to offer you an investment bond if you state that your only goal is to make sure there’s enough money to pay off your house debt if something was to happen to you. Your life insurance already meets your financial goals.
If the advisor then tried to sell you the investment bond anyway, they would be mis-selling it to you. If you have an investment bond, think back to your conversations and whether the product really was something you needed based on your financial goals.
If not, you might be able to make a complaint and seek compensation (firstly from the provider, and latterly via the Financial Ombudsman Service if the provider’s response is unsatisfactory) to put your finances back in the state they would’ve been without the bad advice.
Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for a mis-sold investment bonds and they can do the same for you.
Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.
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