Can you remember back to the old Life Office endowment policies? Well a Life Bond is similar to the investment side of that. In certain circumstances, they are worth a look at. They may not be as tax efficient as superannuation, but they have a lot less restrictions.
Higher income earners with contribution cap restrictions or who are at an age beyond which they can’t make superannuation contributions, may find there is a place for these in their asset holdings.
If they are held for more than 10 years and no single year has had a contribution of more than 125% the previous year, then any withdrawals are tax free. The life company will have paid tax at 30% but (for various reasons) the effective impost on investment returns may be lower. In the period before ten years, the component above the capital component is assessable – but it comes with a 30% rebate.
My awakening interest in this area is from an estate planning point of view. It can virtually be like a testamentary trust where the beneficiary receives either lump sum or nominated periodic income. But be careful where Centrelink is involved as they use a totally different set of rules in assessing them. Being allied to a life contract they have a policy holder and a life insured, however there does not need to be an insurable interest.
The NetActuary Team