Tracker Bonds

Life Assurance companies offer structured investment bonds (tracker bonds), that aim to allow investors participate in equity market returns with the benefit of a high level of capital guarantee. They are fixed term bonds, usually between 3 to 6 years.

Structure

The investment made by an investor in a deposit Tracker Bonds is split into three components:

• Most of the deposit is placed with the Bank at a fixed rate for the term of the Bond, to provide the level of capital guarantee promised.

• Part is used by the Bank to purchase a derivative from a large international investment bank, who in return undertakes to pay the Tracker Bond bonus amount, if any, to the bank at the end of the Bond term.

• The balance of, the investment amount is taken as initial charges; part of which may be used by the Bank to pay commission to deposit brokers.

So a Tracker Bond is essentially a fixed rate term deposit as, usually, more than 80% of the investment amount is in fact invested in a fixed interest term deposit, for the term of the Bond.

Access to funds

Tracker Bonds are illiquid investments i.e. there is no facility for the investor to encash the bond before the maturity date. The funds are tied up for the term of the Bond.

Limitations

• The investment must be maintained for the full term in order to obtain the full guarantee and bonus promised.

• Generally no access to the investment during the term of the bond. {KomentoDisable}

• Mortgage

• Housing loan lenders require legal security for loans advances i.e. a legal mortgage. The lender will take a legal mortgage over the property in question, which gives the lender the legal power to repossess the property, sell it and pay off the loan in the event of the borrower defaulting on the loan. Any surplus left over on such a sale is payable to the property owner.

• Terms of the mortgage

• Details of the lending institution and the borrower

• Description of the property

• Amount of the loan and term of repayment

• Rate of interest

• Fees payable

• Interest penalties for late payment

• Repayment capacity

• The prime consideration in assessing a housing loan application is the income capacity of the borrower to fund future loan repayments. Typically a limit of 35-40% of net monthly income as the maximum the borrower can afford to commit to all loan repayments in determining the maximum level of loan they are prepared to advance to applicant.

• What documents you need for your mortgage:

• Photographic ID i.e. passport or driver’s licence

• Proof of address i.e. Utility bill, original bank statement etc. (no older than 3 months)

• Proof of savings or equity if available (this strengthens your application)

• Bank Statements/ credit card statement for the most recent six months

• Mortgage statement from previous lender if applicable (this should be received in January/February of current year)

• Statement (minimum 6 months) for all current borrowings from relevant Financial Institutions.

• P60 

• Three recent monthly payslips

• Completed Salary Certificate (for completion by your employer) 

• Estimates for any works to be completed on the property 

• Valuation Fee will be applicable at a later stage

• Completed Mortgage Application form{KomentoDisable}

Unit Linked Bonds

A unit linked bond is a single premium whole of life policy, where a once off premium is invested to purchase units of a unit fund or funds operated by the life assurance company.

Tracker Bonds

Life Assurance companies offer structured investment bonds (tracker bonds), that aim to allow investors participate in equity market returns with the benefit of a high level of capital guarantee. They are fixed term bonds, usually between 3 to 6 years.

Structure

The investment made by an investor in a deposit Tracker Bonds is split into three components:

• Most of the depositPROTECTION

• Personal Protection

• 1/ Income Protection

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• Flexible Options:

• Range of Deferred Periods: 4, 8, 13, 26 & 52

• Guaranteed Premiums- premium will remain fixed for the whole term of the plan

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• Waiver of premium- do not pay your premium during a claim

• Guaranteed Insurability: Increase your cover by up to 20% of the original amount every three years

• Own Occupation- benefit paid if insured is unable to carry out their normal occupation

• Change of Occupation- life insured is not penalised for changing occupation

• Indexation- premium & cover amount will increase each year

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Investment Term

Being ‘’whole of life’’ policies, unit linked bonds do not have any fixed investment term. However due to impact of charges and the fluctuating value of unit fund prices, it is normally recommended to leave the investment for at least 3 years and preferably at least 5 years.

Charges

A bond may have some or all of the following charges:

• Initial monetary set up charge

• Allocation rate

• Bid/offer spread

• Fund Management charge

• Fund Dealing costs

• Early encashment charge

• Administration unit cancellation

• Trail commission deduction

• Bonus units

Death Benefit

Unit linked bonds frequently provide a death benefit slightly higher than the encashment value of the bond. E.g. 101% of value of units on death.

Unit Fund Choice

There may be a wide choice of different funds managed by a range of external or outside fund managers, in addition to company’s own managers. There may also be specialist unit funds i.e. geographical. There may also be funds with difference investment management styles.

Partial encashment

Most unit linked bonds offer the investor the option to take a partial encashment. Any early encashment charges would only then be applied to the unit holding actually enchased.

Fund Switching

Unit linked bonds offer investors the opportunity to switch units from one unit to another, usually on a Bid to Bid price basis.

With Profit Bonds

A with profit whole of life policy is a form of traditional with profit which provides a guaranteed sum assured payable on death whenever that occurs, in return for a fixed premium. The premium may be payable throughout life or may cease at a specified age i.e. 65.

The life company actuary works out the profits of the life company’s with profit fund each year and then decides on the bonus to be added to it with profit policies for that year. There may also be a terminal bonus added on maturity of the policy.

Encashment Value {KomentoDisable}

A with profit whole of life policy acquires a surrender/ encashment value i.e. a cash sum which the life company pays if the policyholder decides to stop paying premiums and terminates the plan. The encashment value gradually builds up over the years.