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10 Investment bonds 10.1 Definition and use to meet customers needs These are single premium contracts, normally whole life, designed to enable policyholders to invest for the medium to long term. A policyholder can usually make withdrawals from an investment bond, however these may incur a penalty in the first few years of the bond. There may also be restrictions on the frequency with which withdrawals can be made later in the term. On death, the bond will pay a lump sum. There may be a guarantee that this lump sum will not be less than the original single premium investment. However, the amount paid is likely to depend on the return earned on the investment chosen by the policyholder their advisor. They are typically written on a unitlinked or investmentlinked basis. An individual investor could purchase an investment bond to earn a higher return on funds that are not currently required to meet their needs. The life insurance element ensures a minimum payout on death which could be passed on to the policyholders family or used to meet costs such as funeral costs or inheritance tax liabilities. As the policyholder needs additional funds, they can withdraw money from the bond. Investment bonds could be used in a similar way to investment drawdown products. It is also possible to take out a fixed term investment bond. There may be an enhanced or minimum guaranteed amount payable on death within the term. 10.2 Existence of a group version Investment bonds are purchased by individuals only.