Investment Bonds and Long Term Care

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Life assurance policies are currently not normally considered as capital when applying the means test. There has been some confusion as to how local authorities treat investment bonds issued by Insurance Companies, not least by the authorities themselves. The legal position is set out in the Charging for Residential Accommodation Guide published by the Department of Health and is simple:

  • The guidance relating to how ‘capital’ is dealt with for means-testing in relation to residential accommodation lists amongst the disregards “…the surrender value of a life insurance policy…”
  • Investment Bonds issued by life insurance providers are single premium non-qualifying whole of life assurance plans

The cash/surrender value of all life assurance bonds should therefore  normally be ignored when assessing the value of a person’s capital for these purposes

Although the value of a life assurance bond is ignored in assessing capital, any ‘income’ received from the bond will be taken into account when assessing the income of the individual. It must also be remembered that if a bond is encashed – either in full or in part – the proceeds become capital which will be included in the means test

It should also be remembered that ‘bond’ is an expression used by organisations other than life assurance companies. A number of Building Society accounts and National Savings products include the word ‘bond’ and these products will not be disregarded.

It should be pointed out that although life assurance policies are not ordinarily taken account of during the means test assessment, a local authority will take them into account under the “deliberate deprivation of assets” rules if the bonds were taken out for the purpose of avoiding being “caught” by the means test. Anyone making an investment into an investment bond, especially people in their later years, should only consider an investment bond if there are other bona fide reasons for choosing this particular tax wrapper ahead of the alternatives.


This outline is for information only and is based on our understanding of current legislation and taxation which may change, possibly retrospectively.

No action should be taken on the strength of this information alone,  long term care is a complex area of financial planning and advice should always be sought before entering into any contract.

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