Versatile and robust: The renaissance of investment bonds

The resurgence of investment bonds as a strategic financial planning vehicle was laid bare in the recent insiders INPractice Online Masterclass, “The Practical Application of Investment Bonds.”

In the latest instalment of the 2025 INPractice webinar series, Tom Huntley, Head of Investor Distribution at KeyInvest, and Damian Crowe of DC Financial Advisory, gave attendees a combination of philosophical clarity and practical depth on a product that some advisers had long considered a relic.

With a shift in the financial landscape marked by superannuation reform fatigue, intergenerational wealth concerns, and a desire for tax-efficiency, investment bonds (formerly known as ‘insurance bonds,’ as they are a life-insurance contract) are rapidly regaining relevance. Huntley opened the session with a comprehensive contextualisation of the investment structure, noting that investment bonds, though overshadowed by superannuation for decades, are well-positioned for a comeback. “There’s a reawakening happening,” Huntley said, “particularly as people realise super isn’t the end-all, be-all – especially not with the Division 296 tax looming.”

That 15 per cent impost on earnings for superannuation balances above $3 million was a recurring theme throughout the discussion. It’s a harbinger, both Huntley and Crowe agreed, of a growing appetite for vehicles that offer certainty, flexibility, and a relatively stable tax regime. Unlike superannuation, investment bonds do not have contributions caps within the first year, and you can contribute 125 per cent of the previous year’s contributions thereafter. Funds are accessible at any time, however, withdrawals made prior to 10 years will have earnings assessed at the investor’s marginal tax rate.

Huntley made the point that while investment bonds are not broadly understood by the public – “You won’t have clients knocking on your door asking for them,” he said – advisers are increasingly aware of their use-cases, especially in estate planning and wealth transfer scenarios. KeyInvest, one of the few active providers left in the space, is betting heavily on this shift, focusing its efforts on adviser education and product innovation. “We see ourselves not just as a product provider, but as an educational partner,” Huntley said. “There’s still so much potential for innovation around investment menus, ETF inclusion, and separately managed account (SMA) access.”

KeyInvest, founded back in 1878 as the Independent Order of Odd Fellows governed by the Grand Lodge of South Australia, providing sickness and funeral funds, is itself a stalwart in the sector, with its heritage dating back over 140 years. What distinguishes it today, however, is its strategic pivot toward modernisation. Huntley spoke about the firm’s plans to refresh its investment menu and make the platform more versatile, citing growing adviser demand for options like ETFs and SMAs. This sort of transparency and responsiveness sets KeyInvest apart in what is still a relatively little-known segment of the investment landscape.

Much of Huntley’s focus was on the mechanics of investment bonds – the 125 per cent contribution rule, the 10-year tax-paid status, and the nuances of tax offsets. Yet, it was the more qualitative dimensions of the structure that sparked the most engagement. For example, the structure’s ability to bypass probate, offer precise beneficiary control, and restrict access for vulnerable heirs resonated strongly with advisers grappling with increasingly complex family dynamics. “You can structure the future transfer of a policy to beneficiaries in a way that mirrors a testamentary trust, by allowing for access restrictions to be put in place” Huntley explained.

Damian Crowe offered a real-world articulation of how these tools function in practice. As a veteran of the profession with nearly four decades worth of expertise in taxation and superannuation, Crowe illustrated the lifecycle utility of investment bonds. He framed them not as a replacement for superannuation, but as a supplemental structure capable of delivering targeted outcomes – from first-home deposits to aged-care funding. “It’s the ability to be tax-aware without being tax-burdened that makes them so appealing,” he noted.

Crowe’s insights extended to the integration of investment bonds into broader practice structures. He detailed cases where bonds had been placed inside trusts or companies, used for staff retention schemes, and even employed as vehicles for managing long-service leave liabilities. “The flexibility is phenomenal,” Crowe said. “But that very flexibility is also what makes proper structuring – and proper advice – so crucial.”

Estate planning, unsurprisingly, emerged as a key battleground. Crowe emphasised the certainty that investment bonds offer compared to superannuation, especially for clients with complex familial arrangements or philanthropic goals. “Unlike super, you’re not limited to dependents or legal personal representatives. You can name whoever you like as beneficiaries – organisations, children, even staff,” he explained.

Taxation was another fulcrum of discussion. Crowe praised the investment bond structure’s simplicity from a compliance point of view. “When you’re dealing with managed funds or direct investments, there’s always that CGT surprise come tax time,” he said. “With investment bonds, your planning becomes cleaner – less reactive, more strategic.”

Questions from the adviser audience revealed a strong appetite for detail. One attendee queried whether the 125% contribution rule resets after the 10-year period. Huntley confirmed that it continues, cautioning that excess contributions would restart the 10-year period unless carefully managed. Another question asked about the use of investment bonds within family trusts, to which Crowe responded affirmatively but with caveats – especially around the risks of mismatched distributions and potential tax complexities.

The conversation concluded on a note of cautious optimism. With rising complexity in client needs and growing disillusionment with traditional vehicles like superannuation and trusts, investment bonds are set to play a more prominent role in advice practices. “We’re not talking about an ‘alternative’ investment here,” Huntley said. “We’re talking about a foundational structure that deserves a seat at the table.”

For advisers looking to deliver tailored outcomes, the message was clear: it’s time to rethink the humble investment bond. Far from being an anachronism, it’s emerging as a versatile and robust tool in the contemporary financial planning toolkit – one that aligns with evolving client expectations and a shifting regulatory landscape.