My discussion will focus on key vital points an investor need to know about the Insurance in a Bond, an investment instrument and a product of insurance companies.

What is a bond?  Bond is a loan and the investor or holder of the bond is the lender. When you purchase a bond, you are lending money to a government, local government council, state government, federal agency or a corporation, known as the issuer.

The government uses it to fund budget deficit, or to build roads, electric power stations, finance factories, etc. When you purchase a bond, the issuer in return  promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it ‘matures’

Bond and Stocks are capital market instruments. The difference between the financial instruments is that stocks make no promise about dividends or returns, but when the Government Issue a bond, it guarantees to pay back your principal (the face value) plus interest. If you buy the bond and hold it to maturity, you know exactly how much you are going to get back.  Bonds are also known as ‘fixed- income’ investment instrument.  Below are different types of bonds.

Sovereign Bond(such as FGN Bond): When you buy FGN bonds you are lending funds to the federal government for a specified period of time. The FGN bond is considered as the safest of all the investments because it is backed by the ‘full faith and credit’ of the government.

They have no default risk, meaning that it is virtually certain your interest and principal will be paid as and when due. The income you earn is exempt from state and local taxes. It currently represent 89% of the total domestic bond market.

State and Local Government Council Bonds: When you purchase state and local government council bonds you are lending to the issuers who promise to pay you a specified amount of interest (usually semi – annually) and return the principal to you on a specific maturity date.

State and local government bonds are debt obligations issued by the state government, local government councils and other governmental entities to raise money to build schools, roads, hospitals as well as other projects for public good. It represent 8% of the domestic bond market.

Government Sponsored Enterprise Bond:These are bonds that help support project relevant to public policies, such as helping certain groups, such as farmers, homeowners, students, etc to raise money for financing specific projects. These bonds do not carry the full-faith and-credit of government. The investors are likely to hold them in high regard because they have been issued by a government agency.

Corporate Bond; Corporate bond are debt obligation issued by private or public corporations. The corporations use the funds for building facilities, purchase of equipment to expand the business, etc. When you purchase corporate bond, the corporation promises to return your money, or principal at maturity date, but you are being paid interest semi – annually. The interests you receive are taxable. Corporate bonds do not give you an ownership interest in the issuing corporation. It represents three per cent of the domestic bond market.