Accidental Death Benefit

A provision that may be added to a life insurance policy, stating that if the insured person dies in an accident, payment of an additional benefit will be made to the beneficiary of the policy.

Accidental Death and Dismemberment

Insurance that pays the insured or the beneficiary of the policy specified amounts for the loss of specified body parts or for the loss of life as a result of an accident.

Act of God

Those events which are an inevitable accident as a result of natural causes which are outside of human control where no one can be held responsible. It may be used as a defence in English law against a liability claim where the event could not have been foreseen or safeguarded against.

Advice

Where a knowledgeable authorised adviser looks at your individual circumstances and gives you guidance or recommendations on suitable products for your financial needs.

Allocation rate

This is the net percentage of an investor's initial payment that is actually invested (e.g. 75%) after initial fees that have been incurred to make the investment have been taken into account.

Annual Percentage Rate (APR)

This is a standardised method of quoting the effective interest rate. APR describes the interest rate for a whole year and takes into account all the fees (except penalties) as well as the continual reduction of the principal amount through amortization. Theoretically it allows you to compare mortgages on a like for like basis.

Annuity

An annuity is a contract offered by insurance companies, designed to provide interval payments to the contract holder. It is an after tax-deferred financial product whereby assets for retirement are accumulated either with a single premium payment or a series of premiums. The holder is taxed when funds are withdrawn from the account.

Annual management fee

A charge paid yearly to a company, manager, stockbroker or financial adviser for managing your investments. The annual management fee is usually a percentage of the invested amount, and can vary from 0.5% to 1.5%, depending on the type of investment.

Annual Volatility

Volatility is a measure used to assess the risk of a portfolio by helping to describe the likely range of returns. Where there is a greater volatility of monthly fund returns, there is a wider range of likely future returns, in other words, a greater uncertainty regarding the fund return. This greater uncertainty is equated with greater risk.

Annuitant

The individual entitled to receive benefits from an annuity contract.

Annuity Certain

An annuity contract that provides payments for a certain number of years, regardless of any contingency e.g. life or death of the annuitant

Assets

Any item of economic value owned by a company or individual, especially those which could be converted to cash. This could include fixed assets like buildings, machinery and vehicles owned, and potentially including intangibles like trade marks and brand names, and "current" assets, such as stock, debtors and cash.

Basic State Pension

Basic State Pension is the standard pension paid to individuals over retirement age. This amount is fixed and not connected to earnings.

Beneficiary

The person, institution, trustee, or estate who receives or will be eligible to receive, benefits of a contract, including a will, insurance policy, retirement plan, annuity and a trust.

Budget

In a financial planning context the word 'budget' refers to a financial document used to project future income and expenses. Budgets usually apply over a trading year, and the process of planning a budget is used to estimate whether an individual or company can continue to operate with its projected income and expenses.

Capital

In the accounting world, capital usually refers to the amount you invest in a fund at the outset - e.g. the cash or goods used to generate income.

Capital and Interest Mortgage

A Capital and Interest Mortgage is a mortgage where the monthly repayments includes a payment towards the interest on the amount borrowed, as well as a repayment of the capital borrowed. By the end of the mortgage term, both the capital and the interest will be completely repaid.

Capital Gains Tax

Capital Gains Tax is a tax on the realized value of capital gains; or in other words a tax on the net appreciation in the value of an asset.

Capitalized Value

Capitalized Value relates to group life policies, providing a pension for the dependant of a member. Capitalized Value is an estimation of the lump sum required to secure a pension. This value is used for underwriting purposes.

Death Benefit

A Death Benefit is a life insurance payment made to an allocated beneficiary by an insurance company upon the death of the insured. In the case of an annuity death benefit, the payment to the beneficiary occurs in the event of the death of the annuity purchaser prior to annuitization.

Claims Experience

Claims Experience is the relationship of claims to premiums for a certain period. This is usually expressed as a percentage or ratio.

Claims Reserve

Claims Reserve is an amount or amounts of money set aside by an insurer to meet the costs of claims reported but not yet settled.

Co-insurance

Co-insurance is a provision in an insurance policy whereby insurers can reduce the amount of a claim by maintaining insurance equal to a percentage of the value of the property covered.

Collective investment

This is a generic term used for investments such as authorised unit trusts, insurance funds, pension funds and investment trusts schemes.

Commission

The payment of commission as remuneration to an intermediary for services rendered or products sold. Payments will normally be calculated as a percentage of the full amount paid.

Committed Funds

This is the portion of the budget of a donor that has been pledged for future designation.

Company Representative

The term Company Representative refers to a financial adviser who is able to advise only on their own company's products.

Conditions

Provisions or requirements in an insurance contract that stipulate the rights and duties of both the insured and of the insurer.

Contract

A contract is a binding legal agreement between two parties. This agreement is enforceable in a court of law.

Critical Illness Policy

A Critical Illness policy will pay out a capital sum to the insured in the event of one of a number of qualifying, specified illnesses, conditions or diseases being diagnosed. This policy can stand alone or be written as an add-on to an existing insurance contract.

Current Assets

A Current Asset is an asset in a business that is expected to be converted into cash in the near future, usually within twelve months of the balance sheet date.

Current Liabilities

A Current Liability is a liability of a business that is expected to be settled in cash, usually within twelve months of the balance sheet date. These could include debts, loans, trade credit, bank overdraft or taxation.

Death Benefit

This is a life insurance payment made to an allocated beneficiary upon the death of the insured person.

Declination

Declination is the act of rejecting an insurance application by an insurance company.

Decreasing Term Insurance

This is a term life insurance which pays out a lump sum if the insured dies within the term, where the sum insured is always inline with the balance of a mortgage. The earlier you die in the term, the bigger the payout your dependants get.

Deferred Annuity

A type of Annuity where a premium is paid in return for annuity payments that will commence at a future date, either at maturity of the policy or until the contract owner elects to receive payments.

Dependant

An individual who is financially dependent on the life assured when a benefit becomes payable at death or retirement.

Depreciation

Depreciation is the devaluation of an asset, e.g. property, over a period of time due to wear and tear or obsolescence.

Derivatives

A collective name for financial instruments where the value is determined from the price of underlying assets, e.g. futures, options and warrants.

Direct debit

This is an instruction given by a bank account holder under which an organisation to whom a payment is due collects the amount directly from the bank account of its debtor.

Disability

This is the physical or mental condition that prevents a person from performing "normal" duties of a job or the everyday activities of life. The word "disability" will be clearly defined in the relevant policy to have a particular meaning.

Disclosure

The term 'disclosure' refers to two duties:

1. The duty of an individual to communicate to the insurer all applicable information affecting the risk, when applying for an insurance policy
2. The duty of an intermediary to notify his client of the detail of any commission being paid in respect of the business being placed.

Discounted rate

An arrangement where a certain discount from the standard variable rate for a particular length of time is given. At the end of this period this discounted mortgage rate will change to the standard variable rate in force at that time.

Distribution

Distribution refers to the manner in which the payments of an investment income generated by a fund, is distributed among investors. Distribution can be paid to the investor or be reinvested in the fund for greater capital growth.

Dividend

A dividend is a partial return of premium to policy holders, based on the profits of the year, declared by the governing board, usually at the company's annual general meeting. The decision to pay dividends depends on what the governing board regards as being in the best interests of the company, while keeping shareholders satisfied. Annual dividends provides both an increase in the share value and a return on the investment made by shareholders.

Effective Date

The effective date is the date on which insurance under a policy will be considered to take an effect.

Employee Benefits

Employee Benefits are various non-wage compensations offered to an employee by an employer, in addition to their normal employment income. Examples of Employee Benefits would be group Life, Health and Critical Illness insurance provided by an employer to employees.

Endowment

An endowment policy is a life assurance policy related to a mortgage designed to pay a lump sum at the end of the mortgage term. An endowment policy will pay out a fixed amount on a set date or if the assured person dies, before that date. Endowments are often used to repay interest only mortgages. Typical maturities are ten, fifteen or twenty years.

Equity

1. Equity refers to shareholding, including stock options, warrants or rights to purchase stock or securities in a limited company.
2. The capital value of a property minus the total of the loans secured by mortgage(s) or other encumbrances thereon.

Equity release

Equity release is a remortgage of an individual's main residence, where the use of the residence is retained while obtaining a stream of income. This is a way of using the capital value as security for new borrowing.

Escalation

Escalation is the annual increase in benefit due in the course of the payment term of an insurance claim, to ensure that the monthly benefit you are paid grows with inflation.

Estate

The term "Estate" is usually used to refer to the net worth of an individual at any point in time. An individual's net worth is calculated by deducting all liabilities from the person's total assets.

Ethical Investments

Ethical Investment, or socially responsible investing, is the practice of investing for maximum financial return while balancing it with social good. According to this principle, investments should conform to specific moral and ethical principles.

Exclusions

Exclusions are specific conditions or provisions within an insurance policy, which excludes coverage for specified acts, property, types of damage or locations. In the event of these specified events, no benefits will be provided.

Executive Pension Plan

An Executive Pension Plan is a special pension scheme designed for senior employees, managers, executives and directors of a company. This type of pension plan is governed by the rules of an occupational pension.

Financial Planning Certificate

A Financial Planning Certificate is a professional certification obtained by those intending to become financial advisers by examination through the Chartered Insurance Institute. Individuals who hold this certificate are eligible for registration with the Society of Financial Advisers.

Financial Year

1. A twelve-month period used for calculating financial statements and drawing up budgets.
2. The accounting period of a financial year can start on any calendar day and runs for 52 consecutive weeks. Fiscal years are used for reporting income tax and the exact dates vary between countries.

Fixed rate

A fixed interest rate is a guaranteed rate set below the standard variable rate, and it does not change for the entire term of the loan. If the variable rate is reduced to below the fixed rate, the set fixed rate is still applicable.

Fixed Assets

Fixed Assets are those assets purchased for long-term business use, enabling the owner to carry out his business operations. These include land, buildings and equipment. Fixed assets are reflected on a balance sheet as the purchase price less the cost of depreciation.

Fixed Deferred Annuity

A fixed deferred annuity is an annuity contract where payments are delayed to further the accumulation of money. This is a tax-deferred financial product where taxes are only payable upon withdrawal from the investment.

Fixed Immediate Annuity

Fixed immediate annuities are purchased with a lump sum and payments are commenced within a short period. The income amount is connected to a fixed rate of return, and taxes are paid on the interest earned when payments are received.

Fixed Rate

A Fixed Interest Rate is one that does not change for a set period. The interest rate is calculated according to the principal balance when the interest is compounded.

Fund

A Fund is a liquidity vehicle where the money of individual investors are combined and invested in various securities or derivatives with the aim of producing a return. Funds are managed to ensure that the investment goals are met, and usually shares are issued to represent the portions of ownership.

Fund Manager

A Fund Manager is the individual employed and responsible for making investment decisions related to an investment portfolio. Specified investment goals of the investors are incorporated in the management of the fund.

Gross Profit

Gross Profit refers to the difference between the cost of a product or a service and the revenue. Gross profit is calculated before payments for overhead, payroll, taxation and interest are deducted.

Group Life Insurance

Group Life Insurance is term insurance available for members of a group, usually employees of a company, or members of an association. This is typically part of an employment benefit package and is designed to pay a benefit on the death of the member.

Guarantee Period

1. The Guarantee Period is a time during which the insurance company will guarantee a quoted interest rate.
2. The minimum Guarantee Period is the length of time that the annuity will continue, regardless of whether the annuitant survives the guarantee period.

Health Insurance

Health Insurance is insurance against the risk of financial losses as a result of sickness or injury. A health insurance policy will pay specified amounts for medical expenses, but different policies offer different options and vary in their approaches to coverage. Health Insurance includes accident, disability, accidental death and dismemberment insurance.

Illustration

An Illustration is the illustrative estimation of the return on investment for a product, based on standard growth rates. Actual returns may differ from this estimation, depending if the growth rates were higher or lower than expected.

Income Policy

An Income Policy is a life insurance policy that guarantees monthly or periodic income payments, starting at a selected retirement age.

Income Protection Insurance

Income Protection Insurance is an insurance policy that pays a monthly income if the policy holder is incapacitated and unable to work, as a result of injury or illness.

Income Tax

Income Tax is a tax levied on the income earned every year. This include employment income, interest and dividends. Income tax is a major contributor to government funding.

Indemnity

Indemnity is a payment towards reimbursing of a particular loss or an expense.

Inflation

Inflation is the rate at which the prices of goods and services in an economy rise or fall every year. The Retail Price Index (RPI) is used to measure inflation.

Inheritance Tax

Inheritance Tax is a form of taxation, arising on the death of an individual. The tax is payable on the value of the deceased person`s money and property, and the value of previous gifts could also be taken into account. The first portion of the deceased person's estate is exempt from inheritance tax, as well as transfers between husband and. There are some other exemptions, with complex rules governing these.

Insurance

Insurance is a practice where a contractual agreement is made, usually between an insurance company and an individual, under which the insured party is provided with a guarantee of compensation for specific losses, damages, illness, or death, in exchange for payment of a sum of money (a premium), are guaranteed indemnity for losses resulting from certain events or conditions specified in a contract (policy).

Insured

The insured is the person, group or organisation covered by an insurance policy.

Insurer

The insurer is the person or company who undertakes to indemnify for losses or who promises to pay benefits. The insurer is usually an insurance company.

Investment Income

Investment Income is the income derived from a portfolio of investments or assets, including interest and dividends. Investment income is often not taxed at the same levels as employment income.

Investment Trust

An Investment Trust is a closed-end fund, operating as a company, investing pooled money of small investors, and producing an income through these investments. Investment Trusts have a fixed number of shares, which new investors can buy from existing shareholders.

Lapse

A Lapse is the period where an insurance policy is not in effect, due to non-payment of the premium by the end of the grace period.

Lapsed Policy

A Lapsed Policy is a policy where the policyholder is no longer making premium contributions, and therefore the policy has been terminated.

Level Premium

A Level Premium is a method where the premium remains fixed throughout the duration of the contract.

Life Annuity

A Life Annuity is a financial insurance contract providing an annuity income during the remaining lifetime of the annuitant.

Life Insurance

Life Insurance is insurance providing monetary compensation to a beneficiary upon the insured individual's death; or to the insured individual upon survival after reaching a specified age.

Long Term Disability Insurance

Long Term Disability Insurance is a type of disability insurance created to offer a replacement income payments in the event of income lost through long-term serious illness, disability or injury.

Lump Sum

A Lump Sum is a one-time settlement, allowing the beneficiary to withdraw all or a part of the available funds. After the Lump Sum payment, the beneficiary does not receive a series of payments over time.

Managed Fund

A Managed Fund is a collective investment scheme where the money of a number of investors are pooled and actively managed by experienced fund managers. This is a way to get access to a greater range of investments than would have been feasible for a single investor.

Maturity Date

The Maturity Date refers to the date upon which the final payment of a fixed-income security or an endowment policy is due to be paid.

Maturity Value

The Maturity Value refers to the amount payable to a living insured when the maturity date of an endowment policy is reached.

Net Assets

Net Assets are the are the assets remaining after all the liabilities have been deducted. Net Assets are calculated by deducting current liabilities and long-term liabilities that have not been capitalised from the total (fixed and current) assets.

Net current assets

Net Current Assets are shown on a balance state, indicating the difference between Current Assets and Current Liabilities.

Net Income

Net Income is the balance of income that remains after operating expenses have been deducted. The expenses include maintenance, tax, interest, depreciation and other non-cash expenses.

Net Profit

Net Profit indicates the profit remaining after all deductions and expenses have been taken out. The term "Net Profit" is usually used to refer to the profit before corporation tax has been deducted.

Normal Retirement Age

The normal Retirement Age is the prescribed age at which an employee holding a particular position normally retires from service and when an unreduced pension is payable.

Normal Retirement Date

The Normal Retirement Date is the retirement date of an individual, specified in the rules of a pension scheme. On this date, an individual is able to start drawing benefits from a pension scheme without the consent of the employer or Trustees.

Occupational Disease

An Occupational Disease is a health impairment, disease or disability resulting from conditions pertaining to the nature of an occupation, usually in the form of continued exposure to a noxious substance or from prolonged repetition of specific actions.

Offshore Funds

Offshore Funds are collective investment funds, based outside the tax system of the investor's country of residence. Offshore Funds are therefore legally located in offshore financial centres, e.g. the Cayman Islands or the Bahamas.

Overdrafts

An Overdraft is the amount by which withdrawals exceed deposits in a bank account. Banks and lending institutions can extend credit to account holders to allow the account to be overdrawn.

Overhead

Overhead is the ongoing administrative expenses that cannot be ascribed to a single specific part of the company's activities. Examples of overhead include rent, cost of equipment, insurance and services necessary to run the business.

Paid Up Insurance

When an insurance policy is Paid Up Insurance, it means that all required premiums of the policy have been paid, with no further premium payments due.

PAYE

PAYE is the Pay-As-You-Earn tax payment method, where the employer deducts income tax from an employee's wages or salary and deposits it with the revenue office.

Pension

A Pension is a regular continuing income associated with the post- retirement period of an individual, as well as with some widows and disabled people.

Pension Scheme

A Pension scheme is a qualified retirement plan whereby individuals can make provisions for an income when they are at retirement age and no longer earning employment income. Pension Schemes may also be set up by organisations for its employees.

Per Capita

Per Capita means per unit of population, or for each person.

Permanent Total Disability

Permanent Total Disability is a permanent physical or mental disability which the individual is unlikely to overcome at any time in the future. The ability of an individual to execute normal activities related to work and everyday life, is impaired for life.

Personal Loan

A Personal Loan is usually an unsecured amount of money loaned to an individual for personal use.

Policy

A Policy is a legal document that forms the contract between the insurance company and the policyholder, setting out the terms and conditions of the insurance. It may also be called the policy contract or the contract.

Policy Reserves

Policy Reserves is the measure of the funds held by a life insurance company to fulfill its policy obligations.

Policy Term

A Policy Term refers to the set length of time for which a policy provides coverage. After the policy has expired, the policy owner can usually decide to either renew or end the coverage.

Policyholder

A Policyholder is the person or organisation owning an insurance policy.

Pre-existing Condition

A Pre-existing Condition is any physical or mental condition that existed before the effective date of insurance coverage. The insurance industry usually excludes pre-existing conditions from compensation through standard premiums.

Premium

A premium is the periodic payment made on an insurance policy.

Private Medical Insurance

Private Medical Insurance refers to health insurance covered by a private health policy. Private Medical Insurance usually stipulates the specific medical conditions eligible for compensation.

Professional Indemnity Insurance

Professional Indemnity Insurance is insurance providing professional persons cover for claims resulting from professional negligence or breach of duty in the performance of professional services.

Quotation

Quotation is the illustration that demonstrates the costs of insurance cover. A quotation document includes particulars of the conditions, benefits, caveats and premiums of a specific policy. When a new insurance contract is created, or when an insurance contract is renewed, the quotation document is used as basis.

Reinsurance

Reinsurance is a practice whereby an insurer of a policy obtains cover from a third party (the reinsurer) to cover some or all of the credit risk it has accepted, in exchange for premium payment.

Renewal

Insurance Renewal is an agreement to keep an insurance policy active beyond any original term.

Retirement Annuity

A Retirement Annuity is an retirement investment vehicle with a structure similar to an individual retirement account. The main difference is that the annuity contract must be purchased and the contributions are not actively managed. Individual Retirement Annuities and individual retirement accounts have similar contribution limits and tax advantages. An Individual Retirement Annuity has to be issued in the name of the annuitant, and any benefits are payable to only the annuity owner or surviving eligible beneficiaries.

Return on investment

Return On Investment (ROI) is a measure of profitability used to show the efficiency of an investment or an asset. It is used to show if a company is using its resources efficiently. ROI is calculated by dividing the benefit of an investment by the cost of investment.

Shares

Shares are equal portions into which corporations divide their capital stock, generally issued by a company to raise money. Shares give you ownership of part of the company, as evidenced by a stock certificate. Shares are usually listed on a stock exchange, from where they can be bought or sold.

Share capital

Share Capital is that portion of a company's equity that was raised by trading stock to shareholders.

Shareholders' Funds

A measure of the shareholders' total interest in the company represented by the total share capital plus Shareholders' Funds are the total capital value contributed by shareholders, including the value of issued shares, share revaluation, retained profits and any other reserves.

Stock

Stock is a type of security, used to refer to ownership of shares in a corporation. Stock owners will be issued with a stock certificate as evidence of ownership.

Substandard Risk

A Substandard Risk exists where the risk of a claim falls outside the normal underwriting standards. These higher than average risks can sometimes be covered with a substantial premium surcharge.

Surrender

Surrender is the process where a policy owner cancels an existing investment or policy. The policy owner usually receive a reduced payout, due to the impact of charges.

Surrender Value

The Surrender Value of a policy, is the cash amount offered to the policyholder by the insurer when the contract is cancelled or when certain types of life policy are discontinued.

Tax

Tax is the cash contribution made by individuals residing in a country to fund the services provided by the government.

Term

A term is a specified period for which a policy or bond is issued.

Term Life

Term Life is a type of life insurance that is paid over a specified length of time. The insurance has no cash value and it provides a death benefit if the insured person dies within the term of coverage.

Testate

A Testate is a term describing a person who has made a valid will, or who has died leaving a will.

Third Party

A third party is an individual or entity other than the policyholder or insurer who is the subject of a contract, or involved in an insurance claim.

Trust

A Trust is a legal arrangement where assets are held by trustees for the benefit of the beneficiaries. Trusts are usually established by an official document, called a Deed. Trusts are sometimes used to reduce an individual's liability for tax.

Trust Deed

A Trust Deed is a legal document used to establish, change, control and govern the operation of a trust.

Trustee

1. A Trustee is the person or entity (called a board member) appointed to set foundation policies and to make fund decisions of a company.
2. A Trustee is an individual or corporation named or appointed to administer the terms of a trust document.

Underwriter

An Underwriter is the individual trained in evaluating risk acceptance, control of that risk and determining rates and coverage for them.

Unit Trust

A Unit Trust is a collective fund where investors can pool their money in a single fund and spread their risk across different investment types. A unit trust has the benefit of giving an individual access to professional fund management with less dealing costs.

Unrestricted Funds

Unrestricted Funds are assets or grants of an organisation, that are not specifically designated to a particular use with no restriction on how the money is to be spent.

Value added tax (VAT)

Value Added Tax is a type of consumption tax payable by placing it on a product when value is added at production or final sales point.

Waiver

A Waiver is a voluntary by the policy holder to eliminate a pre-existing physical condition or specified hazard to remove a potential liability for the other party in the agreement.

Warrant

A warrant is a derivative security that allows an individual the right to purchase ordinary shares at a specific price within a specified time frame.

Will

A will is a legally enforceable document, declaring how an individual wishes his or her property is to be dealt with on his or her death. Usually, executors are appointed in a will to carry out these instructions. A person could also recommend a guardian for his or her minor children in a will.

Yield

Yield refers to the income return that an investment offers after the deduction of charges. Yield is usually expressed annually as a percentage of the amount invested.