QFA Financial Advice flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Insurable interest

A legal requirement that the policyholder would suffer financial loss from the insured event. It must exist at inception of a life policy and underpins enforceability of the contract.

Utmost good faith

The duty on both parties to a contract of insurance to disclose all material facts. Breach by the proposer can allow the insurer to void or reduce a claim.

Surrender value

The cash amount a policyholder receives on early termination of a whole-of-life or endowment policy. Term assurance has no surrender value.

Average clause

A condition that reduces a claim proportionally when the sum insured is less than the value at risk. It penalises under-insurance by paying only a fraction of the loss.

Subrogation

The insurer's right, after paying a claim, to step into the insured's shoes and recover the loss from the party responsible. It prevents double recovery.

Proximate cause

The dominant, effective cause of a loss. It determines whether a policy responds when several perils combine in a chain of events.

Business interruption cover

Indemnifies lost gross profit and increased cost of working following insured property damage. It requires a material damage proviso and a defined indemnity period.

Claims-made policy

Responds to claims first notified during the policy period, regardless of when the act occurred. Common in professional indemnity and medical malpractice cover.

Co-insurance clause

Requires the insured to carry a minimum percentage of value. If the insured carries less, claims are reduced proportionally, similar to an average clause.

Moratorium underwriting

A PMI underwriting method that excludes conditions that existed or were treated during a look-back period before cover began. Claims are assessed at the point of claim.

Income protection insurance

Pays a proportion of income, often 50-75%, during incapacity caused by illness or injury. It differs from PMI, which reimburses treatment costs.

Critical illness cover

Pays a tax-free lump sum on diagnosis of a specified condition such as cancer or stroke. Survival periods and definitions vary by policy.

Loan-to-value ratio

The loan amount expressed as a percentage of the property value. Lower LTV ratios typically attract lower interest rates and reduce lender risk.

Tracker mortgage

A mortgage whose rate moves with a reference rate, such as the ECB rate, plus a fixed margin. Payments rise and fall with the reference rate.

Mortgage protection policy

A life assurance policy assigned to the lender to repay the mortgage on death. It is usually required for the term of the loan.

Home reversion scheme

The sale of a share of the home to a provider for a lump sum or income while the seller retains a right to live there rent-free.

Right of residence

A documented right allowing the former owner to remain in the home for life after a reversion sale. It must be clearly set out in the agreement.

Lifetime mortgage

A loan secured on the home that rolls up interest and is repaid on death or sale. Unlike a reversion, the borrower retains full ownership.

Annual percentage rate

The total cost of credit expressed as an annual rate including fees. It allows comparison of credit products on a consistent basis.

Payment protection insurance

Optional cover that meets loan or credit repayments during illness, accident, or unemployment. It must be sold fairly and its limitations disclosed.

Reducing balance interest

Interest calculated on the outstanding balance, which falls as repayments are made. It is cheaper over the term than flat-rate interest.

Common bond

The shared link, such as locality, employer, or association, that qualifies a person for membership of a credit union.

Deposit guarantee scheme

Protects credit union members' savings up to a statutory limit if the institution fails. The limit and scope vary by jurisdiction.

Dividend on shares

A distribution of surplus to credit union members on their savings, subject to reserves and regulatory approval. It is not guaranteed.

Debt management plan

An informal arrangement to repay unsecured debts at reduced instalments. It is not legally binding and creditors may still enforce debts.

Debt relief notice

A statutory scheme that may write off qualifying unsecured debt after a supervision period. It has long-term credit record consequences.

Priority debts

Debts with serious consequences for non-payment, such as mortgage, tax, and utility arrears. They should be addressed before unsecured debts.

Conflicts of interest

Situations where personal or firm interests could compromise client advice. They must be identified, disclosed, and managed under ethical rules.

Suitability assessment

The process of matching a product recommendation to a client's needs, objectives, and risk tolerance. It is a core regulatory and ethical obligation.

Treating customers fairly

A regulatory principle requiring clear, fair, and not misleading communications and outcomes for customers throughout the product lifecycle.

Member-nominated trustee

A trustee selected by scheme members to represent their interests on the trustee board. Regulations may require a minimum proportion.

Statement of investment principles

A written statement setting out how scheme assets are invested, including risk and return objectives. Trustees must review and disclose it.