QFA Financial Advice key terms

A set period, commonly 14 days, during which a consumer may cancel a newly taken out insurance or investment product and receive a refund of premiums or contributions paid, without penalty.

A legal requirement that the person taking out a life policy must suffer a financial loss if the life assured dies, such as a spouse, business partner or debtor.

The individual whose death or survival triggers a payout under a life assurance policy; this person may or may not be the policyholder who owns and pays for the contract.

A written instruction by the policyholder naming who should receive the death benefit, which may be binding or non-binding depending on the policy terms and applicable law.

The amount a policyholder receives if they voluntarily terminate a savings-type life policy before maturity, usually lower than total premiums paid in the early years due to charges.

A life policy where the policyholder stops paying premiums but keeps the contract in force with a reduced sum assured, rather than surrendering it for cash.

A pension arrangement where the retirement benefit is calculated by a formula, typically based on salary and years of service, with the employer or scheme bearing investment risk.

A pension arrangement where the retirement fund depends on contributions paid plus investment returns, so the member carries the investment risk and the final benefit is not guaranteed.

A contract that converts a lump sum, usually a pension fund, into a regular income for life or a fixed term, often purchased from an insurer at retirement.

The length of time a member must remain in a pension scheme before they gain an irrevocable right to some or all of the employer's contributions.

A professional assessment by an actuary of a pension scheme's assets and liabilities to determine its funding level and the contributions needed to meet future promises.

The ratio of a pension scheme's assets to its estimated liabilities; a level below 100 per cent indicates a deficit that must be addressed by additional contributions or benefit changes.

A client's willingness and financial ability to accept fluctuations in the value of investments in pursuit of higher potential returns, established through fact-finding and assessment.

The process of dividing an investment portfolio among different asset classes such as equities, bonds, property and cash to balance risk and return in line with objectives.

Spreading investments across different assets, sectors or regions so that poor performance in one area does not disproportionately damage the overall portfolio.

Units in a collective investment fund that retain income within the fund and reinvest it, increasing the unit price rather than paying out regular distributions to investors.

Units in a collective investment fund where income received by the fund is distributed to unitholders as regular payments instead of being reinvested in the fund.

The principle that insurance restores the insured to the financial position they held before a loss, no better and no worse, and which underpins most general insurance claims.

The mutual duty on proposer and insurer to deal honestly and disclose all material facts relevant to the risk, forming the basis of the insurance contract.

A condition applying where property is underinsured, reducing a claim payment in proportion to the shortfall between the sum insured and the actual value at risk.

A situation where a claim settlement leaves the insured with property in a newer or improved condition than before the loss; insurers may deduct for this to preserve indemnity.

Any information that would influence a prudent insurer's decision on whether to accept a risk, or on the terms and premium charged, and which the proposer must disclose.

The insurer's right, after paying a claim, to take over the insured's legal rights of recovery against a third party responsible for the loss.

The principle that where two or more policies cover the same loss on the same interest, each insurer pays a proportionate share and no insured recovers more than the loss.

Cover that protects a business against claims from third parties for injury, death or property damage arising from its operations, and covers legal defence costs.

Commercial cover for claims made by members of the public, such as customers or visitors, who are injured or whose property is damaged through the business's activities.

Compulsory or standard cover protecting an employer against claims from employees who suffer injury or illness arising out of and in the course of their employment.

Cover that replaces lost profit and continuing fixed costs when a business is forced to reduce or cease trading following an insured event such as fire or flood.

The time a health insurance member must wait after joining before cover for a particular condition, treatment or pre-existing illness becomes available.

A medical condition for which the member received treatment, advice or symptoms before taking out the health policy, which may be excluded or subject to special terms.

The process by which an insurer assesses a proposed risk, using medical or financial information, to decide whether to accept it and on what terms and premium.

The amount of a mortgage expressed as a percentage of the property's value; a higher ratio means more borrowing and generally higher interest or insurance requirements.

An insurance policy, usually paid for by the borrower, that protects the lender against loss if a high loan-to-value mortgage ends in repossession and sale at a shortfall.

The legal process by which a lender takes back a property, typically after prolonged mortgage arrears, and sells it to recover the outstanding debt.

An equity release arrangement where a homeowner sells all or part of their property to a provider for a lump sum or income while retaining the right to live there rent-free.

A way for older homeowners to unlock cash from their property without moving, either through a lifetime mortgage or a home reversion plan.

A promise in equity release products that the amount owed will never exceed the property's sale value, so the borrower's estate cannot inherit a debt from falling house prices.

A standard measure of the cost of credit that expresses the total charge for borrowing, including interest and certain fees, as an annual percentage for comparison.

A regulated contract under which a creditor provides credit to a debtor, setting out the amount borrowed, interest, repayment schedule and the debtor's cancellation rights.

Amounts owed by a borrower that are overdue and unpaid, such as missed loan or mortgage instalments, which may lead to default action or repossession.

The qualifying link between credit union members, such as sharing an employer, locality or trade association, which defines who may join and use the credit union.

A member-owned cooperative that takes savings from and makes affordable loans to its members, usually operating on a not-for-profit basis under a common bond.

An informal arrangement, often negotiated by a specialist firm, under which creditors agree to accept reduced affordable payments over an extended period.

A formal, legally binding agreement between a debtor and creditors, supervised by an insolvency practitioner, to repay a proportion of debts over a set period.

Situations where an adviser's personal, financial or commercial interests could improperly influence the advice given, which must be identified, disclosed and managed.

The requirement that advice and product recommendations must match the client's circumstances, objectives, needs and attitude to risk, supported by recorded fact-find information.

A status where an adviser can consider all relevant products available in the market and is not restricted to a single provider's range or subject to conflicting incentives.

A structured record of a client's financial position, objectives, commitments and risk attitude, gathered before advice is given and used to evidence suitability.

A legal obligation on a pension trustee or adviser to act in the best interests of beneficiaries, putting their interests ahead of the trustee's own.

A person or company that holds pension scheme assets and administers the scheme on behalf of members, owing duties of care, prudence and loyalty.

A written document setting out a pension scheme's investment policy, including the kinds of investments held, risk approach and how voting rights are exercised.

The requirement to provide clients with clear, fair and not misleading information about products, charges, risks and the nature of the advice given.