QFA Life Assurance cheat sheet

Term assurance pays a lump sum only if death occurs within the policy term; with no survival benefit, it is the cheapest form of life cover.

Whole-of-life policies are guaranteed to pay on death whenever it occurs, so premiums are higher than for equivalent term cover because payment is certain.

Endowment assurance combines death cover with a maturity payout if the life assured survives the term.

A unit-linked policy's surrender value equals the value of units allocated minus any early encashment charge or bid-offer spread.

Under the doctrine of insurable interest, a person may insure their own life or the life of a spouse or dependent, but not a stranger's.

Non-disclosure or misrepresentation of material facts at proposal can render the contract voidable, with premiums refunded or claims reduced.

A surrender value is typically available only after an initial period; earlier encashment may return nothing or less than premiums paid.

Suicide exclusion clauses usually limit payout to a return of premiums if death occurs within a stated period from inception.

A defined benefit scheme promises a pension based on salary and service; a defined contribution scheme pays whatever the accumulated fund buys at retirement.

Tax relief on personal pension contributions is granted at the contributor's marginal rate, subject to an annual allowance and a lifetime allowance cap.

The fund grows free of income and capital gains tax, but withdrawals are taxed as income in retirement.

A personal pension may normally be accessed from age 55 (rising to 57), with up to 25% available as a tax-free lump sum.

An annuity converts a pension fund into a guaranteed lifetime income; the rate depends on age, interest rates and health at purchase.

Income drawdown keeps the fund invested and paid as income, but the fund can be depleted and investment risk remains with the member.

A small self-administered scheme (SSAS) or self-invested personal pension (SIPP) allows the member to choose the underlying investments.

Final salary transfers require advice because giving up a guaranteed scheme benefit is rarely in the member's interest.

Total return = income received + capital growth, expressed as a percentage of the original investment.

Real return = nominal return minus inflation; a nominal return below inflation produces a negative real return.

Diversification across asset classes reduces unsystematic risk, but market (systematic) risk cannot be eliminated by spreading holdings.

Equities historically offer higher expected returns than cash or gilts in exchange for greater volatility and capital risk.

Collective investment schemes pool investor money; unit trusts price at forward (creation) and backward (cancellation) prices with a spread.

An open-ended investment company (OEIC) is a company whose share price reflects net asset value, unlike a unit trust's dual pricing.

Investment bonds are taxed as non-qualifying life policies, with gains taxed on chargeable events and top-slicing relief available.

Individual savings accounts shelter income and gains from tax, subject to an annual subscription limit.

Indemnity restores the insured to their pre-loss financial position; new-for-old cover is an exception, not the default.

Average (underinsurance) clause reduces a claim in proportion to the ratio of sum insured to the value at risk.

Household contents policies typically exclude business equipment, money over stated limits, and wear and tear.

Buildings cover insures the structure and fixtures; contents cover insures movable items and personal possessions.

A policy excess is the first part of each loss borne by the insured, reducing small claims and moral hazard.

Motor insurance is compulsory for third-party liability; comprehensive cover adds own-damage and theft protection.

Subrogation lets the insurer pursue a third party who caused the loss after paying the claim.

Contribution applies when two policies cover the same loss, with each insurer paying its rateable share.

Commercial property policies cover buildings, plant, stock and business interruption, often subject to a coinsurance or average condition.

Business interruption indemnifies lost gross profit and increased cost of working following an insured peril at the premises.

Public liability covers third-party injury or property damage arising from the business's operations; product liability covers goods supplied.

Employers' liability insurance is compulsory for most employers and covers claims by employees for work-related injury or disease.

Professional indemnity covers claims arising from negligent advice or professional services, typically on a claims-made basis.

A claims-made policy responds to claims notified during the policy period, regardless of when the act occurred, subject to retroactive dates.

Fidelity guarantee covers loss of money or property through employee dishonesty.

Material damage and business interruption sums insured should reflect reinstatement cost and indemnity period respectively.

PMI reimburses the cost of eligible private treatment; it typically excludes pre-existing conditions, chronic conditions and routine maternity.

Underwriting may be moratorium (conditions excluded for a stated period) or full medical underwriting (conditions declared at outset).

An excess reduces premium by shifting the first part of each claim to the insured.

No-claims discounts reward claim-free years but are reduced or removed after a claim.

Critical illness cover pays a tax-free lump sum on diagnosis of a listed condition, provided the definition is met.

Income protection pays a proportion of income (often 50-75%) during incapacity, after a deferred period, until recovery or retirement.

PMI usually pays for acute treatment that restores health; it does not fund long-term chronic care.

Cash plans reimburse everyday health costs such as dental and optical treatment up to fixed limits.

A repayment (annuity) mortgage repays capital and interest together, so the balance falls to zero at the end of term.

An interest-only mortgage requires a separate repayment vehicle; the capital remains outstanding unless the vehicle performs.

Loan-to-value (LTV) = loan amount ÷ property value; a higher LTV generally attracts a higher interest rate.

A fixed-rate mortgage fixes the rate for a set period; a tracker follows a reference rate plus a margin.

A variable or standard variable rate can move with the lender's discretion or market rates.

Mortgage indemnity guarantee (MIG) or higher-lending fee protects the lender, not the borrower, when LTV is high.

Early repayment charges often apply during a fixed or discounted period.

Affordability assessment considers income, outgoings and stress-tested interest rates before lending.

A home reversion plan sells all or part of the home to a provider for a lump sum or income while the seller retains a rent-free lifetime lease.

The reversion provider buys the share at below market value because it gains the property only on the seller's death or move to care.

Unlike a lifetime mortgage, a home reversion does not accrue interest; the provider's share is fixed at outset.

The seller can never owe more than the property value because the debt is limited to the provider's share.

A lifetime mortgage is a loan secured on the home with rolled-up interest, repaid on death or sale.

Equity release plans are regulated and require advice; a no-negative-equity guarantee protects the borrower's estate.

Inheritance and means-tested benefit entitlement can be affected, so the impact should be assessed before proceeding.

Home reversion is suitable only where the seller accepts giving up ownership of the reversion share permanently.

Consumer credit is regulated; lenders must assess affordability and provide pre-contract information.

Annual percentage rate (APR) expresses the total cost of credit including interest and fees as an annualised rate.

Payment protection insurance (PPI) covers loan repayments during accident, sickness or unemployment, subject to policy conditions.

A hire purchase agreement lets the buyer use goods while paying instalments, with ownership passing on the final payment.

A conditional sale agreement transfers ownership on the final instalment but the buyer bears risk earlier than in hire purchase.

A cooling-off period allows the borrower to cancel a regulated credit agreement within a stated number of days.

Early settlement may entitle the borrower to a rebate of charges under consumer credit rules.

Missed payments can trigger default charges, adverse credit records and repossession in secured lending.

Term assurance pays a lump sum only if death occurs within the policy term; with no survival benefit, it is the cheapest form of life cover.

Whole-of-life policies are guaranteed to pay on death whenever it occurs, so premiums are higher than for equivalent term cover because payment is certain.

Endowment assurance combines death cover with a maturity payout if the life assured survives the term.

A unit-linked policy's surrender value equals the value of units allocated minus any early encashment charge or bid-offer spread.

Under the doctrine of insurable interest, a person may insure their own life or the life of a spouse or dependent, but not a stranger's.

Non-disclosure or misrepresentation of material facts at proposal can render the contract voidable, with premiums refunded or claims reduced.

A surrender value is typically available only after an initial period; earlier encashment may return nothing or less than premiums paid.

Suicide exclusion clauses usually limit payout to a return of premiums if death occurs within a stated period from inception.

A defined benefit scheme promises a pension based on salary and service; a defined contribution scheme pays whatever the accumulated fund buys at retirement.

Tax relief on personal pension contributions is granted at the contributor's marginal rate, subject to an annual allowance and a lifetime allowance cap.

The fund grows free of income and capital gains tax, but withdrawals are taxed as income in retirement.

A personal pension may normally be accessed from age 55 (rising to 57), with up to 25% available as a tax-free lump sum.

An annuity converts a pension fund into a guaranteed lifetime income; the rate depends on age, interest rates and health at purchase.

Income drawdown keeps the fund invested and paid as income, but the fund can be depleted and investment risk remains with the member.

A small self-administered scheme (SSAS) or self-invested personal pension (SIPP) allows the member to choose the underlying investments.

Final salary transfers require advice because giving up a guaranteed scheme benefit is rarely in the member's interest.

Total return = income received + capital growth, expressed as a percentage of the original investment.

Real return = nominal return minus inflation; a nominal return below inflation produces a negative real return.

Diversification across asset classes reduces unsystematic risk, but market (systematic) risk cannot be eliminated by spreading holdings.

Equities historically offer higher expected returns than cash or gilts in exchange for greater volatility and capital risk.

Collective investment schemes pool investor money; unit trusts price at forward (creation) and backward (cancellation) prices with a spread.

An open-ended investment company (OEIC) is a company whose share price reflects net asset value, unlike a unit trust's dual pricing.

Investment bonds are taxed as non-qualifying life policies, with gains taxed on chargeable events and top-slicing relief available.

Individual savings accounts shelter income and gains from tax, subject to an annual subscription limit.

Indemnity restores the insured to their pre-loss financial position; new-for-old cover is an exception, not the default.

Average (underinsurance) clause reduces a claim in proportion to the ratio of sum insured to the value at risk.

Household contents policies typically exclude business equipment, money over stated limits, and wear and tear.

Buildings cover insures the structure and fixtures; contents cover insures movable items and personal possessions.

A policy excess is the first part of each loss borne by the insured, reducing small claims and moral hazard.

Motor insurance is compulsory for third-party liability; comprehensive cover adds own-damage and theft protection.

Subrogation lets the insurer pursue a third party who caused the loss after paying the claim.

Contribution applies when two policies cover the same loss, with each insurer paying its rateable share.

Commercial property policies cover buildings, plant, stock and business interruption, often subject to a coinsurance or average condition.

Business interruption indemnifies lost gross profit and increased cost of working following an insured peril at the premises.

Public liability covers third-party injury or property damage arising from the business's operations; product liability covers goods supplied.

Employers' liability insurance is compulsory for most employers and covers claims by employees for work-related injury or disease.

Professional indemnity covers claims arising from negligent advice or professional services, typically on a claims-made basis.

A claims-made policy responds to claims notified during the policy period, regardless of when the act occurred, subject to retroactive dates.

Fidelity guarantee covers loss of money or property through employee dishonesty.

Material damage and business interruption sums insured should reflect reinstatement cost and indemnity period respectively.

PMI reimburses the cost of eligible private treatment; it typically excludes pre-existing conditions, chronic conditions and routine maternity.

Underwriting may be moratorium (conditions excluded for a stated period) or full medical underwriting (conditions declared at outset).

An excess reduces premium by shifting the first part of each claim to the insured.

No-claims discounts reward claim-free years but are reduced or removed after a claim.

Critical illness cover pays a tax-free lump sum on diagnosis of a listed condition, provided the definition is met.

Income protection pays a proportion of income (often 50-75%) during incapacity, after a deferred period, until recovery or retirement.

PMI usually pays for acute treatment that restores health; it does not fund long-term chronic care.

Cash plans reimburse everyday health costs such as dental and optical treatment up to fixed limits.

A repayment (annuity) mortgage repays capital and interest together, so the balance falls to zero at the end of term.

An interest-only mortgage requires a separate repayment vehicle; the capital remains outstanding unless the vehicle performs.

Loan-to-value (LTV) = loan amount ÷ property value; a higher LTV generally attracts a higher interest rate.

A fixed-rate mortgage fixes the rate for a set period; a tracker follows a reference rate plus a margin.

A variable or standard variable rate can move with the lender's discretion or market rates.

Mortgage indemnity guarantee (MIG) or higher-lending fee protects the lender, not the borrower, when LTV is high.

Early repayment charges often apply during a fixed or discounted period.

Affordability assessment considers income, outgoings and stress-tested interest rates before lending.

A home reversion plan sells all or part of the home to a provider for a lump sum or income while the seller retains a rent-free lifetime lease.

The reversion provider buys the share at below market value because it gains the property only on the seller's death or move to care.

Unlike a lifetime mortgage, a home reversion does not accrue interest; the provider's share is fixed at outset.

The seller can never owe more than the property value because the debt is limited to the provider's share.

A lifetime mortgage is a loan secured on the home with rolled-up interest, repaid on death or sale.

Equity release plans are regulated and require advice; a no-negative-equity guarantee protects the borrower's estate.

Inheritance and means-tested benefit entitlement can be affected, so the impact should be assessed before proceeding.

Home reversion is suitable only where the seller accepts giving up ownership of the reversion share permanently.

Consumer credit is regulated; lenders must assess affordability and provide pre-contract information.

Annual percentage rate (APR) expresses the total cost of credit including interest and fees as an annualised rate.

Payment protection insurance (PPI) covers loan repayments during accident, sickness or unemployment, subject to policy conditions.

A hire purchase agreement lets the buyer use goods while paying instalments, with ownership passing on the final payment.

A conditional sale agreement transfers ownership on the final instalment but the buyer bears risk earlier than in hire purchase.

A cooling-off period allows the borrower to cancel a regulated credit agreement within a stated number of days.

Early settlement may entitle the borrower to a rebate of charges under consumer credit rules.

Missed payments can trigger default charges, adverse credit records and repossession in secured lending.