QFA Life Assurance flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Term assurance
- Life cover that pays a lump sum only if the insured dies within a specified term. It has no maturity or survival benefit, making it the cheapest form of life protection.
- Whole-of-life policy
- A life policy that pays a guaranteed sum on death whenever it occurs. Because payment is certain, premiums are higher than for equivalent term cover.
- Endowment assurance
- A life policy combining death cover with a maturity payout if the life assured survives the term. It can be used to repay a mortgage or as savings.
- Insurable interest
- The legal requirement that the policyholder benefits from the continued life of the insured. A person may insure their own life, a spouse or a dependent, but not a stranger.
- Defined contribution scheme
- A pension where contributions build an invested fund, and retirement income depends on the fund's value at retirement. The member bears the investment risk.
- Defined benefit scheme
- A pension promising income based on salary and years of service, usually linked to final or average pay. The employer bears the investment and longevity risk.
- Annuity
- A contract converting a pension fund into a guaranteed lifetime income. The rate depends on age, interest rates and health at purchase.
- Income drawdown
- A retirement option keeping the pension fund invested while paying an income. The fund can be depleted and investment risk remains with the member.
- Real return
- The nominal investment return minus inflation. A nominal return below the inflation rate produces a negative real return, reducing purchasing power.
- Diversification
- Spreading investments across asset classes to reduce unsystematic risk. It cannot eliminate systematic market risk, which affects all holdings.
- Open-ended investment company
- A pooled investment company whose share price reflects net asset value. Unlike a unit trust, it does not use dual creation and cancellation pricing.
- Investment bond
- A non-qualifying life policy taxed on chargeable events. Gains may qualify for top-slicing relief to spread tax across the policy years.
- Indemnity principle
- The insured is restored to their pre-loss financial position, no better. New-for-old cover is a specific exception to this default rule.
- Average clause
- An underinsurance condition reducing a claim in proportion to the ratio of the sum insured to the value at risk at the time of loss.
- Policy excess
- The first part of each loss borne by the insured. It reduces small claims and moral hazard and lowers the premium.
- Subrogation
- The insurer's right, after paying a claim, to pursue the third party who caused the loss and recover the amount paid.
- Business interruption cover
- Commercial cover indemnifying lost gross profit and increased cost of working after an insured peril at the premises, over a chosen indemnity period.
- Claims-made policy
- A liability policy responding to claims notified during the policy period, regardless of when the act occurred, subject to any retroactive date.
- Employers' liability insurance
- Compulsory cover for most employers against claims by employees for work-related injury or disease arising during employment.
- Fidelity guarantee
- Commercial cover for loss of money or property caused by the dishonesty of employees. It complements rather than replaces commercial property cover.
- Moratorium underwriting
- A PMI approach excluding pre-existing conditions for a stated period, often two years, unless the condition has been symptom-free.
- Critical illness cover
- Pays a tax-free lump sum on diagnosis of a listed condition, provided the policy definition is met. Conditions are strictly defined.
- Income protection
- Pays a proportion of income, often 50-75%, during incapacity after a deferred period, continuing until recovery or retirement.
- Cash plan
- A health policy reimbursing everyday costs such as dental and optical treatment up to fixed limits, rather than covering major private treatment.
- Repayment mortgage
- A mortgage repaying capital and interest together over the term, so the balance falls to zero at the end if all payments are made.
- Interest-only mortgage
- A mortgage where payments cover interest only. The capital remains outstanding and must be repaid from a separate repayment vehicle.
- Loan-to-value ratio
- The loan amount divided by the property value, expressed as a percentage. A higher LTV generally attracts a higher interest rate.
- Tracker mortgage
- A mortgage whose rate follows a reference rate plus a fixed margin, so payments move as the reference rate changes.
- Home reversion plan
- Sells all or part of the home to a provider for a lump sum or income while the seller keeps a rent-free lifetime lease.
- Lifetime mortgage
- A loan secured on the home with interest rolled up and repaid on death or sale. A no-negative-equity guarantee caps the debt.
- Annual percentage rate
- The total cost of credit, including interest and fees, expressed as an annualised rate. It allows comparison between credit agreements.
- Hire purchase
- A credit agreement letting the buyer use goods while paying instalments, with ownership passing only on the final payment.