QFA Life Assurance key terms

A legal requirement that the person taking out a policy must stand to suffer a financial loss if the insured event happens. It must exist when the policy is taken out, and for life cover it must exist at inception.

The amount of money a life policy pays out when the insured event occurs, such as death or survival to a set date. It may be fixed or increase in line with a stated indexation rate.

Life cover that pays a lump sum only if death occurs within an agreed period. It builds no investment value and the cover ends when the term expires, so it is usually the cheapest form of life cover.

Life cover that runs for the insured person's entire lifetime and pays out whenever death occurs, provided premiums are maintained. It normally carries an investment element and a surrender value.

The cash amount an insurer will pay if a policyholder decides to end an investment-type life policy before it matures or pays out. It may be less than the premiums paid.

An extra, one-off addition to a with-profits policy payout made when the policy matures, is surrendered, or the life insured dies. It reflects final investment performance and is not guaranteed.

An investment-type life or pension policy where the insurer adds regular and final bonuses to the fund from the profits of a pooled fund. Bonuses smooth out the ups and downs of investment markets.

The process by which an insurer assesses the risk a proposed policyholder presents, using medical, financial and lifestyle information, and decides whether to accept the risk, and on what terms.

Failing to reveal information that a prudent insurer would consider relevant when deciding whether to accept a risk or what premium to charge. It can allow the insurer to reduce a claim or void the policy.

The principle that both insurer and policyholder must deal honestly and openly, disclosing all material facts. It underpins the duty to answer proposal questions fully and accurately.

A contract in which an insurer pays a regular income, usually for life, in return for a lump sum. The income can be level, increasing, or paid to a surviving spouse after the annuitant dies.

The right of a pension saver to shop around and buy their retirement income from a different provider rather than accepting the annuity offered by the scheme they saved with.

The tax-free cash a saver may take from their pension fund when they start drawing benefits, usually capped at a set percentage of the fund. The remainder is used to provide income.

A pension arrangement where the employer and employee pay contributions into an individual pot and the retirement income depends on how much has built up and how investments perform. The employer does not promise a set income.

A pension arrangement that promises a retirement income based on a formula, typically years of service and salary. The employer or scheme bears the investment risk of meeting that promised benefit.

A regular payment from the state to people who have reached state pension age and built up sufficient qualifying years of national insurance contributions or credits. It is paid for life and increases annually.

A tax-advantaged savings or investment wrapper in which an individual can hold cash, funds or shares. Growth and withdrawals are generally free of income tax and capital gains tax within annual limits.

The possibility that an investment's value will fall or that its return will be lower than expected. Different assets carry different levels of risk, and higher potential returns usually come with higher risk.

Spreading money across different assets, sectors or regions so that poor performance in one area is offset by better results elsewhere. It reduces the overall risk of a portfolio without necessarily reducing expected returns.

A pooled investment fund divided into units, where investors' money is managed collectively by a fund manager. The unit price reflects the value of the underlying assets and can rise or fall.

The principle that insurance should restore the policyholder to the financial position they were in before a loss, no better and no worse. It applies to property and liability cover, not to life assurance.

The first part of any claim that the policyholder must pay themselves before the insurer meets the rest. A higher excess usually means a lower premium because the insurer carries less of the risk.

A condition in property insurance that reduces a claim payout if the sum insured is less than the full value of the property at risk. The claim is scaled down in proportion to the underinsurance.

The maximum amount an insurer will pay under a property or liability policy. For buildings and contents cover it should reflect the full cost of rebuilding or replacing the insured items.

The amount a policyholder pays, usually monthly or annually, in return for insurance cover. It reflects the level of risk, the sum insured, the excess chosen and the insurer's costs.

Cover that protects a business against claims from members of the public or other third parties for injury or damage caused by its activities or premises. It meets legal costs and compensation awarded.

Compulsory cover for most employers against claims from employees who are injured or become ill because of their work. It pays compensation and legal costs up to a required minimum limit.

Cover that replaces lost profit and pays ongoing fixed costs when a business is forced to stop or reduce trading because of an insured event such as fire or flood.

Any information that would influence a prudent insurer's decision to accept a commercial risk or set its terms. The proposer must disclose material facts even if not specifically asked about them.

A period, often two or three years, during which a private medical insurer will not investigate a new customer's past medical history but will also not pay claims relating to conditions that existed before cover began.

A medical condition for which the policyholder had symptoms, treatment or advice before taking out a private medical policy. Insurers may exclude it, restrict cover, or apply a waiting period.

Insurance that pays a tax-free lump sum if the insured is diagnosed with one of a defined list of serious conditions, such as certain cancers or a heart attack, and survives a set period.

Cover that replaces part of a person's lost earnings if they cannot work because of illness or injury. It usually pays a monthly benefit after a waiting period and until recovery or retirement.

A loan secured on property, usually a home, where the lender can repossess and sell the property if the borrower fails to keep up repayments. It can be repayment or interest-only.

The size of a mortgage expressed as a percentage of the property's value. A higher ratio means a bigger loan relative to the property and usually a higher interest rate.

A policy designed to pay off a mortgage if the borrower dies or, in some versions, becomes unable to work through illness. It helps prevent the home being lost to repossession.

An arrangement where an older homeowner sells all or part of their home to a provider for a lump sum or income, while keeping the right to live there rent-free until they die or move out.

A type of equity release where a homeowner borrows against the value of their home and usually pays no interest until the loan is repaid from the sale of the property on death or moving into care.

A way for older homeowners to unlock cash tied up in their home without moving out. The main forms are lifetime mortgages and home reversion plans, both regulated for consumer protection.

A standard measure of the cost of borrowing that includes interest and certain fees, expressed as a yearly percentage. It lets consumers compare the true cost of different credit offers.

Lending to individuals for personal rather than business use, such as personal loans, credit cards and hire purchase. It is regulated to protect borrowers from unfair terms and practices.

Cover sold alongside credit that meets loan or card repayments if the borrower cannot pay because of accident, sickness or unemployment. It is optional and must not be sold as compulsory.