CIIN Certificate CF4 key terms

The chance that an uncertain future event produces an outcome different from what was expected, usually measured as the possibility of financial loss or harm.

A situation where the only possible outcomes are loss or no change, with no chance of gain. Insurers typically cover this type of risk.

A situation with potential for either gain or loss, such as investing in shares or starting a business. Generally not insurable because the outcome is deliberately sought.

A legal and financial relationship with the subject of insurance such that the policyholder benefits from its survival or suffers loss from its damage. Required for a valid contract.

The principle that insurance restores the policyholder to the financial position held before a loss, without profit. Applies to most general insurance but not to life or personal accident cover.

A mutual duty on proposer and insurer to disclose all material facts honestly when arranging or altering a contract. Breach may allow the insurer to avoid the policy.

Any information that would influence a prudent insurer's decision on whether to accept a risk, what terms to apply, or what premium to charge.

The risk that a person behaves less carefully, or more dishonestly, because insurance will cover the consequences of their actions.

The tendency for people with above-average risk to seek insurance more actively than low-risk people, which can distort pricing and threaten insurer profitability.

The process by which an insurer assesses a proposed risk, decides whether to accept it, and sets the terms and premium that reflect the risk presented.

The amount a policyholder pays to the insurer, usually monthly or annually, in exchange for the cover provided under the contract.

The first portion of any loss a policyholder must bear personally before the insurer pays a claim. Also called an excess in many markets.

The maximum amount an insurer will pay under a policy, or the value declared for the property covered. It forms the basis for calculating premium and claims.

An improvement in the condition or value of insured property resulting from repairs or replacement. Insurers usually deduct betterment from claims so the policyholder does not profit.

Life cover that pays a lump sum only if the insured dies within a fixed period. It has no cash value and is usually the cheapest form of life protection.

Life cover that remains in force for the insured's entire lifetime and pays out on death whenever it occurs, provided premiums are maintained.

A life assurance contract that pays a guaranteed sum at a set maturity date or on earlier death. Traditionally used to repay mortgages or provide savings.

The amount stated in a life policy that the insurer will pay on death, diagnosis of a specified illness, or maturity, according to the contract terms.

Protection that pays a tax-free lump sum if the insured is diagnosed with one of the serious conditions listed in the policy and survives a specified period.

Insurance that replaces part of a policyholder's earnings if they cannot work because of illness or injury, usually paying a regular benefit after a waiting period.

The waiting time after a claim event, or after income stops, before an income protection benefit becomes payable. Longer periods usually reduce premiums.

The amount a policyholder receives if they end a savings-type life policy early, before maturity. It is often less than the total premiums paid.

A pooled fund where premiums from with-profits policyholders are invested and smoothed returns are shared through bonuses, including regular and final bonuses.

A life or savings policy where premiums buy units in investment funds chosen by the policyholder, so the value rises and falls with the underlying investments.

Cover protecting a business against claims from third parties for injury, death or damage to their property arising from the business's activities.

Compulsory cover for most employers against claims from employees who suffer injury or illness at work caused by the employer's negligence.

Cover for businesses and professionals against claims that their advice, services or professional negligence caused a client financial loss or harm.

A person or organisation other than the policyholder and insurer who may be affected by the insured's actions and who can bring a claim under liability cover.

A condition in property insurance that reduces claims proportionally when the sum insured is less than the full value of the property at risk.

Arises when the sum insured is lower than the true replacement or market value of the insured item, so claims may be reduced and the policyholder bears the shortfall.

A workplace pension that promises a retirement income based on a formula, typically salary and years of service, with the employer carrying the investment risk.

A workplace or personal pension where contributions are invested and the final fund depends on investment performance and charges. The individual bears the investment risk.

A contract that converts a pension fund into a guaranteed regular income, usually for life, in exchange for a lump sum paid to the provider.

A retirement option where the pension fund stays invested and the individual withdraws income directly, carrying investment risk and the risk of exhausting the fund.

A government-provided retirement benefit based on an individual's contribution record, paid from a specified age and usually subject to annual increases.

Rules allowing people with defined contribution pensions to access their funds flexibly from a set age, subject to tax rules and, usually, regulated advice requirements.

The possibility that an investment's actual return will differ from what was expected, including loss of capital or failure to keep pace with inflation.

Spreading money across different assets, sectors or regions to reduce the impact of any single investment performing badly.

The degree to which an investment's price moves up and down over time. Higher volatility means greater uncertainty about short-term values.

The split of a portfolio between asset classes such as cash, bonds, property and shares, chosen to balance risk and return for the investor's goals.

A regulatory principle requiring firms to deliver fair outcomes for customers across product design, sales, servicing and claims, not merely follow procedures.

A regulatory standard requiring firms to act in good faith and deliver good outcomes for retail customers, including fair value and clear communication.

A customer whose circumstances, such as health, income, age or capability, make them more susceptible to harm and who needs additional care from firms.

The requirement that advice and recommendations match the customer's objectives, needs, financial situation and risk appetite, supported by recorded evidence.

The process of assessing an investor's willingness and capacity to accept investment loss, used to match them with an appropriate portfolio or product.

Identity and background checks firms must complete before providing services, helping prevent money laundering, fraud and financial crime.