A

Acceptance letter
An offer of life assurance, setting out the terms.
Actuary
A person who calculates life insurance premiums, basing them on life expectation and likely investment returns.
Additional voluntary contributions (AVCs)
Where a member of an employer's pension schemes chooses to boost their retirement benefits by making additional payments into their employer's AVC scheme.
Advice
Where an authorised adviser looks at your individual circumstances and advises on suitable products for your financial needs.
Allocation rate
This is the percentage of your payment that is actually invested (e.g. 75%) after initial charges have been taken into account.
Annual management
A charge which is usually a percentage of your fund and is deducted from your fund charge every year.
Annuity
The investment of a lump sum, for example a pension fund, to provide you with a regular income over a number of years.

B

Bid price
The price at which you can sell a security or a unit in a unit trust.
Bid/Offer spread
A form of charging where there is a difference between the price at which you can buy and sell units in a unit trust. On any given day the price at which you can buy units will be higher than the price at which you can sell them.
Bonus
A sum added to the savings element of your 'With Profits' life insurance policy.

C

Capital & interest loan
A loan where you pay off the interest and some of the capital you have borrowed at the same time. An example would be a repayment mortgage.
Capital gains tax
A tax on the gain you make from selling or disposing of assets, if the gain is above your annual allowance.
Collective investment
Investments such as unit trusts and investment trusts schemes
Commission
When you buy an investment or policy, some companies pay a commission to the adviser or salesman who recommended the products to you.
Company representative
A financial adviser who can only advise on their own company's products.
Compulsory purchase
An annuity you buy with the fund built up in your personal pension scheme annuity
Contracting out
Redirecting the part of your National Insurance contributions which funds your State Earnings Related Pension Scheme (SERPS), into another pension scheme.
Convertible term
Life insurance which pays out if you die within the period of protection, but which insurance also gives you the option to convert to an endowment or whole of life policy.
Corporate bond
Where your investment is effectively a loan to a company. In return the company agrees to pay you a fixed income for a period, then repay your original capital.
Corporation tax
A tax any limited company or public limited company has to pay on any income or capital gains it makes.
Critical illness
A protection policy which pays out, normally a lump sum, if you are diagnosed with one of a number of specified severe illnesses.

D

Decreasing term
Life insurance which pays out a lump sum if you die within the term, but where the insurance sum assured reduces during the term. The earlier you die in the term, the bigger the payout your dependants get.
Derivatives
A collective name for futures, options and warrants.
Disclosure
Where an investment company is legally required to show you the total cost of taking out a product or policy with them, including details of any commission paid to an adviser.
Dividend
A benefit paid to shareholders in a company, normally determined by the amount of profit the company has made.

E

Endowment
Life insurance which also has a savings element, paid out when the plan matures. It also pays out if you die within the term.
Execution only
Where a customer buys a financial product without receiving advice on its suitability.

F

Family income policy
Life insurance that pays out a regular income rather than a lump sum, if you die within the term. The income is paid for the remainder of the term assured.
Final salary schemes
An employer's pension scheme where your retirement benefits depend on the number of years you've worked for a company and your final salary just before retirement.
Financial Services Authority (FSA)
On 28th October 1997 the Securities and Investments Board (SIB) changed its name to the Financial Services Authority (FSA). The FSA continues to exercise all the functions which the SIB had under the Financial Services Act 1986.
Free standing additional voluntary contributions (FSAVC)
Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into an independent scheme, outside their employer's scheme.
Futures
A contract where you agree to buy or sell assets at a set price on a fixed date in the future.

G

Gilts
Where your investment is effectively a loan to the government, who in return agree to pay you a fixed income for a period, then repay your original capital.
Group personal pension
Where a company has an arrangement with a pension provider to offer personal pension plans to company employees.
Guaranteed growth bonds
Fixed term investments, typically between 3 and 5 years, where you invest a lump sum and are guaranteed either a minimum return or that you won't lose capital.
Guaranteed income bonds
Fixed term investments, typically between 3 and 5 years, where you invest a lump sum and are guaranteed an income for the a set period.

H

I

Illustration
An estimation of the returns you might get from an investment, based on standard growth rates and taking charges into account. The actual returns you get may be higher or lower than this.
Income tax
A tax on all payments you receive, such as earnings, pension, and income from investments. The amount of tax you pay depends on the amount of money you receive and also your personal allowance.
Increasable term
Life insurance that pays out if you die within the set term. With this type of insurance insurance the amount of protection you have increases throughout the term.
Independent financial adviser
An adviser who should consider the full range of financial products on the market adviser before recommending the most suitable for you.
Individual savings account (ISA)
A new tax-efficient savings scheme scheduled to be launched on 6th April 1999.
Inflation
An increase in the price of goods and services over a period of time.
Inheritance tax
A tax on the value of your estate when you die. It only applies to large estates (over £223,000 in 1998/99) and is not payable on the passing of your estate to your spouse.
Interest only mortgage
A home loan where you only pay off the interest during the term of the loan, then at the end you pay off the capital using funds from a separate investment vehicle like an endowment or PEP.
Intestate
Dying without making a will.
Investment Management Regulatory Organisation(IMRO)
A regulatory body which governs the way investors money is handled and invested.
Investment trust
Where you invest in a company that itself invests in the shares of other companies.

J

K

L

Level term insurance
The simplest form of life insurance, it pays out if you die during the term of protection.
Low cost endowment
A savings plan which includes decreasing term insurance (see above). It pays out at the end of the term, and also if you die within the term. Usually used to pay off an interest only mortgage (see above).

M

Managed fund
A fund where the fund manager decides where to invest your money, for example in property, shares or fixed investments etc.
Money purchase scheme
An employer's pension scheme where your payments are used to buy other investments. Your retirement benefits depend on the amount you've paid in, how much the investments have grown, and annuity rates when you retire.
Mortgage
A loan used to purchase your house, where your house is used as security until you've paid off the loan.
Mortgage Interest Relief at Source (MIRAS)
Tax relief you can normally get on the mortgage of your first home. Currently 10% of the first £30,000 borrowed.

N

National Insurance
A form of taxation which you pay as you earn, used to fund certain state benefits.
National Savings
A range of savings products issued by the Government, available at post offices.

O

Occupational pension scheme
An employer's pension scheme, normally a Money Purchase or Final Salary scheme.
Offer price
The price at which you can buy a security or a unit in a unit trust.
Open ended investment company (OEIC)
A collective fund similar to a unit trust where people pool their money to invest in a wide range of investments.
Options
A contract where you get the option to buy or sell a fixed number of shares at a fixed price within a certain period, typically three months.

P

Permanent health insurance
Insurance which pays you a regular income if you're unable to work through long-term illness or disability. It normally begins paying after an agreed deferred period, and is payable until you return to work, retire or die.
Personal Equity Plan (PEP)
A tax efficient way to save, normally through investing in the stock market.
Personal investment authority
The regulatory body which polices the marketing and selling of investment products to the general public.
Personal pension
A tax efficient way to save money and build up a pension fund, used to provide you with an income in retirement.
Polarisation
Where an adviser is required to let you know if they can provide fully independent financial advice, or advice on one company's products only.
Private medical insurance
Pays towards private medical treatment if your condition is covered by the policy.
Purchase life annuity
An annuity you choose to buy with your spare capital, rather than one you're required to buy with a pension fund.

Q

Quotation
A document which illustrates the cost of life insurance protection at a particular company.

R

Redemption yield
An estimate of the total long term returns, including income and capital, on fixed income investments like corporate bonds and gilts. Reflects the amount that would be redeemed if you held the assets for their full term - to their redemption date.
Redundancy protection insurance
Insurance that pays out an income for a fixed period if you are made redundant.
Remortgage
Where you move your home loan from an existing lender to a new lender.
Renewable term insurance
Life insurance which pays out if you die within the period of protection, but which gives you to option to renew the cover at the end of the term.
Repayment mortgage
A home loan where you agree to pay off both the insurance and some of the capital every month, so you owe nothing by the end of the term.
Reversionary bonus
A bonus added to the value of your With Profits policy each year.
Running yield
An estimate of the annual rate of interest paid out by fixed income investments like corporate bonds and gilts. It doesn't take into account any increases or decreases in the capital value of the investment.

S

Second mortgage
A second home loan on the same property.
Securities & Futures Association (SFA)
A regulatory body which polices investment businesses like stockbrokers.
Securities & Investment Board (SIB)
Regulatory organisation directly responsible to the Chancellor of the Exchequer. They supervise other regulatory organisations and also recognised professional bodies like The Law Society. Now superceded by the Financial Services Authority (FSA).
Segmentation
The option to take a proportion of the investment and leave the rest invested, i.e. to take 10% of your pension and leave the other 90% still invested.
Self-select PEP
A general PEP where you can choose which funds you'd like to invest in.
SERPS
If you're employed, part of your National Insurance contributions go toward your State Earnings Related Pension Scheme (SERPS), which is paid out on top of your basic state pension when you retire.
Shares
An investment where you own a part of a company. Shares can rise and fall in value and, if quoted, are listed on the stock exchange.
Sickness and accident
Pays you a benefit if you're unable to work through sickness or accident. Normally pays out for a set period, i.e. one or two years.
Single company PEP
A tax efficient investment where you invest in the shares of only one company.
State pension
The basic state pension is paid to everyone. The level of pension you get depends on the amount of National Insurance contributions you pay over your working life.
Surrender
Where you cancel an investment or policy and usually receive a reduced payout, due to the impact of charges.

T

Tax credit
A voucher showing how much tax has been paid on dividend distributions. Non taxpayers can use this to reclaim tax.
Tax exempt special savings account (TESSA)
A deposit account run by banks and building societies where the interest is paid to you tax free.
Terminal bonus
A bonus added to the value of a With Profits policy at the end of the policy term.
Trust
A trust enables you to make sure the benefits of your policy go directly to your chosen beneficiaries in the event of your death.
Trustee
A person who you nominate to carry out your instructions as given in your trust.

U

Underwriting
Where an insurance company takes into account known facts like your age, sex and health, in order to assess the likelihood of you making a claim on the policy. Your insurance premiums are calculated after taking these factors into consideration.
Unit linked endowment
A fixed term savings plan with an element of life cover. Your savings go into an underlying fund of investments like shares and the eventual return you get depends on the performance of these investments.
Unit trust
A fund enabling investors to pool their money, giving them access to a wider spread of investments, reducing the costs and risks involved. The growth of your money depends on the underlying investments increasing in value.

V

Value added tax (VAT)
An indirect tax payable by adding it onto the value of most goods and services.

W

Warrant
A security issued by a company, allowing you the right to acquire ordinary shares.
Whole of life
Life insurance that you pay all your life, rather than for a fixed term. It pays out whenever you die. It also builds up a cash value and can be used as an investment.
With profits
In return for a higher premium you get a share of the profits of a life fund, as well as life insurance cover.
With profits endowment
A fixed term investment with life cover. The guaranteed sum insured is increased by bonuses, representing a share of the profits of the life fund.

X

Y

Z