Glossary

This glossary is intended as a general aid to help you understand some of the commonly occurring phrases and jargon used in the insurance world.  If you have any questions about the use or meaning of a term or expression in any particular product or literature, you should raise them with the provider concerned.

  1. A
  2. B
  3. C
  4. D
  5. E
  6. F
  7. G
  8. H
  9. I
  10. J
  11. K
  12. L
  13. M
  14. N
  15. O
  16. P
  17. Q
  18. R
  19. S
  20. T
  21. U
  22. V
  23. W
  24. X
  25. Y
  26. Z
Absolute owner
This is the only owner of an item such as a building, vehicle or a piece of equipment.
Accident
An unexpected or unplanned event or incident often causing damage or injury such as a road traffic accident.
Accidental damage
Unexpected or unplanned damage or harm caused to property or a person.
Accidental death
A death caused by an unexpected or unplanned event or incident.
Accidental death benefit
Some life policies will make an additional payment, over and above the original sum insured, if the policyholder dies as a result of an accident.
Accrue
To build up or accumulate.
Act of God

An event that is not the fault of any individual, such as a natural disaster.

Most insurance policies do not contain an exclusion for acts of God. The policy will set out what is insured and what the main exclusions are. If loss occurs from an event covered, then the insurer will pay out, in accordance with the policy terms and conditions.

Actuary
A professional person who is qualified to calculate risks and probabilities relating to insurance and pensions.
Addendum
An additional piece of information added on to a policy.
Additional premium
An additional amount on top of agreed premium payments as a result of a change to the existing policy.
Affidavit
A written statement sworn to be true in front of a third party, such as a solicitor.
Agent
Someone who acts as a third party to help customers buy insurance or providers sell insurance.
Aggregate limit of indemnity
The maximum amount an insurer will pay for all claims over a set time frame.
Allocation rate
When money is being paid into a fund (like a pension fund), the allocation rate is the percentage of the money left which can be invested after the charges have been taken off. For example, if the charges were 2% then the allocation rate would be 98%.
Annual allowance
The maximum amount that can be saved by you or on your behalf in a pension scheme each year while still getting tax relief. This allowance may be reviewed and changed by government, and it is currently £40,000. Some people may have a higher allowance.
Annual management charge
A yearly charge made by fund managers. It is usually a percentage of the value of the funds that are being managed.
Annual payment
A sum of money paid out every year, such as an annuity.
Annual percentage rate
This tells you how much you will be charged as a percentage when you borrow money.
Annual premium
This is the amount you pay an insurer each year for a policy you have taken out.
Annuitant
A person who receives a regular income from an annuity.
Annuity
An annuity (also called lifetime annuity or pension annuity) converts money from your pension fund into a regular taxable income in your retirement. There are different types to suit your circumstances, but most annuities guarantee to provide you with an income until you die. Generally, you cannot change or cash in your annuity.
Annuity protection
An option you can choose when you take out an annuity. If you die, your nominated or chosen beneficiary will receive a lump sum payment or a percentage of the value of your pension fund (the annuity income you took from your pension fund while you were alive will be deducted). (Also known as value protection).
Annuity rate
This is the amount of regular retirement income you can buy from an annuity provider with your pension fund. It is dependent on factors such as your life expectancy, expected returns on your investment, and the type of annuity you choose. Annuity rates vary between providers, so it is important to shop around before buying an annuity.
Appointed representative
A third party who is appointed to sell insurance and investment products.
Assets
Things that you own such as buildings, vehicles, stocks, shares and money in the bank.
Assurance
This is cover for an event that is certain to happen, such as death. This is different from insurance which protects from an event that might happen.
Authorised insurer
An insurance company given permission to provide insurance in the UK and supervised by the Financial Conduct Authority.
Beneficiary (pensions)
A person nominated to receive benefits under a pension scheme, or a person who will benefit in certain events such as the death of the pension scheme member or annuitant.
Benefit
Money paid by an insurer when a claim is accepted.
Bid or offer spread
A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer or buyers are willing to pay. The offer price represents the minimum price that a seller or sellers are willing to receive for the security. The difference between the two is the bid/offer spread. A trade or transaction occurs when the buyer and seller agree on a price for the security.
Bid price
The price that a buyer (bidder) is willing to pay for a good. If you are a member of a unit trust link, this is the price you will get for each unit if you cash in all or part of your investment.
Bond
A written promise to repay a debt at an agreed time, which often includes an agreement to pay an agreed rate of interest on that debt.
Bonus
An added amount or payment on top of what you would usually expect to receive as a result of high levels of performance.
Broker
A person or firm that places its customers’ insurance with an insurer. They can advise customers on the best insurance product to take out depending on their needs. Brokers can also provide other services such as risk management, designing or negotiating contracts, and handling claims. (Also known as an intermediary, agent or adviser).
Business interruption
When business productivity has to stop due to an unplanned event or disaster which affects its profits. Business interruption insurance will normally cover the loss of income specified for a period of time that a business suffers when it has to cease trading as a result of an unplanned event such as a fire.
Cash in value
The amount of money you get if you cash in an investment.
Caveat
A warning or an exception.
Claim
What the customer asks the insurance company to pay to sort out problems caused by an event, such as a flood or a car accident.
Claim frequency
The number of claims made on a policy.
Claims and underwriting exchange
A computerised register of information from insurance proposal, claims and renewal forms, shared by insurers as part of their efforts to combat fraud.
Co-insurance
An arrangement where an insurance policy is shared by more than one insurer.
Collective investment scheme
The name given to schemes where investors’ money is pooled together including unit trusts,investments trusts and open-ended investment companies (OEICS).
Commercial business
Any insurance policy taken out by an organisation to cover their trade, business or profession.
Commission
Money paid to a third party for matching customers with insurance providers.
Commutation
If the total of all your pension savings (excluding State Pensions) at retirement is below the government’s set limit, you may be able to withdraw your entire savings from your pension fund as a cash lump sum, part of which will be taxable. (Also known as trivial commutation or trivial payment).
Composite insurer
A company that provides both life insurance (such as term insurance or group life cover) and non-life insurance (such as property, motor or travel insurance).
Compulsory
Required by law or an insurance policy.
Compulsory excess
Part of any claim that a customer has to pay.
Contents policy
A policy that covers the contents of your home or other building against a number of risks.
Contestable period
A period of time the policy may be challenged by the insurance company if they think that the customer has not followed the policy.
Contract
An agreement between two or more people to do (or not to do) something. The agreement can be enforced by law.
Contracted out
Contracting out means opting out of the State Second Pension (S2P) which, before 2002, was known as the state earnings-related pension scheme (SERPS). It means that you pay less National Insurance. Once the single-tier State Pension starts in 2016 contracting out will no longer exist. Any time spent contracted out will be deducted from your State Pension entitlement, but it is possible to rebuild this entitlement.
Contribution
If something is covered under more than one policy, the cost of any claim may be shared over all policies. For example, losing possessions on holiday may be covered by both home contents and travel insurance.
Convertible term assurance
This means that the policyholder can change or transfer to whole life or endowment insurance without giving further evidence of health.
Cooling off period
A certain amount of time a customer has to cancel a policy without penalty.
Coverage
What your insurance will and won’t protect if you need to make a claim.
Credit
Money received from selling goods or services.
Creditor
Someone who is owed money.
Current assets
A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.
Current liabilities
Short-term liabilities that are due to be paid in less than a year such as bank overdrafts, money owed to suppliers and employees’ PAYE (pay as you earn).
Decarbonisation
This is the process of removing harmful carbon emissions from the economy.
Declined risk
An insurer may refuse to provide insurance as the customer / event may not meet certain standards.
Decreasing term insurance
A term insurance policy where the amount of money you have insured your life for reduces steadily every year to the end of the term – in line with a repayment mortgage – but the premium stays the same.
Decumulation
When saved funds or assets are turned into an income, for example when you convert the pension assets you’ve built up during your working life into a pension income that you can spend in retirement.
Deductible
This is a specified amount that has to be paid before an insurance company will pay a claim.
Default fund
Your pension contributions will be invested in a default fund if you do not make a decision on where your funds are invested, or if you choose it over the other funds available. All pension schemes being used for automatic enrolment have offer a default fund (also called default investment fund).
Deferred premium
This is the waiting time (agreed when the policy is taken out) before an income replacement policy starts to pay out. The longer the waiting period the less expensive the policy will be.
Defined ambition
The Government is considering whether to introduce a new type of pension called defined ambition. These would be new pension products that are not defined benefit or defined contribution. The Government is developing detailed policy proposals on this issue. For more information see the Department for Work and Pensions website.
Defined benefit pension scheme
A type of scheme where what you get when you retire depends on your pensionable earnings and years of membership of that pension scheme. (Also called final salary pension scheme).
Defined contribution pension scheme
A pension scheme that provides retirement benefits based on the amount of money paid in and investment growth on this money. At retirement you should shop around to choose how your regular retirement income will be provided from the scheme. All personal pension schemes, including stakeholder schemes, are defined contribution pension schemes. (Also called money purchase pension scheme).
Dependant
Someone who is reliant on you, such as a family member, child, wife or husband.
Depreciation
A fall in the value of assets / belongings over time, for example due to wear and tear.
Direct sales
Insurance sold directly by an insurer without the involvement of intermediaries such as comparison websites, brokers, advisers, retailers and banks. Direct sales include those carried out online, through newspaper advertisements, telephone sales, and may also include business through a branch office.
Distribution bond
A single premium (a single one-off payment) investment policy. The funds are invested in different assets (such as equities, gilts, stocks and shares) to provide a regular income.
Distributor
This is another name for an intermediary or a broker. It means a third party that sells insurance products to customers.
Eligible capital

The type of financial resources held by insurance companies that they are allowed to use in order to meet their regulatory capital requirement.

Types of eligible capital (for example shareholders equity and subordinated debt) are determined by rules such as the European Union’s Solvency II Directive. These rules are written by financial regulators.
Endowment
An income or lump sum of money bequeathed or left to a beneficiary or loved one after you die.
Endowment policy
A life insurance policy linked to a with-profits fund that pays out a sum of money after an agreed period of time or when you die, whichever comes first.
Enhanced annuity
A type of annuity that may pay you a higher regular retirement income if your life expectancy is shortened because of your lifestyle (for example if you smoke) or your medical history. For this type of annuity the annuity provider will normally ask for a medical questionnaire to be completed and a report from your doctor. (Also called impaired annuity).
Escalating annuity
An option for your retirement income to increase in line with an inflation index, or to increase at an agreed fixed rate each year. (Also known as index-linked annuity or inflation-linked annuity).
Escalation benefit
Where premiums and benefits rise every year by an agreed amount.
Evidence of insurability
This is evidence to show if you are an acceptable candidate for insurance. It can involve looking at your health, age, job and other factors.
Excess
This is the first amount of any insurance claim that the customer agrees to pay as part of the policy conditions – the insurer pays the rest.
Exclusion
A risk or item specifically not covered by a policy.
Ex-gratia payment
Any payment made by an insurance company that is outside the terms of the policy.
Export credit insurance
A policy providing cover for exporters’ losses arising from non-payment.

 

Exposure
The potential costs of an insured event, such as a flood, to an insurer.
Extended warranty
A policy that allows the manufacturer’s warranty on a product to be extended for a further period of time.
Family income benefit
A type of term insurance which pays out a regular amount of money to your family or beneficiary over a specified period of time if you die during the specified period of time. This type of policy is designed to provide a regular income (rather than a lump sum) for your family, for example while your children are young.
Fixed asset
This is usually an asset owned by a business such as a building, machinery or a vehicle, that is intended to be used for several years.
Fixed interest rate
This is the rate of interest to be paid which does not change during a set time period.
Friendly society
Similar to a mutual insurance company, which is owned by its policyholders, a friendly society is owned by and established for the benefit of its members, usually providing life insurance and sickness benefit.
General insurance
General insurance is non-life insurance cover for damage or loss. It includes products such as motor, travel, pet, health and home insurance.
Glass replacement
A clause in your home or motor insurance policy that allows you to claim for the replacement of glass in your windscreen, sunroof, windows, doors, skylights, etc.
Gross
The amount before costs are deducted.
Gross interest
Total annual rate of interest on an investment, security or deposit account before taxes or other charges are taken out.
Gross premium
The total amount you pay for cover – your premium plus any charges or commission.
Group personal pension
A type of personal pension scheme (also called group personal pension plan or GPP) set up by an employer on behalf of its employees. Although arranged by the employer, who can also make contributions, each pension contract is between the pension provider and the employee.
Guarantee period
The retirement income from your annuity will normally stop when you die, but you can opt for your annuity to be paid out over a number of years, usually five or ten, even if you die within this period of time. If you die before this period ends, the annuity will continue to be paid to a nominated person or your estate for the rest of the guarantee period. If you live past this period, the annuity will continue to pay you a retirement income until you die.
Guaranteed annuity rate
A fixed rate offered with some pension policies, to turn a pension fund into a retirement income and which does not alter with changing investment conditions. It can be very valuable and will often provide a higher income than an annuity bought via the open market option.