Jargon Buster

Do you need help threading through the maze of financial jargon?

Use our Jargon Buster to gain a better understanding of just what those financial terms really mean and what financial products can offer you.

Annuities

Having successfully built up a pension fund during your working life, there will come a time when you will need to make some important decisions about how to use this fund. These decisions involve how you intend to draw your pension income to ensure the benefits best suit your needs in retirement. It is normal for people who are retiring to convert a portion of their pension fund into a tax-free lump sum with the balance used to purchase an annuity.

Banking (online)

In 1990 the Wells Fargo Bank, based in California USA, introduced the world’s first online banking service. It was not until 1997 that a similar service was launched in the UK by the Nationwide Building Society. Since the introduction of the first services many banks have started their electronic banking services with access available via your PC, mobile phone or an interactive TV.

Many banks now offer Internet based services alongside their traditional banking facilities, whilst other organisations have established new breeds of ‘Internet’ or ‘Telenet’ banks. Telenet banks are those that allow their customers to communicate by telephone as well as the Internet. Most of the UK’s new ‘Internet or ‘Telenet’ offerings have the backing of large and well known financial institutions.

Buildings Insurance

Buildings Insurance covers loss or damage to the actual structure of your home, the Building itself. While Contents insurance covers the loss of your possessions it will not cover the, generally, higher value of your property. Your home needs separate cover and this is known as Buildings Insurance.

Cash ISAs

This guide only considers Cash ISAs. Our main ISA Guide looks at the subject of investments into ISAs in greater detail. You may wish to read that guide as well this one.

Contents Insurance

Contents insurance gives protection on your personal possessions. This may be at home, in the car or on the move. It is often combined with Building insurance. Contents insurance covers both the total loss of your possessions or their damage caused by: theft fire, flood or smoke damage water from burst boilers, tanks or pipes accidental damage subsidence falling branches, trees or aerials.

Critical Illness

The name of this type of Insurance cover can be slightly misleading and it would probably be better described as Serious Illness Insurance. It is often possible to claim on the policy even if you were to contract an illness that is not immediately life threatening.

Endowments

Although most people come across a Life Assurance Endowment policy as a means of repaying a mortgage, the policy is in fact a savings plan, the proceeds of which are used, on it reaching the end of its term, to repay the outstanding mortgage. It is not uncommon for endowments to be established purely as a method of saving for the long term. Prior to March 1984 endowment savings plans were very popular as the government gave tax relief on the premiums paid to the policy. Policies started before this date still receive this Life Assurance Premium Relief. The premiums paid into the policy have a dual purpose. Firstly they cover the cost of the Life Assurance protection offered within the policy. The person insured under the terms of the policy is called the Life Assured. The balance premiums are invested by the Life Assurance Company to increase the value of the policy. Secondly, over the term of the policy the value of the savings element grows and over time the value of the policy exceeds the total of the premiums paid. This provides the growth on your money.

Fund Supermarkets

The idea of a fund supermarket was first established in the United States over ten years ago and arrived in the UK at the end of 1999. The term supermarket is given to these businesses because of the way in which they operate. They offer a very wide choice by allowing investors to invest in the funds, which are normally Unit Trusts or oeics, of many different investment management groups through just one place. There is a multitude of different fund supermarkets many of which are only available via the Internet. There are differences between the various funds supermarkets normally in the number of investment management groups on offer, services and functionality. It is normal for the fund supermarkets that offer the greatest number of Investment Management Groups to give the widest choice of investment funds.

Hospital Cash Plans

Hospital cash plans pay a given amount of money if you are required to stay in hospital for any of a number of given reasons. The main idea behind these plans is to provide cover for day-to-day living expenses of yourself or your family, or to cover additional expenses such as childcare, travelling or accommodation costs. Some plans may also pay out up to a given limit for certain types of medical treatment. Cash plans will not provide cover in respect of a pre-existing illnesses. Any money paid out as the result of a claim under a cash plan is normally paid tax-free.

Income Protection

Income replacement insurance provides an income should you be prevented from working due to sickness or injury. It is commonly known as permanent health insurance or sometimes PHI schemes. The word “permanent” in the name, refers to fact that the policyholder is the only person who can stop the cover during the term of the policy (this would be through the none- payment of premiums or cancelling the policy directly.) The insurance company cannot withdraw cover, under any other circumstance, once the contract has been accepted and premiums have commenced. These plans work by paying you an income, usually equivalent to 50 – 65% of your usual salary, if you are unable to work for a long period. The income is generally paid until you reach your usual retirement age but will automatically ceases if you return to work prior to this point.

ISAs

ISA stands for Individual Savings Account. These were introduced on the 6th April 1999. At that time the Government promised that ISAs would available for at least 10 years. ISAs are designed to encourage savings and allow you to invest from as little as £10 up to a Maximum of £7,000 each tax year until 5th April 2006. After that time the Maximum limit is expected to reduce to £5,000. None of the investments held within ISAs are subject to taxation. This means you can keep any money you earn from your investment without having to pay tax on any gains made. This is different to investments, such as ordinary bank or building society accounts. Normally tax is deducted taken from any interest before it is added to deposit accounts.

Life Assurance

Most of us have heard of Life Assurance and appreciate that it is a policy provided by a Life Assurance company, that pays out either a lump sum or a series of payments if or when you die. These payments are normally paid without the deduction of any tax, and in most instances are actually tax-free. The proceeds of a Life Assurance policy can used: to pay off a debt such as a mortgage to provide an income for your dependents as a savings scheme. You pay monthly premiums or an annual sum to the Life Assurance company for either a given time span or in the case of Whole of Life Assurance normally through to until death (some Whole of Life policies have a maximum age limit on premiums). Life insurance policies can be combined with other forms of insurance, such as Critical Illness insurance so that you receive the lump sum if you are diagnosed with a serious illness.

Medical Insurance

Private Medical Insurance (PMI) cover provides you with the option of private medical care in addition to the care provided by the National Health Service. You (or your employers) pay monthly or annual premiums, the cost of which is determined by your personal circumstances (e.g. sex, age, previous medical history) and the type of cover you choose. Premiums are reviewed each year.

Mortgages

A mortgage is the name given to a loan secured on your home. It is usually used to buy the home although it is becoming more popular to consider a new mortgage, where the propety is already owned, to access a more competitive mortgage product or to raise capital for other purposes, such as school fees or business investment. A mortgage is a long-term loan and traditionally have run for a fixed period, typically 25 years. However, most mortgages are flexible enough to allow for early repayment or, if your circumstances dictate, the term can be extended beyond the original loan period.

Personal Loans

All manner of people and organisations borrow money from time to time. The reasons for borrowing are numerous as are the means by which money is borrowed. It is likely that any individual who wishes to borrow money will do so by way of an overdraft, a credit or charge card or a personal loan.

Pet Insurance

Pet insurance covers the payment of veterinary bills and medicine for animals, and a range of other costs associated with owning an animal.

Owning Shares

Share dealing is the process of buying and selling shares on a recognised stock exchange. In theory, the actual process of buying and selling shares is quite simple. Looking on the Internet or in the financial pages of the press, you will find lists of shares and the prices between which they are being bought and sold. You decide how much you are willing to pay for the shares and put in an offer. If the offer is accepted, you receive the shares and pay for them. Selling shares works the same way: you offer your shares for sale at a price and if someone accepts your offer, you receive payment and hand over any share certificates you have.

Retirement

It is generally accepted that retirement planning is about ensuring that you have sufficient financial resources to enjoy your retirement. Although most attention is placed on the provision of a pension, it is also wise to consider the timing of debt repayment to ensure the majority is repaid before you retire. This is especially important on any mortgage on your home. Over recent years there has been considerable political comment and press coverage regarding the level of the State Retirement Pension. Large numbers of people believe that they will require more money after their retirement than the state pension can offer. These feelings often lead to people beginning their long term planning with regular contributions into a pension scheme. Pension planning is normally a long-term commitment. The Government is trying to encourage more people to build up a pension fund of their own with the introduction of Stakeholder Pensions and changes to Contracting Out from the State Second Pension (S2P), which has replaced the old State Earnings Related Pensions (SERPS).

Stakeholder

Stakeholder Pensions are a form of Personal Pension where certain conditions, laid down by the Government, must apply. These conditions relate to the maximum amount that the Pension Company may charge for the product, the minimum level of contribution they must accept and the abolition of a fixed frequency for your contributions. When the idea first was first introduced it was thought that Stakeholder Pensions would be targeted at individuals that earn between £9,000 and £18,000 per year. However as they have been developed is has become clear that they are equally suitable for people who earn more than £18,000 a Stakeholder Pension. Under new rules introduced at the same time as Stakeholder Pensions you will be allowed to make a contribution to a Stakeholder Pension even though you are not working and receiving income. The amount you can contribute to a stakeholder pension depends on your age and income, but regardless of these factors you will be allowed to save at least £3,600 a year (£300 per month) towards your retirement.

Travel Insurance

Travel insurance provides cover for a range of holiday mishaps. These can include: lost and stolen luggage medical cover personal liability legal expenses cancellation or curtailment of holiday death or injury. Medical cover is especially important. The UK has reciprocal agreements with a number of countries, which would allow you to receive that country’s equivalent of NHS care (though you must remember to take a copy of form E111 along with you which is available from your local Post Office). You should be aware that these agreements do not normally cover rescue costs should you fall ill whilst away from the main centres of population, nor will they provide cover for your repatriation to the UK.