Baffled by jargon?

Here’s our definition of some of the most commonly-used phrases you might come across if you are looking to invest or take out a life insurance plan.

Investment

Accumulation (acc) shares

Investments held by a fund will usually generate an income in the form of dividends or interest. Accumulation versions don’t pay out this income and instead re-invest it within the fund.


Asset class/classes

There are 4 main types of assets and each one carries its own particular risks and level of potential return. Typically, a fund invests in one or more asset class:

Cash

This is money held on deposit (e.g. cash in a bank or building society account).

The risk level is much lower than other assets, but so are the potential returns – especially when you consider the effect of inflation. While cash held in savings is generally secure, the impact of inflation will reduce the buying power of your money over time. For instance, if inflation is 2.5%, then in 10 years’ time £10,000 will only buy the same as £7,810 today.

Fixed interest (Bonds and Gilts

These are issued by the government and by companies to help them borrow money. In return, they pay a fixed rate of interest over a set period.

Investing in these types of assets tends to produce lower but more stable returns than equities. However, over the long term they may also give a lower return than equities. With this type of asset inflation is a key consideration, especially if it’s running higher than the amount of income produced.

Property

This is money invested in commercial property that aims to deliver rental income as well as capital growth. However, investing in property is usually more suitable over the long term because this type of investment has the potential to fall sharply in value and time gives it a better chance to recover.

You might not be able to get your hands on your money very quickly as the property may have to be sold first to release the cash.

Equities (shares)

These are stakes in companies (often called equities or shares), where the growth depends on several factors including how well those companies perform. Different equities carry different risks and also different levels of risk depending on where they are invested.

Over time a fund invested in equities is likely to offer the greater potential for higher returns but with the greater changes in value. Compared to other asset classes, ( Cash, Fixed Interest, and Property), equities carry the greatest risk, but they could provide the greatest return over the long term (10 years or more).


Bond

Bonds are a type of loan which typically pay a fixed amount of interest, over a set period of time. Bonds issued by companies are known as corporate bonds, whilst bonds issued by governments are known as government bonds or gilts.


Equities (shares)

One of the asset classes typically held within a fund. These are stakes in companies (often called equities or shares), where the growth depends on several factors including how well those companies perform. Different equities carry different risks and also different levels of risk depending on where they are invested.

Over time a fund invested in equities is likely to offer the greater potential for higher returns but with the greater changes in value. Compared to other asset classes (Cash, Fixed Interest, and Property), equities carry the greatest risk, but they could provide the greatest return over the long term (10 years or more).


Fixed interest (Bonds and Gilts)

One of the asset classes typically held within a fund. These are issued by the government and by companies to help them borrow money. In return, they agree to pay a fixed rate of interest over a set period.

Investing in these types of assets tends to produce lower but more stable returns than equities. However, over the long term they may also give a lower return than equities. The big risk with this type of asset is inflation, particularly if it’s running higher than the amount of income produced.


Fund

A fund is a way of pooling money together with other investors. The fund then invests your money in assets that align to the risk profile of the fund. The fund is professionally managed by a fund manager.


Fund factsheet

This provides an overview of a fund, including information on its price, performance and charges.


Fund manager

It’s the fund manager's job to make decisions about the fund, such as how to respond to market changes and how and where the fund invests. Exactly what the fund manager invests in depends on the investment objective of the fund.


Gilts (or Gilt Edged Securities)

These are bonds issued by the UK government, usually paying a fixed interest rate for a predetermined length of time.


Key Investor Information Document (KIID)

This document details key facts and figures relating to the fund, including its objectives, volatility and potential risks.


Multi-Asset funds

Multi-Asset funds invest in a blend of asset classes. These funds are managed to the investment objectives set by the fund manager and typically align to a risk profile.


Ongoing fund charge

The ongoing fund charge is used to pay the costs of running a fund and is already included in the fund price. The amount of this charge is shown in the fund's 'Key Investor Information' document (KIID).


Property

One of the asset classes typically held within a fund. This is money invested in commercial property that aims to deliver rental income as well as capital growth.


Risk profile

Your risk profile or attitude to risk describes the level of risk you’re willing to take on a particular investment, taking into account all your circumstances. The aim is to find the right balance between what you want to achieve and how much risk you’re willing and can afford to take.


Share class

Funds typically offer investors a choice of shares, for instance, accumulation (acc) shares or income (inc) shares.

To avoid confusion letters are normally used to identify the version of the fund you are invested in; for example the Zurich Horizon Multi-Asset funds use 'Z acc' meaning any income is reinvested back into the fund.


Volatility

This is a measure of how much a fund's price goes up or down. A fund with a high percentage of less risky investments such as cash and fixed interest will typically change very little from day to day. This is referred to as ‘low volatility’. On the other hand, a fund investing in a high proportion of equities is exposed to the ups and downs of the stock market and therefore has ‘high volatility’.

A good rule of thumb is the higher the volatility of a fund, then the greater the investment risk.

Insurance

Policy

The legal contract you, the planholder, have with the life insurance company. You accept the terms and conditions, pay the premiums and you’re covered. Any payout depends on what type of plan you buy and any exclusions. We like to use the term ‘policy’ rather than plan– it sounds a bit friendlier.


Single life

One life, one plan. Take out a single life plan to provide for the people you treasure if you die or suffer a critical illness. You and your partner can each take out a single life plan – or you may opt for joint life cover. With single life you each have a separate plan, which can have advantages over joint life, for example if you separate.


Joint life

Covers two people – so you and your spouse, or partner, are covered under one plan, with one premium. A joint life plan only pays out once, so if both of you die at the same time, your dependents only get one payout. If you each had a single life plan, there would be two payments.


Life insured

The life insured is the person (or people) protected in the event of a critical illness or death: you, your partner or both.


Premium

A fancy word for payment. The amount you’re expected to pay regularly for the cover. So, a premium of £20 a month means you’ll need to pay £20 a month. Simple!


Underwriting

The process an insurer goes through to decide whether to offer you life insurance, looking at potential risks like your age and past medical history. Also helps work out how much you’ll pay for your insurance.


Waiver of premium cover

Many plans offer waiver of premium or payment cover, which means if you’re unable to work due to illness or injury, your payments will be made for you.


Beneficiary

The person who receives the death benefit, or payout, when the life insured dies. You can name anyone as a beneficiary – a partner, child, or relative. You could even have your proceeds paid to a trust or your favourite charity. If your original beneficiary isn’t alive to receive the payout, you can name someone else as a beneficiary.


Claim

What the beneficiary needs to do to receive the payout under a plan. Insurance companies are used to dealing with life insurance claims so the process is usually pretty straightforward.