Consumers: Short-term » Glossary

Financial compensation due to a third party for loss, damage or injury.

The date with effect from which an insurer accepts liability under an insurance policy. The starting point for calculating earned and unearned annual premiums. Also referred to as the policy inception date.

Strictly, this is the date when a policy is written and executed by an insurance company.

The date on which the premium is processed in the books of the insurer.

Weighted index of 30 selected German blue-chip stocks traded on the Frankfurt Stock Exchange.

Indicates the expected average number of days it would take to trade out a manager’s holding in a particular stock or portfolio.

Termination of life. Usually a death certificate is required to prove this in the event of a claim

A benefit payable by a Fund upon the death of a member to dependants and/or nominees as determined by the Trustees of the fund and in accordance with Section 37 (C) of the Pension Funds Act. 

The event whereby the life of a person or unborn has ended.

A ratio of the number dying in a given period (usually one year) to the number living at the beginning of the year. Usually the group involved is all of one age.

A certificate of indebtedness, an instrument in which a corporation or a company acknowledges indebtedness for a specified sum on which interest is due until the principal is paid back.

A financial instrument requiring fixed rand payments, such as a government or corporate bond.

Statements by the insured that provide information about the risk insured. These statements form the basis on which the policy is issued and the premium determined.

Official declaration of your decision.

Rejection of an application for insurance.

See reducing term insurance

See reducing term insurance.

A clause in an insurance contract which provides for an insurer to pay only that amount of any loss which is in excess of a specified amount.

Failure to pay an insurance premium on the due date specified in the policy. This defaulter is not penalised if thepremium is paid within the grace period (for life insurance).

A method of portfolio allocation and management aimed at minimizing the risk of losing principal. Defensive investors place a high percentage of their invest-able assets in bonds, cash equivalents and stocks that are less volatile than average. Typically a Low risk/Low return investment portfolio. Whenever times get bad, many investors wonder where the stock market is going and what to do. Interest rate, inflation, and other economic fears have scared a lot of people out of the stock market and into safe havens, such as the bond market. The boom and bust cycle of world economies has shifted several times over the past 100 years, as such it is inevitable that economic downturns will spin over into the stock market. The question is, what should an investor do as the economy takes a downturn? An easy answer is to get out of the stock market and place your money into safer securities such as Government Bonds or Bankers Acceptances. However, what if you still want to stay in the market? Believe it or not, some stocks repeatedly outperform the market when economic growth slows. We call these securities defensive stocks. There are stocks in industries that will profit no matter what the economy is doing. These are companies that produce or distribute goods and services we will always need. Products and services such as food, power, water, and gas are necessities. Defensive stocks don\'t sizzle like technology and Internet stocks but they do offer dependability and bulletproof earnings.

The amount that you contribute towards providing for retirement, up to 15% in certain instances, may be deducted from your income before tax is calculated. This has the effect of you being taxed on a lower amount - your actual income less your retirement contributions. It does not mean that you will not have to pay tax on that money. The payment of the tax is deferred until retirement.

Acquisition costs relating to unearned premiums. Disclosed as a separate asset on an insurer’s balance sheet.

An annuity providing for income payments to begin at some future date.

Deferred compensation is a benefit offered by employers to selected employees in order to promote a settled and contented staff and to induce the company`s employees to remain in the company`s employ for as long as possible. It is constituted by an agreement betwwen the employer and employee, in terms of which the employer undertakes to pay the employee a sum of money at retirement or on the occurence of some other specified event. The vehicle to fund the benefit normally consists of an assurance policy which the employer undertakes to effect on the life of the employee.

A person who has withdrawn from service or terminated their contributions and elected to receive a deferred pension from their retirement age in terms of the rules of the fund.

The excess of the actuarial value of liabilities over the actuarial value of assets, on the basis of the valuation method used.

A clause providing for the carry-forward or transfer of a loss under a treaty from one accounting period to another.

A pension fund in which the rules specify the benefits to be paid, usually based on years of membership and on final or final average salary and where member’s contributions are fixed and where the employer normally undertakes to finance the balance of the cost, after allowing for member contributions, if any.

A retirement plan based on a formula that indicates the exact benefit that one can expect upon retiring. There are restrictions as to when and how you can withdraw these funds without penalties. This fund is different from many pension funds whose payout is somewhat dependent on the return of the invested funds.

An fund where the rate of contributions of both the member and employer are specified in the rules and where benefits relate directly to contributions received, together with interest or bonuses arising from the investment performance of the fund.

A retirement plan wherein a certain amount or percentage of money is set aside each year for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties. There is no way to know how much that will ultimately give the employee upon retiring, the amount contributed is fixed but the benefit is not.

The inverse of inflation, a fall in the level of prices/wages throughout an economy.

The amount of uncertainty in a given situation.

An authority given by an insurer to an agent to act on the insurer’s behalf in accepting risks (usually within agreed underwriting guidelines).

Removal of a company's security from listing on an exchange because the firm has not abided by specific regulations.

Amount payable to a ship owner where a ship has been delayed for reasons beyond his/her control. The amount relates to loss of earnings.

The process of converting a mutual insurer into a shareholder company.

(a) A person in respect of whom the member is legally liable for maintenance (b) A person in respect of whom the member is not legally liable for maintenance, if such a person:

A person who relies on another for financial support

Dependent, in relation to a member of a pension fund means: _ a person in respect of whom the member is legally liable for maintenance; _ a person in respect of whom the member is not legally liable for maintenance, if such person: – was, in the opinion of the person managing the business of the fund, upon the death of the member in fact dependent on the member for maintenance; – is the spouse of the member, including a party to a customary union according to Traditional law and custom or to a union recognised as a marriage under the tenets of any Asiatic religion. _ a person in respect of whom the member would have become legally liable for maintenance, had the member not died.

Cover provided in a life or health insurance policy for dependents of the insured.

A type of pension business administered by a life insurance company on behalf of an employer. Contributions in respect of members of the employer’s pension scheme are accumulated in an undivided fund and benefits are paid out of that fund according to the rules of the scheme.

Certain policies are written under conditions which provide that the final premium is not determined until the policy has expired. The premium charged at the inception of cover is the deposit premium. The term is also used to refer to the initial premium paid by an applicant for life insurance which is held in suspense by the life company pending its acceptance or rejection of the proposal. The term is also used in reinsurance policies to describe the minimum premium payable on an excess of loss contract.

The extent to which property decreased in value due to use, wear and tear or other factors.

Any financial instrument whose value is derived from another, for example a call or a put option. The instrument its value is derived from is called the underlying. A financial security, such as an option or future, whose value is derived in part from the value and characteristics of another security (the underlying security).

A decrease in the value of one currency relative to another.

See claim development.

The use of a premium rate other than a standard rate by an insurance company.

Insurance where the insurer has a direct contractual relationship with the insured, including co-insurance. Direct insurance by implication excludes reinsurance.

A direct investment means that you hold an underlying asset, like a share, a gilt or property, directly opposed to an indirect investment such as a unit trust.

This is a sales generating section of the insurance company that deals with clients directly and sells financial products - normally non-complex products - directly to the client without the assistance of an intermediary. It is usually done by means of mail shots, telephone sales or media advertising.

Premiums (less return premiums) arising from policies written directly by an insurer.

Selling insurance directly to insures through the mail, by telephone, through the press or through electronic networks.

An insurance company whose business is produced without the use of brokers.

An investment is a directional bet if it increases in value only if the underlying asset or market moves in a specific direction (i.e. either increases or decreases), e.g. a call or a put. The investor is making a bet on which way the underlying asset or market is going to move.

Insurance of directors and officers in respect of claims made against them for actual or alleged wrongful acts arising from negligence, omission or misleading statements.

A physical or mental condition that makes an insured person incapable of performing one or more duties of his or her occupation. Such a disability may be partial (a disabled person can perform a material part of their occupation), permanent (the disability is expected to be for the life of the person), temporary (a disability from which the person is expected to recover) or total (a disability which is sufficient to prevent the person from performing any of the duties of their occupation).

A rider added to a life insurance policy providing for waiver of premiums and (sometimes) payment of a monthly income in the event the insured becomes temporarily or permanently disabled.

Disability cover works in a similar manner as life assurance and also falls under the category of risk cover. In short it means that you enter into an agreement with the life assurer to provide you with a certain amount of money in return for your monthly premium to cover the risk of you becoming permanently disabled. This is to ensure that you have money available for your family when you are no longer able to provide for them because of your disablement. Disability cover can be taken out on its own, or as an extra (rider) benefit on a life assurance policy. When taking out disability cover it is very important to note the definition that particular company attaches to the term disability.

The event whereby the functional ability of the mind or body of a person or unborn has become impaired.

A type of long-term insurance or reinsurance policy where the contract provides a benefit upon a disability event.

Termination of insurance cover.

To realise before the expiry date, with the deduction of a certain amount by way of a discount.

The calculation of the present value of future cash flows by applying a time value of money discount factor

The period allowed to the insured after termination, under certain bond and policy provisions, to report a loss that occurred during the period covered by the contract.

This is a trust created in your will in which the Trustees are empowered to provide in their own discretion for the needs of the heirs concerned.

A decrease in the rate of inflation.

Pooling assets with different inherent risk factors reduces diversifiable risk. Diversification refers not only to the pooling of different kings of assets (shares and bonds), but also to different assets of the same king, e.g. having ten different shares in the portfolio. Due to the small amount an investor has available for investment, he would not be able to invest in assets which require larger amounts unless he pools his investment and shares in a unitised portfolio. Unitisation, therefore, increases the range of investment possibilities for the investor.

Payment to shareholders after prior claims, such as debenture holders, has been met. The payment of dividends takes place either semi-annually or quarterly.

This is the earnings per share divided by the dividends per share. It gives an idea of a company's ability to maintain dividends in poor years. A low ratio indicates that dividends would have to be reduced in poor years.

It may be seen as an indication of the income that might be derived from a long-term investment with distribution paid out rather than capitalised.

Amounts distributable to policyholders of participating insurance contracts as determined by the insurer and apportioned to policyholders on an equitable basis. The dividend allotted to any contract is often based on the amount that the contract, as one of a class of similar contracts, has contributed to the income available for distribution as dividends. Also referred to as bonuses.

The amount of surplus earned available for distribution as dividends (bonuses) amongst policyholders.

Bonds issued and traded within the internal market of a country and denominated in the currency of that country.

Domestic funds form the first tier of classification of unit trusts. These funds invest at least 85 percent of their assets in South African assets at all times. The sub-categories under Domestic Funds are Equity Funds, Asset Allocation Funds and Fixed Interst Funds.

In South Africa, an insurer incorporated in the Republic.

A portfolio's fixed, permanent and principal home for legal purposes.

The bid and offer prices provided by an inter-dealer broker on a given instrument at any given moment during trading hours.

An additional benefit included in, or added to, a life insurance policy providing for payment of an additional death benefit in event of death as a result of accident. See accidental death benefit.

An index of about 30 "blue-chip" US stocks traded on the New York Stock Exchange; a barometer of how shares in the largest US companies are performing.

A measurement of the likely underperformance of a portfolio to a benchmark (or to cash). A figure of zero indicates the portfolio outperformed the benchmark over most months.

This cover results in payment of the sum insured by a life company when the insured contracts a dread disease (e.g. cancer or heart attack).

The weighted average period during which all interest are received by its holder. The weightings reflect the relative present values of the cash flows.

The duty on the insured and the insurer to disclose every material fact in relation to the policy. See uberrimae fidei.

An asset allocation strategy in which the asset mix is quantitatively shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.