Accident Benefit - An add-on with a life policy. It compensates a policyholder in the event of death or injury by accident
Annuity - An investment option that makes a series of regular payments to an individual in exchange for a premium or a series of premia.
Appreciate - To grow in value
Asset - Everything owned or due to a person
Asset allocation - How your investments are spread across various asset classes
Bond - It is like an IOU. By buying a bond you loan money to a company, a municipality, state or the Central Government
Bonus - The amount paid as return in a ‘with-profit’ policy. The bonus, expressed as a percentage of the sum assured, is generally declared every year. The amount is linked to the profits earned by the insurer. Depending on the time of withdrawal, there are two kinds of bonuses – reversionary and cash. A reversionary bonus can be encashed only on maturity of the policy; a cash bonus can be withdrawn when declared
Budget - It is a tool used to monitor and control expenditures and purchases.
Capital gains - Profit earned from the sale of stocks, mutual fund units and real estate. Long-term capital gains arise from assets owned for more than a year while short-term capital gains are made from assets owned for less than a year.
Compound Interest - Interest computed on principal plus interest accrued during the previous periods of the investment
Corpus - The amount of money available with a scheme for investing. If already invested, the corpus is the current value of the scheme’s portfolio.
Cost averaging - A strategy that involves investing a fixed amount of money in an asset class like equity, so that the average cost of acquiring the asset in the long-term is much lower than that in the short-term.
Cover - Another word for insurance; it also refers to the amount of insurance.
Critical illness rider - A rider that provides a policyholder financial protection in the event of a critical illness
Death benefit - The amount payable to the nominee on death of the policyholder. The amount paid is the sum assured plus benefits applicable (if any) less outstanding loans.
Declining term cover - A type of pure life protection insurance policy where the premia remain the same while the life coverage keeps declining. They are typically used to cover the life of a person with a pending loan repayment, like home loan.
Deferred annuity - An annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.
Disability / dismemberment benefit rider - A rider that provides for additional cover in the event of disability, or dismemberment, of the policy holder due to an accident
Discretionary expenses - These are expenses like entertainment, dining out and non-compulsory travel that you can reduce at will.
Dividend yield - The percentage of dividend paid on a share to the value of the share.
Dividends - Payments made by companies and mutual funds to shareholders and unit-holders, respectively, from the income generated by it.
Down payment - The money that a home buyer has to contribute, often at least 15 per cent of the value of the house, when he is taking a home loan.
Effective rate of interest - The true rate as against the nominal rate, which may be incorrect.
ELSS (equity-linked savings schemes) - Diversified equity funds that additionally offer a tax deduction under Section 80C on investments up to Rs.1 lakh.
Emergency fund - The money, in the form of liquid investments in bank savings accounts, two-in-one accounts and liquid funds, you need, to take care of emergencies like a job loss that your insurance policies wouldn’t cover
EMI (equated monthly installment) - A borrower must make this payment each month towards repayment of interest and principal of a loan taken by him.
Endowment plans - An insurance plan that provides a policyholder risk cover and some return on investment. Usually suitable for the risk-averse
Equity - The actual ownership interest in a specific asset or group of assets
Estate - All assets of a person, both financial-like stocks, bonds, mutual funds and fixed deposits and physical-like a house and gold that can be passed on to his heirs.
Estate planning - A financial plan to ensure the transfer of all your assets-both financial, such as fixed deposits and stocks and physical, such as home, after your death to your heirs without any delay or loss.
Exclusions - Risks and circumstances not covered by a policy. No claim will be entertained in case of losses arising out of such situations
Financial planning - It covers the essential elements of a person’s financial affairs and is aimed at achieving a person’s financial goals.
Fixed deposit - Funds placed on deposit in a bank, company or post office at a fixed rate of interest.
Fixed rate loan - Interest rate charged on a loan that remains fixed during the tenure of the loan
Fixed-income investment - Any investment that provides a stated percentage of value, say 6 per cent, on the invested amount.
Floating rate loan - Interest rate charged on a loan benchmarked to a particular lending rate. The rate gets adjusted during the tenure of the loan as the benchmark interest rate changes.
Group Insurance - An insurance policy taken out by employers to provide life cover to their employees. Usually the cheapest form of insurance.
Guaranteed additions - The amount paid as returns in assured-return insurance plans. Guaranteed additions are expressed as a percentage of the sum assured, with the amount payable being stated by the insurer at the outset.
Hospital cash benefit rider - A rider that provides cover for hospitalization
Immediate annuity - An annuity that starts payments immediately after, or soon after, the first premium is paid
Index fund - A scheme whose portfolio mirrors the progress of a particular index, both in terms of composition and individual stock weight ages. It’s a passive investment option, as a fund’s performance will mimic the index concerned, barring a minor tracking error.
Insured - The policyholder
Insurer - The insurance company
Investment risks - The risks that your investments face. These include the risk of interest rate fluctuations impacting your debt investments or the prices of equities going down.
Investments - Assets like fixed deposits, post office savings, bonds and stocks that are acquired for the purpose of earning a return
Level term cover rider - A rider that increases the life cover in non-term plans, up to a maximum of the sum assured on the base policy. The rider offers death benefit along, and serves the need for extra protection for a specified time period.
Liabilities - Monies owed, debt and other financial obligations of a person
Life annuity - An annuity that makes regular income payments till the policyholder is alive. On the policyholder’s death, all income payments cease and there are no beneficiary benefits.
Liquidity - The quality of assets that can be easily and quickly converted into cash without any, or significant, loss in value.
Lock-in period - The period of time for which investments made in an investment option cannot be withdrawn.
Loyalty additions - Additional benefits (other than guaranteed additions/bonus) paid to policyholders on maturity of certain investment-based insurance plans for staying on through its term. Loyalty additions are paid as a percentage of the sum assured, with the amount depending on the insurer’s financial performance.
Marginal tax rate - The highest tax rate applicable to a person for paying income tax.
Market value - The monetary value an asset will fetch if sold in the market today.
Maturity date - The date on which a policy term or fixed-income investment like fixed deposit or bond comes to an end.
Money-back plans - A variant of endowment plans in which survival benefits are disbursed through the policy term, rather than in a lump sum at the end.
Net asset value (NAV) - The simplest measure of how a scheme is performing, it tells how much each unit of it is worth at any point in time. A scheme’s NAV is its net assets (the market value of the financial securities it owns minus whatever it owes) divided by the number of units it has issued.
Pension Plan - Investment products offered by insurance companies and mutual funds that required the investor to make defined contributions over regular periods, mostly every year. The contributions are invested according to a pre-decided investment plan. At retirement, the accumulation is paid out through regular pay-out options.
Periodic payment investments - Investment options that have payouts in fixed intervals. For example, money-back life insurance policies.
Permanent partial disability - Permanent loss of any body part, one eye, one limb or one finger or a toe, or injuries that render the insured in capable of earning an income from the date of the accident onwards from any work, occupation or profession. While the loss of the body part may be permanent , its effects on the insured’s life are partial.
Permanent total disability - Permanent loss of use of any two limbs, or permanent and complete loss of sight in both eyes or any other injury that renders the insured incapable of earning an income. Cover this risk to secure your wealth.
Policy - The legal document issued by an insurance company to a policyholder that states the terms and conditions of an insurance contract.
Policy term - The period for which an insurance policy provides cover
Policyholder - The person who buys an insurance policy. Also referred to as the ‘insured’.
Post office schemes - Also known as Small Savings schemes, they are offered at post offices and carry the highest returns among fixed income instruments. Government backing makes these instruments like Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and Post Office Monthly Income Scheme (POMIS) risk-free
Premium - The amount paid by the insured to the insurer to buy cover
Pre-payment - Partial or full repayment of the loan before the end of the tenure.
Recurring deposit - This is offered both in post office and banks where you are required to contribute a fixed amount ever month. It is a great tool for making small and regular savings.
Rest - The frequency at which interest is calculated on the outstanding loan balance. The more regularly the interest is calculated on the outstanding loan amount, the lesser the interest costs and cheaper the loan. For example, monthly rests would make a loan with the same rate cheaper than a quarterly rest.
Revolving credit - A pre-established credit line, typically in a credit card, against which a person may borrow to make purchases.
Riders - Additional covers that can be added to a life policy, for a cost
Small savings - See post office schemes
Sum assured - The amount of cover taken under a life insurance policy, it is the minimum amount that will be paid on death of the policyholder during the policy term.
Surrender value - The amount payable by the insurer to the owner of an investment-based plan in case he opts to terminate the policy after three years (the mandatory lock-in period) but before its maturity date. The surrender value will be the premia paid till date minus surrender charges and any outstanding loans due.
Survival benefits - The amount payable to a policyholder under an investment-based plan if he survives the policy term. Typically, it is the sum assured plus returns (guaranteed additions / bonus) accrued.
Temporary total disability - An injury that results from an accident and renders a person immobile or affects his earning capacity temporarily. For instance, a fracture in the arm or leg that keeps you from work: you may be mobile but the injury may prevent you from working.
Term plans - A plan that provides life cover for a specified period of time, but no return on the premia paid
Terminal bonus - A one-time bonus paid on maturity of a with-profit plan
Vesting date - Generally used in the context of pension plans and children’s plans offered by life insurance companies. It is a date signifying a milestone in a policy. In pension plans, it is the date from which the policyholder starts receiving pension. In children’s plans, it is the date from which a child becomes the owner of a policy taken out in his name (generally, around his 18th birthday).
Waiver of premium rider - A rider that waives the premia payable on the base policy and other riders in certain circumstances mostly related to death, disability or injury. An important feature especially for investment products such as children’s policies.
Wealth - The difference between the value of what you own (assets) and what you owe (liabilities).
Whole-life plans - Class of life insurance policies that provide cover through your lifetime.
Will - A document that designates the assets of a person-both financial and physical- to various family members and other heirs.
Without-profit policy - An insurance plan in which the policyholder does not get any share of the insurer’s profits
With-profit policy - An insurance plan in which the policyholder gets a share of the insurer’s profits ( in the form of guaranteed additions / bonus). Along with the sum assured.