Glossary of Terms 
Glossary of Terms
Accelerated Cover:
If Trauma or TPD cover is associated with Life cover, and is deemed to be accelerated, then any Trauma or TPD claim will reduce the Life cover by the same amount.
Accidental Death Insurance:
Accidental Death cover provides a lump sum payment in the event of death by accident.
Benefit Period:
The length of time that your policy will remain in force, provided that you keep paying the required policy premiums. Typically this is to a certain age (e.g. to age 60, 65, 70 or 80) or for a specific timeframe (e.g. for 2, 5 or 10 years).
Critical Illness or Trauma Cover:
Should you suffer a specified serious illness or injury, or undergo a serious medical procedure outlined in your policy, it provides you with a lump sum payment to use any way you like.
Health Insurance:
Health Insurance gives you the peace of mind that you can get the treatment you need, when you need it. It provides the funding to enable you to have immediate access to a broader range of treatment options than are available to you through the public health system.
Income Protection (IP) or Disability Income (DI):
Provides a monthly benefit after a selected waiting period to replace up to 75% of your income should you be disabled through sickness or accident.
There are three types of IP or DI cover - Indemnity cover, Loss of Earnings (LOE) and Agreed Value. With Indemnity cover the insured amount is determined by your earnings at the time of claim, whereas with Agreed Value the insured amount is set in relation to your earnings at the time of application for the policy.
A Loss of Earnings policy gives you the choice (at claim time) of how your loss of earnings is determined. Maximum allowable sums assured vary depending on the type of cover and annual income, and there are differing tax treatments which you should discuss with your adviser. Any benefit payments would normally be offset by other income such as ACC benefits. Benefits will not start being paid until after the end of the Waiting Period and will cease at the end of the Benefit Period.
Life Cover Buyback:
When the Life Cover has reduced due to an accelerated Trauma or TPD claim, then the Buyback option allows you to buy back the lost Life cover a year following the claim. No underwriting is required, and the cover is reinstated on the same terms as at the original issue date.
Mortgage Repayment:
Mortgage Repayment cover provides a financial safety net should you be disabled as a result of sickness or injury. The monthly benefit is designed to cover either the mortgage repayments on your behalf or a portion of your lost income. It is an Agreed Value type of cover, but in this case the benefits are not offset by ACC income, i.e. if your disability was due to an accident and you were receiving an income from ACC the Monthly Mortgage Repayment benefit would pay in addition to ACC.
Redundancy Cover:
Insurance that pays a monthly benefit for up to 6 months if you are made involuntarily redundant.
Stand Alone:
If Trauma or TPD cover is deemed to be stand-alone, then a claim on these benefits will not affect any associated Life cover.
Total and Permanent Disability (TPD):
Pays a lump sum if your disablement is total and permanent. An “Own occupation” definition will pay out if you are unable to work in your own professionally trained occupation for more than 10 hours a week and are unlikely to be able to do so again. Under the “Any Occupation” TPD definition you would need to be rendered unable to do not just your own occupation, but any occupation reasonably suited to you by education, training and experience.
Trauma Reinstatement:
Similar to the Life Cover Buyback option but you are reinstating the Trauma cover a year after a Trauma claim. All conditions in the policy are fully covered again, except for the one you originally claimed on.
Waiver of Premium:
This benefit can remove the burden of paying premiums when you are unable to work due to total disability, saving you money when you need it most. Depending on your financial situation, you can choose from a range of waiting periods before your premiums are waived.
Waiting Period:
The agreed time that you will have to wait before the benefits in your Income Protection policy will begin to be paid. When taking out your policy you will normally have the choice of a two, four, 13, 26 or 52 week waiting period. The longer your waiting period the less your policy will cost.
Business Continuity or Key Person Cover:
Business Continuity insurance can provide a monthly benefit payment to help protect you against business interruption. It can keep your business running should you or any key employees become disabled as a result of an accident or ill health, and be unable to work.
New to Business Cover:
Is an Agreed Value occupation-rated benefit suitable while you get your business off the ground. It provides an essential financial safety net if an owner is unable to work due to illness or injury.
Rural Insurance:
Rural Key Person cover will pay you a monthly income if a key person is disabled and unable to work because of illness or injury. Unlike most businesses, a farm cannot afford to stop operating in the event of a loss of a key worker. Rural Key Person cover allows you to replace that person and therefore keep the farm operating.
Active Funds:
A fund whose style is to get investors the best results by choosing investments and trading them. They typically have teams of experts to analyse all the available information, and make decisions around currency, and asset allocations to improve investment returns.
Asset Classes:
An asset class is a group of investments that exhibit similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The five main asset classes are equities (shares), property, fixed interest or bonds, commodities (gold and oil) and cash or term deposits.
Asset Allocation:
The mix of investments chosen in order to get certain results. Typical mixes are from the main asset classes. For a growth investor, for example, the asset allocation will include more growth assets such as shares and property, and for a conservative nvestor the weighting will be towards fixed interest and term deposits.
Capital Gain:
The profit you make when you sell an investment for more than you paid for it. If you buy a house for $300,000 and sell it for $320,000, your capital gain is $20,000. A capital loss is when you sell an investment for less than you paid for it.
Capital Growth:
When the value of your investment (your capital) grows. If you invested $100,000 in shares last year that are worth $110,000 this year, your capital growth is $10,000, or 10%.
Diversification:
This is spreading your risk by choosing different individual investments within an asset class. So instead of buying $1000 dollars' worth of shares in a single company, the same amount of money can be invested in the shares of different companies, industries and countries around the world.
Equity:
The amount of something you own, typically in a property or business. If you sold the asset and paid back any money you owed on it, your equity would be what's left. For example, if you have a house worth $350,000 and a $300,000 mortgage, your equity in the house is $50,000.
Fixed Interest Investments:
This is the type of investor you are, based on your capacity to invest, attitude toward risk and time horizon (duration). Your investor type will determine what mix of investments are chosen, since different kinds of investments work in different ways and are suited for different purposes.
Managed Funds:
Managed funds work by pooling money from many investors and then using this money to buy a variety of assets. You will get a return based on the overall performance of the managed fund. In a unit trust, each investor owns a specific portion (units) of the total fund.
Nominal Return:
The money you get back from an investment, without taking inflation into account.
Official Cash Rate (OCR):
The interest rate set by the Reserve Bank to influence the price of borrowing money in New Zealand. Changes in the OCR can affect how much interest we pay on our mortgage and how much we earn on our savings.
Passive Funds:
Passive funds are more 'hands off' than active funds - they simply follow and track the performance of a given market, avoiding the costs of their fund managers choosing investments and trading often. This generally makes them cheaper than active funds.
Pension/Annuity:
An income paid at regular intervals to a retired person, by a government or a superannuation scheme.
Portfolio Investment Entity (PIE):
Managed funds which have special lower tax rates. When you invest in a PIE, the tax on the income from your investment will be based on your prescribed investor rate (PIR).
Prescribed Investor Rate (PIR):
The tax rate for your investment earnings from a PIE such as KiwiSaver.
Real Return:
The money you get back from an investment, including the effects of inflation. If your investment achieved a nominal return of 5% and inflation was 2%, your real rate of return is 3%. This is good to keep in mind when looking at term deposit rates, for example.
Risk:
The probability that the actual return on an investment will be lower than the investor's expectations. All investments have some level of risk associated to it due to the unpredictability (volatility) of the market's direction. Equities tend to have higher volatility than fixed interest, but also tend to produce higher returns over the long term.
Securities:
A real or virtual document that proves ownership of shares, bonds and other investments. This term is sometimes used interchangeably with 'investments' and the shares and bonds themselves.
Shares:
A share in the ownership of a company and entitlement to any dividends. These are sometimes referred to as 'equities' or 'stocks' as well.
Volatility:
A market's volatility is its likelihood of making major, unforeseen short-term price movements at any given time. Highly volatile markets are generally unstable, and prone to making sharp upward and ownward moves. Markets with low volatility are less likely to see such spikes, and are as such more stable. As a general rule, most highly volatile markets come with greater risk, but also greater chance of profit over the long run.
Break Fee:
If you want to buy a house, or some other large asset, then typically you will borrow some money from a lender (e.g. a bank) and pay it back to a cost charged by a lender for the early repayment of a mortgage, such as when you leave a fixed term mortgage early to move to a lower interest rate.
Fixed Rate:
For a fixed rate loan, the interest rate is set at the date you take out the loan and remains the same throughout the agreed term, irrespective of whether bank interest rates rise or fall.
Floating Rate:
For a floating rate loan, if interest rates fall, so does the interest you have to repay. Alternatively, you can choose to continue with the same level of repayment and reduce the term of your loan. However, if interest rates rise, then the opposite effect happens, and either you will need to increase your repayments or lengthen the term of your loan.
Interest Only:
This is when you only pay back the interest component on the loan, with no payments off the principle. It is cheaper in the beginning, but still leaves you owing the lender the full amount of the loan at the end of the interest-only period.
Loan:
Money borrowed to use over a set period of time. To do this, you typically pay a setup fee and an agreed rate of interest as you pay back the borrowed amount over time.
Loan to Value Ratio (LVR):
LVR is the amount of your loan compared to the value of your property. LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $450,000 and you have a deposit of $90,000, the LVR will be the loan required ($360,000) divided by the property value ($450,000) - 80%.
Refinance:
Working with a lender to change the terms of your loan or replace your loan. This often involves switching lenders to get a better deal.
Secured Loan:
A loan that is secured against some, or all, of your (the borrower's) assets, reducing the lender's risk. If you fail to make repayments, the lender may get some, or all, of your assets in order to cover the outstanding loan amount.
Table Mortgage:
A loan that is paid back by making regular payments of fixed amounts. Each payment pays back part of both the interest and the principal. Initially most of your repayment goes on interest and less on principle, but as time goes on the amount of the principle you owe reduces and less of the repayment is allocated to interest.
Unsecured Loan:
A loan which is not secured against any of your (the borrower's) assets. These are riskier for a lender than a secured loan. To compensate for this, the lender charges a higher interest rate.
Default Fund:
A handful of conservative funds picked by the government, for KiwiSaver members who have not yet chosen the fund that suits them best. When you opt into KiwiSaver, such as when you start your first job, you are automatically placed into one of these default funds until you choose the fund you want to be in. Employer Contributions What your employer puts into your KiwiSaver account (if you're an employee). In addition to contributions from your wages and the government, employers are required to put in at least 3% of employees' pay (before tax). First Home Withdrawal If you have been a member of KiwiSaver for at least three years, you may be able to withdraw all, or part, of your savings to put towards buying your first home. Since 1 April 2015, eligible members can withdraw their KiwiSaver savings (including tax credits), however at least $1,000 must remain in your KiwiSaver account. You must intend to live in the property and it cannot be used to buy an investment property. Member Tax Credit (MTC) The government's annual contribution to your KiwiSaver account, matching 50 cents for every dollar you put in, up to a maximum of $521 each year.
Employer Contributions:
What your employer puts into your KiwiSaver account (if you're an employee). In addition to contributions from your wages and the government, employers are required to put in at least 3% of employees' pay (before tax).
First Home Withdrawal:
If you have been a member of KiwiSaver for at least three years, you may be able to withdraw all, or part, of your savings to put towards buying your first home. Since 1 April 2015, eligible members can withdraw their KiwiSaver savings (including tax credits), however at least $1,000 must remain in your KiwiSaver account. You must intend to live in the property and it cannot be used to buy an investment property.
Member Tax Credit (MTC):
The government's annual contribution to your KiwiSaver account, matching 50 cents for every dollar you put in, up to a maximum of $521 each year.
HomeStart:
After three years of regularly contributing to KiwiSaver (of at least the minimum allowable percentage of your total income) you may be entitled to the HomeStart grant. If you are purchasing an existing/older home, the HomeStart grant is $1,000 for each year of contribution to the scheme. If you are purchasing a new home, a property bought off the plans or land to build a new home on, the HomeStart grant is $2,000 for each year of contribution to the scheme.
Portfolio Investment Entity (PIE):
Managed funds which have special lower tax rates. When you invest in a PIE, the tax on the income from your investment will be based on your prescribed investor rate (PIR) which is based on your annual income.
Prescribed Investor Rate (PIR):
The tax rate for your investment earnings from a PIE such as KiwiSaver.
NZ Super:
New Zealand Superannuation is the pension that the government currently pays to all eligible New Zealanders aged 65 or over. To be eligible for NZ Super you need to be a legal resident of New Zealand, having lived here for at least 10 years since turning 20. Five of those years must have been since age 50.
Assessors and Loss Adjusters:
Someone who acts on behalf of an insurer, or the insured, who looks at the circumstances of a loss and determines what an insurer will pay in the event of a loss.
Contents:
These are personal possessions, for example, things like bicycles, furniture, computers, equipment, jewellery, business tools, carpets, curtains.
EQC:
The Earthquake Commission is a New Zealand Government agency that provides a level of natural disaster insurance to residential property owners.
Excess:
An excess is the amount you must contribute toward a claim for each insurable event that occurs.
Home or House:
Each house, residential flat or holiday home insured within the boundaries of the property, specified in your insurance policy schedule.
Indemnity Value / Present Day Value / Market Value:
This is an item's current value allowing for its age and condition, immediately before the loss or damage happened.
Policy Schedule:
This sets out the individual details of your insurance including the items being insured, your details, and excesses, the premiums due and any exceptions or special terms.
Premium:
This is the amount you pay the insurer to have your property or personal effects insured. Depending on the type of cover you have, your premium can also include Earthquake Commission and Fire Service levies. When you pay your premium, you accept the policy offered by the insurance company.
Replacement Cover Based on a Sum Insured:
Sum insured insurance provides full replacement cover for accidental damage to your property, up to an agreed sum insured amount. It's important that the sum insured covers the full rebuild cost of your home. Your insurer may include or exclude GST in the sum insured amount. Depending on your insurer those costs may include:
Replacement Cover Based on Floor Area:
This insurance provides for total replacement based on the insured floor area of your home for accidental damage to your home (conditions and limits will apply, depending on your insurer).
Total Loss:
When damage to a property is so severe that it becomes uneconomical to repair. For a building, this means it needs to be demolished and rebuilt.
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