The Simplified Guide To Understanding Financial Jargons

| 16 Dec 2019

Tired Of Being Confused By Financial Jargons? 

The financial industry is too fond of using financial jargons, creating a barrier for those from a non-finance background to really understand personal finance. For some, these jargons are intimidating which puts them off managing their personal finance. Therefore, we decided to build this simplified guide to debunk common financial jargons and help you get started with your personal finance journey today!

 

  • TDSR

TDSR, or Total Debt Servicing Ratio, is the limit to the amount of debt you can take on, based on your monthly income. With TDSR, your monthly debt obligations cannot exceed 60% of your monthly income.

 

  • MSR

MSR, or Mortgage Servicing Ratio, is similar to the TDSR. This is he amount you money you can take out with a loan to purchase a house. With the MSR, you can use only a maximum of 30% of your monthly income to service your HDB loan. 

 

  • ABSD

ABSD stands for Additional Buyer Stamp Duty and is especially useful for those who wish to own multiple properties. It is a stamp duty that you have to pay for owning more than 1 property. The rate is 12% (for second property) or 15% (for third property onwards).

 

  • LTV

Loan-To-Value (LTV) defines the maximum loan amount you can get from the bank or HDB for your home. LTV is a percentage of the market valuation of your property. For bank loans, the LTV limit is 75% whereas for an HDB loan it’s 90%.

 

  • CPF LIFE

CPF Life is the annuity scheme that uses your CPF savings and disburse them to you as monthly payouts over your lifetime. The payout amount you can get each month depends on two factors: Your retirement sum (Basic, Full or Enhanced) and your choice of plan (Standard, Escalating or Basic).

 

  • Sum Assured

For insurance plans, the most commonly used term is “sum assured”. It is the amount that the insurer will pay you (or the beneficiary) in the event of mishap, accident or death as stated in the insurance contract.

 

  • Life Assured

The term “life assured” represents the person who is insured in the contract. In other words, the life assured is the insured person.

 

  • Beneficiary

“Beneficiary” is the opposite of life assured. The beneficiary is the person who receives the insurance payout if the life assured meets with any mishap, accident or death. The beneficiary is usually the family member of the life assured. 

 

  • Limited Pay

Some insurance plans come with “limited pay”. Limited pay means that you will only need to pay premiums for a limited period of time. However, you will still be covered by the plan even after you stop paying the premiums.

 

  • Underwriting / Underwritten

“Underwriting” is the term used by companies to accept liability for the plan. This means that the underwriting company will be liable for anything that happens and will be the one to pay out the claims.

“Underwritten” is used to label the company that accepts liability for the insurance plan. It is usually stated as “Underwritten by ” followed by the company’s name. 

 

  • ILP

ILP stands for investment-linked policy. Investment-linked policies are insurance plans where a part of your premiums is used to invest in a fund. Their cash values are linked to the performance of the underlying fund. 

 

  • Participating Plan

The term participating plan is common in whole life, endowment plans and investment-linked policies. With a participating plan, a portion of your premiums are pooled together with other policyholders to invest in more risky assets like bonds and equities. In return, you get to ‘participate’ in the additional returns from the pooled fund.

 

Get Started On Your Personal Finance Journey Today

With these common financial jargons demystified, you should be confident in getting started on your personal finance journey. 

But if you are still feeling a lost on where to start your personal finance journey, you can contact our financial advisors who are ready to help! Email us at [email protected] if you have any inquires.

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