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Do you feel confused when financial jargon starts flying around? Have you ignored information from your bank or pension provider as a result? New research shows that this is not only common, but also potentially costly.
The study, conducted by Aviva, showed that 41% of surveyed UK adults – an estimated 21 million people in real terms – have ignored information given to them by their financial providers because they didn't understand the terms used. As a result, 17% of those have missed an important change to their policy, while 13% (or 2.7 million people) said they've lost money due to ignoring important communications.
To take a closer look at what people had trouble understanding, Aviva asked participants to define different terms. And while 43% could accurately identify the capital of Peru and 26% could explain the offside rule in football, only 22% knew what income drawdown meant. Indeed, the best-known financial term was 'annuity' (39%), followed by defined benefit pensions (28%).
People were most hard-pressed to define what an espresso martini was (11%), though this was not far behind enhanced annuity (16%) in overall (lack of) understanding. What's more, of the 53% who said they know what an annuity is, 27% went on to choose the wrong definition, which shows that there may be a disconnect between what people think they know and what the actual terms mean, especially seeing as 27% of the 39% who said they knew what a defined benefit pension is also got it wrong.
Aside from pension misunderstandings, the research also revealed that 30% believed that their home insurance covered "anything that happens in their house", without reading the fine print to check if that was indeed the case. Even more believed that accidental damage (59%) and personal belongings (46%) were covered as standard, while 29% thought that damage by pests or vermin would be covered and 25% expected their policy to insure against damage to fences.
In reality, all of the above can be common exclusions or require additional cover to be taken out. For this reason, it is important to always check what exactly it is that you're covering, and don't be afraid to walk away from an insurance company that is not communicating with you in a transparent manner – just because it sounds complicated, doesn't make it good.
Alistair McQueen, head of Savings and Retirement at Aviva, commented: "It doesn't come as a surprise that people are more tuned into the subtleties of the offside rule than pensions and insurance products. All the same, the consequences of being in the dark about your finances are rather more serious than your sporting knowledge being found wanting … The very essence of insurance is about reducing uncertainty and giving customers peace of mind, which is why it's vitally important that as an industry, we help people get to grips with the language and principles of products that many rely on."
If you find yourself with a home insurance policy that is so complicated you can't even be sure if it is covering your needs, you can use our comparison service to see if you can find a better, easier-to-understand deal
Confused about any other kinds of financial jargon? Our guides are here to help
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