FAQ

Incidents of Ownership
A policy owner's rights under a life insurance policy, including the right to change the beneficiary and the right to surrender the policy for the cash value.

Income in Respect of a Decedent
All gross income that the decedent had a right to receive, but did not receive, prior to death such as uncollected wages, deferred compensation, and pension benefits. These income amounts are not included on the final Form 1040 but are reported on the fiduciary return or the beneficiary's tax return.

Income Protection Allowance
An allowance that is based on the living costs of those family members who are not attending post secondary school. The allowance is included when calculating the expected family contribution as part of an application for federal student aid.

Income Replacement
Benefit in disability insurance policies where an injured or sick wage earner receives a monthly income payment that is sufficient to replace a percentage of lost earnings.

Income Tax
The annual tax on income that is levied by the federal government and by certain state and local governments.

Incompetency
The inability to properly care for one's property and/or person, or to make or communicate rational decisions concerning one's person.

Indemnity
The principle upon which all property/casualty insurance contracts are based. According to this principle, the objective of insurance is to restore the insured to the same financial position after a loss that he/she was in prior to the loss.

Indemnity Plan
A type of health insurance plan that provides reimbursement of covered medical expenses and gives plan participants considerable freedom to choose their own health care providers.

Independent Agent
A contractor or broker who represents different insurance companies, is not employed by any one company, and earns commissions from policies sold.

Index
A statistical composite that measures changes in the economy or in financial markets by measuring the ups and downs of stock, bond, and commodities markets, and reflecting market prices and the number of shares outstanding for the companies in the index. Some well known indexes include the New York Stock Exchange Composite Index, S&P 500, American Stock Exchange Composite Index, and Dow Jones Industrial Average.

Indirect Loss
A loss that arises from a peril, but is not directly and immediately caused by it.

Individual Policy
An insurance policy (life, health, or disability) that provides coverage for an individual person (and, in some cases, his/her family members), as opposed to a group policy that provides coverage for a group of individuals.

Individual Retirement Account (IRA)
A personal, tax-deferred retirement account that an individual can establish and fund with earned income up to a maximum amount. Deposits up to a maximum of $2,000 per year may be deductible within prescribed income levels and retirement plan participation. Income earned is tax deferred until it is withdrawn.

Inflation Rider
An attachment or amendment to an insurance policy that provides protection against inflation by adjusting the level or amount of the benefit to keep pace with inflation.

Inflation-Adjusted Yield
The net rate of return after taking inflation into account.

Inland Marine Insurance
A form of property-casualty insurance that covers portable property and goods in transit over land, extending the coverage that is provided by Ocean Marine insurance over water.

Insolvent
The inability to pay debts when due and/or meet other current financial obligations. Consumers are protected against the potential insolvency of a company by state guaranty associations, which will pay the losses of a company that is insolvent.

Installment Payments
A sale made with the agreement that the purchased goods or services will be paid for in fractional amounts over a specified period of time.

Institutional Methodology
A formula that is administered by the College Scholarship Service and is used to determine financial need when applying for institutionally funded student aid.

Insurable
An individual applicant who qualifies for an insurance policy based on the coverage standards that are set by the insurance company.

Insurable Interest
A relationship between an insured person or property and the potential beneficiary of the insurance. This requirement must be present at the time the life insurance policy is applied for but doesn't need to exist at the time of the insured's death. Insurable interest exists because there is a reasonable expectation that the beneficiary will benefit from the continued life of the insured, or experience a loss at the death of the insured.

Insured An individual or organization referred to as "an insured" is covered by part of the insurance policy, whether they are specifically named on it or not. Inter Vivos
Property that is transferred while living, as opposed to being transferred by will.

Interest
The cost charged for the use of money, expressed as a rate per period of time, usually one year (in which case it is called an annual rate of interest). The rate is derived by dividing the dollar amount of interest by the amount of principal borrowed.

Interest Rate Cap
Method of limiting the interest-rate increases of an adjustable rate mortgage (ARM). A periodic rate cap limits how much the interest rate can increase from one adjustment period to the next. A lifetime cap limits the interest rate increase over the life of the mortgage.

Interest-Rate Risk
The risk that changes in interest rates will adversely affect the value of an investment portfolio. Interest-rate risk affects portfolios with large holdings in long-term bonds or many dividend-paying utility company stocks because the value will fall in the event interest rates rise.

Intestacy Laws
State laws governing the disposition of property when an individual dies without a valid will.

Intestate
To die without leaving a valid will.

Intestate Succession
Distribution of property according to state laws of descent upon the death of an individual who has not left a valid will.

Irrevocable
Something that cannot be legally undone, altered, amended, revoked, or terminated.

Irrevocable Beneficiary
A beneficiary designation that cannot be changed.

Irrevocable Trust
A trust that cannot be altered, amended, revoked, or terminated by the settler.

Joint Life Expectancy
The probability that two people will live to specific ages according to a mortality table.

Joint Tenancy
Ownership of property by two or more individuals with equal interest in the property. Upon death, a joint tenant's interest passes to the other joint tenant(s) and does not pass into the estate.

Judgment
- Decision by a court of law ordering someone to pay a certain amount of money. The term also refers to the condemnation awards by government entities in payment for private property taken for public use.

Judgment Foreclosure
A court judgment that terminates all interest and rights of a mortgagor (borrower) in the property covered by the mortgage. Such a judgment usually results from the mortgagor defaulting on the mortgage loan, exposing the mortgaged property to the enforceable lien held by the lender (usually a bank). When a judgment foreclosure occurs, the mortgaged property is generally sold under court supervision and the proceeds are used to satisfy the outstanding mortgage debt.

Key Employee
A key employee is an individual who may have special skills and makes a significant contribution to the business. Executives and managers may be considered key employees, in addition to certain shareholders who actively participate in the ongoing success of the business.

Key Person Insurance
Insurance designed to pay benefits to a business that loses the essential services of a key employee due to disability or death, and the business suffers a financial loss as a result.

Kiddie Tax
Tax, at the parents' top tax rate, filed on Form 8615 for investment income of children under age 14 exceeding $1,400 in 1999 (indexed annually).

Laddering
A method of staggering the purchase of certificates or bonds whereby, when the investment matures, the funds can be reinvested in short or long-term investments depending on the current interest rate.

Lapse
The expiration of a right or privilege when one party does not live up to its obligations during the time allowed. A lapse in auto insurance coverage may result in paying higher premiums for a new policy, because insurers have determined that drivers who maintain continuous coverage are less likely to make an insurance claim that those who let a policy lapse.

Last In First Out (LIFO)
This refers to a method used to distribute cash value withdrawals for universal life policies where the withdrawals are treated as first coming out of interest and are considered taxable income.

Levy
To assess, exact, or collect, as with a tax or a fine. Levy can also mean to obtain money by legal process through the seizure and sale of property.

Liabilities
A claim on the assets of a company or individual to satisfy a debt.

Liability insurance
Coverage for sums that an insured becomes legally obligated to pay because of bodily injuries and/or property damage or financial losses caused to other people.

Lien
A creditor's claim against assets to secure a debt. Liens may also be granted by courts to satisfy judgments.

Life Annuity
An annuity that makes regular (e.g., monthly, quarterly, etc.) income payments for the life of a person (the annuitant). The annuitant cannot outlive the payments. Upon his/her death, however, all income payments cease and there are no beneficiary benefits.

Life Estate
A form of property ownership, also known as a life interest, giving the holder (the life tenant) an interest in the property to possess, use, and enjoy the property, or income from the property, for the duration of their life. Upon the death of the holder, the remainder interest automatically reverts to the original owner or passes to a beneficiary (known as the remainder person).

Life Expectancy
The number of years a person is expected to live as determined by actuaries using mortality (actuarial) tables This information is used to calculate annuity payments, life insurance premiums, and annual minimum distributions from IRAs.

Life Expectancy Tables
Mortality tables that are used to calculate life expectancy figures.

Life Insurance
A legal contract between an insurance company and an owner/insured to provide protection against adverse financial consequences of the death of an individual in the form of payment to a beneficiary.

Life Insurance Trust
An agreement that establishes a trust for the designated beneficiary(ies) of a life insurance policy. Upon the death of the insured, the trust is legally obligated to pay the death benefit proceeds in the manner specified in the trust agreement.

Life Insurance Underwriting
The process by which an insurance company examines, accepts, or rejects insurance risks so as to charge the proper premium for the coverage and to spread the risk among a pool of insureds in a manner that is both fair to the insureds and profitable for the company. The company classifies the accepted applicants into different risk categories in order to charge the proper premium.

Life Interest
A form of property ownership, also known as a life estate, giving the holder (the life tenant) an interest in the property to possess, use, and enjoy the property, or income from the property, for the duration of their life. Upon the death of the holder, the remainder interest automatically reverts to the original owner or passes to a beneficiary (known as the remainder person).

Lifetime Gift
A gift made during someone's life, as opposed to a post-mortem gift.

Limitations
The maximum amount of insurance coverage that is available under a policy. Coverage limitations can often be increased for an additional premium.

Limited Health Insurance
A health insurance contract that provides limited coverage in special circumstances.

Liquidity
The ability to buy or sell an asset quickly, or to convert an asset to cash quickly, and in large volume without substantially affecting the price of the asset.

Living Benefits Provision
In the event of a terminal illness where medical and long term care costs occur, life insurance benefits that are payable to the insured prior to death through the use of an accelerated death benefit rider (ADBR). Accelerated or 'living' benefits paid will reduce the amount of death benefits payable to the beneficiary upon the insured's death.

Living Trust
A revocable or irrevocable trust created during the life of the grantor that is also known as an inter vivos trust.

Long-Term Care Insurance
An insurance contract that pays benefits in the event the insured needs long-term medical care in a facility other than a hospital.

Long-term Coverage
Disabilities that last more than two years are said to be long-term. Disability policies that pay benefits for long-term disabilities are said to offer long-term coverage.

Long-term Disability Insurance
A disability insurance policy that provides coverage in the form of monthly income payments for as long as the insured remains disabled (usually up to age 65).

Look-Back Period
The period of time, currently 36 months, during which a hospitalized or institutionalized individual may be ineligible for benefits payable under a state Medicaid plan when assets are transferred for less than their fair market value for the purpose of qualifying for payment.

Loss
Financial damage that occurs when the event for which insurance was purchased happens. For example, the theft of a car is a loss, because your financial assets have decreased by the amount the car was worth.

Loss Frequency Method Procedure used by insurance companies to project the number of future losses within a given time frame. This prediction of future losses is used as the basis for setting policyholder premiums. Loss of Income
A definition of disability based on income loss, not on loss of occupation. Loss-of-income disability definitions are used in residual disability (income replacement) policies.

Loss of Use
Part of a standard homeowner’s policy that covers financial losses (up to a certain limit) you suffer when your home is damaged and temporarily unfit to live in. These losses generally refer to living expenses (e.g., hotel, dining, telephone) that you must incur in order to maintain your usual standard of living until you move back into your house.

Managed Care Plan
Health care plan based on practice guidelines or protocols that health care providers must follow. The goals of a managed care plan are to lower health care costs, provide as comprehensive coverage as possible, and improve the methods used to select health care providers.

Marginal Tax Bracket
A tax bracket that applies to a particular range of income.

Marginal Tax Rate
The amount of tax imposed on an additional dollar of income.

Marital Deduction
Provision in the federal estate and gift tax law allowing all the assets of a marriage partner to pass to the surviving spouse free of estate taxes.

Marketable Securities
Securities that are easily sold or that can be readily converted into cash such as government securities, banker's acceptances, and commercial paper.

Maximum Family Benefit
The largest monthly Social Security benefit payable to an individual if more than two persons receive payments on the same Social Security record.

Maximum Taxable Amount
The greatest amount of earnings that can be credited annually to an individual's Social Security earnings record. Social Security taxes are not payable on any income earned in excess of this limit, however, there is no limit for Medicare taxes. This limit is adjusted annually to rise in the future to match the national wage levels.

Medical Information Bureau (MIB)
A central computerized facility that keeps on file the health history of the applicants for life and health insurance with member MIB companies. This information is made available to insurance companies for the purpose of evaluating an applicant's insurability and preventing fraud.

Medical Payments Coverage
Part of a standard auto insurance policy that provides coverage of medical expenses and funeral bills incurred by you and your passengers in the event of an accident, regardless of who is at fault.

Minimum Wage
As required by federal law, the minimum hourly wage that employers must pay their employees. Adjusted periodically for inflation and other factors, the minimum wage is supposed to provide workers with the income needed to be self-sustaining and to obtain the ordinary requirements of life.

Mobile Home Insurance
Coverage similar to a homeowners insurance policy in that Section I covers property and Section II covers liability.

Modified Endowment Contract (MEC)
A special class of life insurance. Funds withdrawn from a MEC policy in the form of policy loans, partial surrenders, assignments, and pledges are treated as gross income to the recipient and therefore subject to taxation.

Mortality (Actuarial) Table
A statistical table showing the rate of death at each age in terms of the number of deaths per thousand, indicating the probability of a certain number of people from a group dying in a given year. Insurance companies and the IRS use mortality (actuarial) tables to establish premiums for different age groups, to base life estates, and annuity valuations.

Mortality Charge
The cost of the insurance protection based on a statistical projection of future deaths.

Mortgage
A debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid.

Mortgage Clause
Attachment to a property insurance policy to protect the interest of the mortgage holder in the mortgaged property. The mortgage holder is indemnified up to the stated interest in the property if the property is damaged or destroyed.

Mutual Fund
Corporation or trust, managed by an investment adviser, that raises money from shareholders and invests it in securities, such as stocks, bonds, options, commodities and/or money market securities. Registered with the US Securities and Exchange Commission under the Investment Company Act, mutual funds offer investors the advantages of diversification and professional management for which they charge a management fee.

Mutual Insurance Company
An insurance company owned by its policyholders. A mutual company is privately-held, in contrast with a stock insurance company, which is publicly-held and whose shares are traded on an exchange.

Named Insured
A person or organization listed on the declarations page of an insurance policy as covered by the policy. The named insured has coverage under the policy and also the ability to make changes or cancel it.

Named Perils Coverage
Insurance contract under which covered perils are listed and benefits for a covered loss are paid to the policyholder.

Negative Amortization
Financing arrangement in which monthly payments may be less than the true amortized amounts and the loan balance may increase, rather than decreases, over the term of the loan. The interest shortage can be added back to unpaid principal or can be added back to the loan and payable at maturity.

Net Worth
Total financial worth after totaling all assets and subtracting all liabilities.

No-Fault Insurance
Auto insurance laws in some states that require insurance companies to cover their policyholders' losses in the event of an accident, regardless of who caused the accident. In a no-fault state, Personal Injury Protection is the basic coverage that pays for your own medical, hospital and funeral expenses, as well as those of your passengers and any pedestrians. Lost wages and other accident-related expenses may also be covered. State laws vary. There are rules in each no-fault state for how much coverage is offered, how to file a PIP claim and what’s covered.

Non-cancellable
A type of contract that cannot be canceled by the insurance company and is used for health and disability insurance.

Non-cancellable Guaranteed Renewable
An insurance policy that is not subject to alteration, termination, or increase in premium upon renewal.

Nonqualified Deferred Compensation Plan (NQDC)
Nonqualified deferred compensation (NQDC) is an arrangement between an employer and employee that defers the receipt of currently earned compensation. A NQDC plan does not have to comply with the discrimination and administrative rules that govern qualified benefit plans, such as Section 401 of the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA).

Nonresident Alien
An individual whose residence is not within the United States, who is not a citizen of the United States, and who has not been granted permanent resident status.

Nonwage Income
Income other than what is earned in the form of wages or salary.

Normal Retirement Age
The age at which a pension plan participant can retire and immediately receive unreduced benefits. The normal retirement age for Social Security retirement benefits.

Occupational Disease
An illness contracted as a result of employment-related exposures and conditions. Coverage for these situations is provided through workers compensation.

Occupational Hazard
Condition surrounding a work environment that increases the probability of death, illness, or disability to a worker. This type of hazard is considered when evaluating an application for insurance.

Occurrence Basis
Coverage (in liability insurance) for harm suffered by others or their property due to events occurring while a policy is in force, regardless of when a claim is actually made.

Ocean Marine Insurance
Property-casualty insurance coverage for damage or destruction of a ship's hull and cargo as a result of the occurrence of an insured peril.

Open-End Lease
A lease agreement that provides for an additional payment after the property is returned to the lessor to adjust for any change in the value of the property.

Open Enrollment Period
A period of time, often once or twice a year, during which individuals are permitted to enroll in group insurance plans.

Open Peril Coverage
Insurance coverage for all risks other than those that the policy specifically excludes. Also know as All-Risk coverage.

Ordinary Income
Income from the normal activities of an individual or business that is not capital gains from the sale of assets.

Own Occupation
A term for a disability policy that provides benefits when the insured is unable to perform the usual and customary duties of one's own occupation.

Partial Disability
Inability of the insured to perform one or more of the important daily duties of his or her regular occupation. The income payment to the insured is reduced from that of total disability.

Payee
An insured individual or a beneficiary who receives a loss or benefit payment from an insurer. On an auto insurance policy, a Loss Payee is the institution that has financed the loan or lease of the vehicle. In the event of a total loss, the insurance company makes payment to the loss payee first.

Payment Cap
A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable rate mortgage (ARM) in any one adjustment period.

Peril
A specific cause of loss. Common examples include fire, flood, earthquake, vandalism, and theft.

Permanent
In the insurance context, permanent life insurance is ordinary life insurance such as whole life—as opposed to term life insurance which expires unless renewed at the end of each term.

Permanent and Total Disability
A disability in which a wage earner is forever prevented from working because of injury or illness suffered.

Permanent Resident Alien
A citizen of another country living in the United States who has been granted permanent resident status in the U.S. but is not a US citizen.

Personal Earnings and Benefit Estimate Statement (PEBES)
A statement generated by the Social Security Administration containing a complete earnings history, estimate of benefits for early retirement, full retirement and benefits at age 70, and an estimate of disability benefits. Also included in this statement are estimates of benefits payable to spouse and children in the event of the worker's retirement, disability, or death.

Personal Liability Insurance
Part of a standard homeowners policy that covers financial losses for which you are responsible if you accidentally cause bodily injuries to others or damage to their property.

Personal Property
For homeowners insurance purposes, this term generally includes all the contents of your household (e.g., furniture, jewelry, knickknacks, etc.). Coverage for personal property is generally set at 50 percent of your coverage limit for your house, unless you choose to raise your coverage. This coverage is generally subject to a deductible.

Personal Representative
The person named by the court to handle an estate if no executor is named in the will, or if an executor declines to serve. This individual is responsible for filing tax returns on behalf of the estate.

Points
Prepaid fees, often used to decrease the interest rate on a mortgage, or to induce lenders to make a mortgage loan. One point equals one percent of the loan principal. Points have the effect of reducing the amount of money advanced by the lender. Mortgage lenders commonly charge one point as a loan origination fee. Additional points may be charged to raise the loan yield to current market interest rates.

Policy Basis
The amount of the policyholder's investment in a life insurance policy reduced by any dividends and any cash value withdrawals.

Policy Loan
The amount that the owner of a life insurance policy can borrow, at an interest rate set by the company, from the insurer up to the cash surrender value. If interest is not paid when due it is deducted from any remaining cash value. At the death of the policyholder any outstanding policy loans and interest due are subtracted from the death benefit.

Policy Period
Time period during which an insurance policy is in force.

Post Mortem
After death.

Power of Attorney
A written document that authorizes an individual to perform certain acts on behalf of the person signing the document. The document, which must be witnessed by a notary public or some other public officer, may bestow either full power of attorney or limited power of attorney and it becomes void upon the death of the signer.

Preexisting Condition
An illness or medical condition for which a person was treated or advised within a specified time period before applying for a life or health insurance policy. A preexisting condition can result in the cancellation of the policy if it is not disclosed up front.

Preferred Risk
An insured or applicant for insurance who has a lower expectation of incurring a loss than the standard applicant and can obtain favorable premiums.

Preferred Stock
A special class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. It typically doesn't entitle holders to voting rights, although it may be converted to common stock with voting rights.

Premium
The payment required for an insurance policy to remain in force.

Present Value
Value today of a future payment, or stream of payments, discounted at some appropriate compound interest or discount rate.

Presumptive Disabilities
The assumption of total disability when an insured loses sight, hearing, speech, or a limb.

Primary Insurance Amount (PIA)
The monthly benefit payable to a retired or disabled worker under Social Security that is calculated using the average monthly earnings of the covered person while working.

Principal
The amount borrowed or unpaid on a loan.

Principal Residence
The home that a taxpayer lives in most of the time during the taxable year.

Private Letter Ruling
The response or interpretation issued by the Internal Revenue Service to a specific taxpayer or taxpayers about a specific question on tax law or a request for an interpretation of the tax code.

Probate
The court-supervised process of administering a will.

Probate Estate
Property that passes to beneficiaries according to the terms of a will.

Probated
Refers to a will that has gone through the legal process of probate and thereby determined by a court to be either valid or invalid. Once the probate process is complete and the will proven valid, the property in the estate can be distributed according to the terms of the will. In current usage, the term 'probate' has been expanded to generally include all matters and proceedings relating to the administration of to estates, guardianships, etc.

Promissory Note
A written promise committing the borrower to pay the lender a specified sum of money either on demand or at a fixed or determinable future date, with or without interest. Instruments meeting this criteria are generally negotiable.

Property Damage Liability Coverage
Part of a standard auto insurance policy that covers you (up to the policy limit) for losses that result when you damage or destroy someone else's personal property. This is required coverage in most states.

Prospectus
A formal written offer to sell securities that sets forth the plan for a proposed business enterprise or the facts concerning an existing one that an investor needs in order to make an informed decision.

Provisions
Words, sentences, and paragraphs in an insurance contract that specify the terms and limitations of the policy as well as the rights and obligations of the insured and the insurer.

Proximate Cause
In property/casualty insurance, the cause of a loss whereby that cause, the loss itself, and all intervening events form an unbroken chain.

Public Offering
The offering to the investment public of new securities, after registration requirements of the Securities and Exchange commission (SEC) have been complied with, at a public offering price agreed upon by the issuer and the investment bankers. Also know as an Initial Public Offering or IPO.

Pure Insurance
The difference between the face amount of a life insurance policy and its cash value.
QTIP—Qualified Terminable Interest Property
Property that qualifies for the unlimited marital deduction when certain other conditions are met. Typically, the surviving spouse is entitled to all the income from the trust for life. No other individual has power of appointment for any part of the trust during the lifetime of the surviving spouse. The property ultimately passes to a predetermined remainder person.

Qualified Deferred Compensation Plan
A tax-deferred plan set up by an employer for employees. Such plans usually provide for employer contributions, such as a profit-sharing or a pension plan, and may also allow employee contributions. Also known as a qualified plan.

Qualified Disclaimer
Renunciation or refusal by a donee to accept a gift, bequest, or other transfer of property under a will.

Qualified Plan
A tax-deferred plan set up by an employer for employees. Such plans usually provide for employer contributions, such as a profit-sharing or a pension plan, and may also allow employee contributions.

Qualified Transfer
Amounts paid on behalf of a donee directly to an educational institution or a medical care provider for gift tax purposes.

Quarters of Coverage
Social Security credits earned by working in covered employment that qualify a worker for Social Security benefits. An individual typically must have earned 40 credits, or about 10 years of work, to qualify for retirement benefits.

Railroad Retirement Tax Act
Federal legislation that provides for retirement, disability, and survivor benefits paid to railroad workers and employees of companies connected with the railroad industry.

Rated Policy
A policy for which the insured pays a higher-than-standard premium because of a higher risk due to a physical impairment, past medical condition, hazardous occupation, or a hazardous hobby. This type of policy is sometimes called an extra-risk policy.

Recapture Rule
Reclamation by the government of tax benefits previously taken.

Recurrent Disability
A disability that recurs or comes back again after disappearing the first time. Disability policies may not pay income benefits for a recurrent disability unless it meets the provisions of the policy.

Refinance
In banking, refinance means to change the maturity date, the interest rate, or the amount of existing debt. With bonds, it means to retire existing bonded debt by issuing new securities to reduce the interest rate, or to extend the maturity date, or both. With mortgages, it means to pay off an existing mortgage loan and replacing it with a new one, usually in a different amount or at a lower interest rate.

Remainder Interest
The right to receive whatever is left over of a life estate when the life tenant, the holder of the life estate interest, dies. This remainder interest automatically either reverts back to the original owner of the property, or passes to a beneficiary known as the remainderperson.

Remainder person
One who is entitled to receive the principal of the trust when the intervening life estate(s) terminate.

Remainders
Estates that take effect after the termination of a prior estate, such as a life estate.

Renters Insurance
Insurance for renting tenants. A typical renters policy consists of two main components: liability coverage and personal property coverage.

Replacement Cost
The cost of replacing or repairing lost or damaged property without allowing for depreciation in value or considering the market value. Some auto insurance companies offer Guaranteed Replacement Cost coverage on new cars, if the loss occurs within the first 12 months of ownership or 12,000 miles driven.

Representative Payee
An individual designated by the Social Security Administration to act as guardian for a minor child's benefits. Benefit checks are made payable in the representative payee's name on behalf of the child and the representative payee must file an accounting that details how benefits have been spent.

Resident Alien
An individual who is a lawful, permanent resident of the United States at any time during the calendar year who is not a citizen but is taxed on income following the same rules as a US citizen.

Residual Disability
The inability to perform one or more important daily job duties, or the inability to perform the usual daily job duties for the time period normally required for the performance of such duties.

Residual Value
The expected value of an asset at the end of a specified period, such as the value of a car at the end of the lease.

Residuary Estate
The assets remaining in a decedent's estate after disbursements of bequests and payment of estate debts and expenses.

Return of Capital
Generally, return of capital refers to the recovery of all or part of an investor's original investment in an asset. The amount of capital returned reduces the investor's acquisition cost basis in the asset by that same amount. Although returns of capital are generally not directly taxable in themselves, they may result in higher capital gains tax liability later on if they do in fact reduce the cost basis in the asset.

Reverse Gift Technique
An estate planning tool where property is transferred to the terminally ill spouse who is less affluent to provide a stepped up basis and to better utilize the dying spouse's unified credit. If the spouse dies more than one year after the transfer, the property passes back to the surviving spouse with a step-up in basis as well.

Reversion
The return, by operation of law, of property ownership rights to the original owner or that person's heirs after the expiration of an estate created by the owner's transfer of property to another person.

Revocable
Can be altered, amended, revoked, or terminated during the lifetime of the grantor.

Revocable Trust
The provisions of this type of trust can be altered, amended, revoked, or terminated by the grantor as many times as desired during the grantor's lifetime.

Rider
A provision attached to a policy that adds benefits not found in the original policy or that changes the original policy.

Right of First Refusal
The right of a party to acquire property before it is offered to others.

Right of Reversion
The right to have property returned to the original transferor after it has been used by another party.

Right of Revocation
The right to recall, revoke, rescind, cancel, abrogate, or make void a power or grant.

Risk
In finance, risk is the possibility of losing or of not gaining in value. For insurance purposes, risk refers to the probability that a given covered event, such as death or a car accident, will occur. In terms of investments, risk is a measure of a particular investment's volatility and of the possibility that it will cause an investor some degree of financial loss. Specific types of risk include actuarial risk, interest rate risk, inflation risk, and credit risk.

Risk Management
Procedures to minimize the adverse effect of a possible financial loss by identifying potential sources of loss, measuring the financial consequences of a loss occurring, and using controls to minimize actual losses or their financial consequences.

Roth IRA
An individual retirement account which permits account holder's capital to accumulate tax free under certain conditions. Individuals can invest up to $2,000 per year, subject to income limitations. Withdrawals of principal and earnings are totally tax free after age 59 1/2 as long as the assets have remained in the IRA for at least five years after the first contribution. In addition, there are no minimum distribution requirements.

Sale or Exchange
Any exchange of goods or services for money.

Savings Account
An account at a savings bank, commercial bank, or savings and loan (S&L) that pays interest on deposits, usually from the day of deposit to the day of withdrawal. Savings accounts held at financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) or the Savings Association Insurance Fund (SAIF) are insured for up to $250,000, increased in October, 2008 from the historic cap of $100,000.

Secondary Market
The organized trading of securities (stocks, bonds, etc.) through various exchanges and over-the-counter markets where securities are bought and sold subsequent to their original issuance. Trading in secondary markets is subject to the rules and regulations of the SEC.

Secured Credit
A loan, line of credit, or other financial obligation guaranteed by collateral.

Secured Debt
Debt guaranteed by the pledge of assets or other collateral.

Security
An instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as an option, subscription right, or subscription warrant.

Self-Employment Income
Net taxable income of a self-employed person. Self-employment income may result from freelance work, royalties, consulting, or income from a sole proprietorship on which Social Security taxes must be paid.

Self-Insure
Insuring oneself or one's business through savings or investments instead of purchasing insurance coverage.

Self-Insurance
Protecting against losses by setting aside your own money instead of using conventional insurance.

Separate Property
Refers to property owned solely by one of the spouses in a marriage. This concept can be particularly significant in connection with the regulations that affect community property.

Settlement Disposition of a claim or policy benefit.
Settler
The person who executes a deed to convey title to property, or who creates a trust. Also called a creator, grantor, donor, or trustor.

Short-Term Coverage
Coverage that lasts less than one year in duration.

Short-term Disability Insurance
A disability insurance policy that pays benefits only for a limited period of time (e.g., 26 weeks or one year).

Simplified General Rule
A rule used by the Internal Revenue Service to determine what portion of distributions from a qualified retirement plan will be taxed. Generally, if a taxpayer made nondeductible contributions to a qualified plan, then a portion of each distribution received at retirement will be considered a nontaxable return of basis.

Simplified Needs Test
A simplified test for calculating the expected family contribution for a student applying for federal student financial aid. If the family's adjusted gross income is less than $50,000, then the simplified needs test may be used. This test takes only income into account and usually results in a greater financial aid award for applicants in this category.

Skip Person
For generation-skipping transfer tax (GSTT) purposes, a family member two or more generations below the donor or deceased.

Small Claims Court
An informal legal proceeding that can be used to settle disputes. Maximum amounts that can be claimed or awarded differ from state to state, but most small claims courts hear cases involving amounts from $25 to $2,000.

Social Insurance Rider
A social insurance rider is added to a private disability policy to guarantee that if a social benefit program such as Social Security or Workers' Compensation denies a disability claim, the insured will receive the full amount of the benefit provided under the rider. However, if the insured receives some government disability benefit, the amount of government disability benefit received will offset, usually dollar for dollar, the amount the insured receives under the rider.

Social Security Payroll Tax
A tax deducted from wages and used to fund the federal Social Security program.

Special Assessments
Local taxes for sewer, water, trash removal, and other services that benefit the specific property assessed.

Special Power of Appointment
A unique power that allows you to facilitate your eligibility for Medicaid while protecting your home and potentially receiving certain tax benefits. With a special power of appointment, you transfer your house to someone else in order to avoid having to sell the house and 'spend down' the proceeds before you can qualify for Medicaid. At the same time, the special power allows you to reserve the right to irrevocably redirect the house to a different person at a later time. This ability or power to redirect the home can be exercised during your lifetime (by a deed) or at your death (by a will), but only once in any case. Moreover, there are certain parties, such as your creditors and your estate, to whom you cannot redirect the house under the special power.

Special Testamentary Power of Appointment
A special provision in an irrevocable trust that allows you to minimize the gift tax consequences to which the remainder interest in your trust would ordinarily be subject upon your death. With the special testamentary power, you include a provision in your trust reserving the right to name in your will those people (children, for example) who will receive the balance of the trust upon your death. According to federal gift tax regulations, you have not made a completed gift of the property at the time of the transfer into trust if you reserve the right to determine at some later time who will receive the property in your trust.

Split Dollar Life Insurance
A life insurance policy in which premiums, ownership rights, and death benefit proceeds are split between an employer and an employee.

Spousal Resource Allowance
The amount of assets that the non-institutionalized spouse may keep when a spouse enters a nursing home and applies for Medicaid. The couple's assets are pooled together and totaled to determine what portion will be the spousal resource allowance. Each year, the federal government sets a minimum and maximum asset amount for the at-home spouse; the states set their own parameters within the federal limits.

Spouse's Elective Share
A statutory right of a surviving spouse to receive a specified share of the decedent's estate instead of accepting the distribution made in the will.

Springing Durable Power of Attorney
A power of attorney that 'springs' into effect when the principal becomes disabled. The advantage of this type of power is that no authority is granted over the principal's assets until some triggering event (usually some physical or mental incapacity) creates an actual need. The problem, addressed by a standby durable power of attorney, lies in developing a system for determining if and when a triggering event has occurred.

Standard Deduction
For federal tax purposes, the standard deduction provision in the IRS code offers individual taxpayers an alternative to itemizing their deductions. Current tax rules index the allowable standard deductions to inflation and adjust the amount annually.

Standby Durable Power of Attorney
A standby durable POA addresses the problem raised by the springing durable POA. Ordinarily, with a standby POA, two or more physicians must formally determine that the principal has become physically or mentally incapacitated before the power takes effect and gives the agent authority to act. The standby POA remains in effect until the principal regains capacity.

Standby Trust
A type of living trust that remains unfunded and idle until the grantor becomes incapacitated.

Statute of Frauds
A statute that requires contracts dealing with specific types of areas (land and marriage, for instance) to be in writing in order to be enforceable.

Statute of Limitations
Statute describing the time limitations before someone gives up their right to sue for a wrongful action. For example, the IRS has up to three years to assess back taxes from the time a tax return is filed, unless tax fraud is charged. In the case of car insurance accidents, the Statute of Limitations is set by state law and may range from 2 years to 10 years, depending on the state and the type of action.

Statutes of Descent and Distribution
State laws that govern the distribution of an estate among heirs or relatives.

Stay
The suspension of a legal case or specified proceedings within it by the order of a court.

Step-Up in Basis
An increase in the taxpayer's basis (a figure representing the taxpayer's cost of acquiring an asset) that occurs after a specific triggering event. Typically, a step-up in basis applies if an asset was inherited from a deceased's estate; the basis in the inherited asset is its current market value. A step-up in basis may also apply in the case of a bona fide sale.

Stock
Ownership shares of a corporation that represent claims against the company's earnings and assets. Common stock usually entitles you to participate in stockholders' meetings and to vote for members of the board of directors. Preferred stock generally doesn't confer voting rights, but has a prior claim on the company's earnings and assets. A corporation can also authorize additional classes of stock, each with its own set of contractual rights.

Stock Insurance Company
An insurance company that is owned by the company's stockholders, and thus considered a public company, with its shares being traded on an exchange. In contrast, a mutual insurance company is owned by the company's policyholders and is a privately-held company.

Stock Rights
A short-term option, often lasting only two to four weeks, granted to existing shareholders of a corporation the right to subscribe to shares of a new common stock issue at a designated subscription price. The subscription price is usually set lower than the commons stock's current market value.

Stock Warrants
An option issued along with bonds or preferred stock that entitles the holder to buy a stated number of shares of the company's common stock at a specified price. The option price is usually set higher than the stock's market price at the time the fixed income security is issued. Warrants are generally used as sweeteners to enhance the marketability of the accompanying fixed income securities. Most warrants are detachable and can be traded on the major stock exchanges.

Subordinations
Debts that are repayable only after other debts with a higher claim have been satisfied. Some subordinated debt may have fewer claims on assets than other subordinated debt.

Subrogation
The process by which you assign your insurance company the legal right to recover the amount of the loss from another party who is legally liable. For example, if a third party damages your car, but has no insurance, your own insurance will pay you for the loss (if you have purchased collision coverage) and the company will then attempt to collect that money from the uninsured driver.

Substantially Equal Payments
A method of distributing funds from a traditional IRA or retirement plan where the owner or participant had not yet begun taking required minimum distributions. This method allows you to withdraw approximately equal amounts each year based on your life expectancy.

Substituted Basis
Generally speaking, substituted basis involves keeping the basis of previously owned property as the basis for newly acquired property. In the case of a corporate reorganization, if a shareholder exchanges shares of company A for those of company B, the basis of the company A shares becomes the substituted basis of the new company B shares.

Suicide Clause
Limitation in life insurance policies to the effect that no death benefits will be paid if the insured commits suicide during a specified initial period, usually the first two years that the policy is in force.

Surcharge
An increase in your auto insurance premium due to an at-fault accident or a moving violation.

Surety
An individual or corporation, usually an insurance company, that guarantees the performance or faith of another. This term is also used to mean surety bond, which is a bond that backs the performance of the person bonded, such as a contractor, or pays an employer if a bonded employee commits theft.

Surrender Charge
Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value.

Surrender to Basis
With cash value life insurance policies that allow policy withdrawals, this is a strategy where the policyholder withdraws only up to his or her basis (i.e., the amount he or she has paid into the policy) so as to avoid having the withdrawal taxed. Investment earnings, which would be taxable upon withdrawal, are left in the policy.

Tax Basis
In finance, the original cost of and additions to an asset, less accumulated depreciation, that goes into the calculation of a gain or loss for tax purposes. For investments, the price at which an investment asset was purchased, plus any additions, reinvested dividends, and capital gains that have been realized.

Tax Bracket
The category into which you fall for federal income tax purposes based on the tax rate that would apply to your next dollar of income. Under a progressive tax system, increases in taxable income generally put the taxpayer in a higher tax bracket with higher income tax rates. Under current federal tax law, there are five tax brackets for individuals: 15%, 28%, 31%, 36%, and 39.6%.

Tax Credit
A dollar-for-dollar reduction in the amount of taxes owed. Under certain conditions tax credits are allowed for low-income people over 65, individuals with disabilities, income tax paid to a foreign country, child care expenses, adoption costs, rehabilitation of historic properties, research and development, building low income housing, and providing jobs for economically disadvantaged people.

Taxable Estate
The value of the property in a decedent's estate after allowable exclusions, exemptions, and deductions.

Taxable Gain
The positive difference between the amount realized on the disposition of an asset and the adjusted basis in the asset. The resulting figure is a gain, which depending on the taxpayer's circumstances, may be treated as ordinary income and/or capital gains.

Taxable Gifts
Transfers of property made during the year which exceed the annual gift tax exclusion ($10,000 per recipient in 1999).

Tax-Free Exchange
Section 1035 of the Internal Revenue Code provides that certain exchanges of life insurance contracts, annuity contracts, and modified endowment contracts will generally not trigger a taxable gain as long as the owner is the same person under both contracts. Section 1031 of the code provides for like-kind exchanges of business or investment property.

Temporary Disability
A disability that is expected to last no more than one year.

Tenants-in-Common
Ownership of property by two or more persons in which each owner has an undivided interest. At the death of an owner the interest becomes part of the estate and does not pass to co-owners.

Term Insurance Rider
An endorsement or attachment to a life insurance policy that provides additional term coverage for only a specified, limited period. If the insured dies during this time, the designated beneficiary(ies) can receive death benefit proceeds.

Term Life Insurance
A form of life insurance which provides coverage for a specified period of time and does not build cash value.

Testamentary
The passing of property by will.

Testate
A person who dies with a will is said to die testate, while a person who dies without a will is said to die intestate.

Testator
One who makes or has made a will; one who dies leaving a will.

Three-Year Rule
A rule that brings back into the estate certain gifts, for estate tax purposes, made in the three year period before death. Gifts brought back into the taxable estate are subject to estate taxes.

Time Value of Money
A price placed on the time an investor has to wait until an investment matures, as determined by calculating the present value of the investment at maturity.

Transfer for Value Rule
The transfer of some or all of the ownership rights in a life insurance policy to another party in exchange for cash or other forms of valuable consideration (as defined by the IRS). In general, if you effect a transfer for value with a life insurance policy, the death benefit proceeds payable under the policy may lose their income tax-exempt status.

Transferability of Interests
This phrase refers to the ease with which ownership interests can be transferred from one owner to another, for example, as collateral.

Trust
A legal entity in which a person, called a trustee, holds title to and manages property for the benefit of another person, called a beneficiary. A trust created during the trustor's lifetime is called a living or inter vivos trust, and a trust created by a will is called a testamentary trust.

Trustee
The holder of legal title to property for the management, use, or benefit of another.

Trustor
The person who executes a deed to convey title to property or who creates a trust. Also called a creator, settler, donor, or grantor.

Unconscionable
Unscrupulous or unreasonable; in legal terms, an unconscionable contract is one found to lack meaning because the contract is one-sided and/or unfairly executed.

Underwriting
The process an insurance company uses to evaluate the risk presented by an applicant and to calculate an appropriate insurance premium. In some cases, a company may decline to insure someone based on its underwriting guidelines. Reasons for declining or cancelling coverage may include health issues, driving record or financial stability.

Unearned Income
Non-employment income, such as income from investments, trusts, rent, Social Security benefits, alimony payments, pensions, and annuities.

Unified Credit
A federal tax credit allowed to each U. S. citizen or resident against tax, imposed on lifetime gifts (federal gift tax) or against tax, imposed on testamentary transfers of assets (federal estate tax).

Uniform Gift to Minors Act (UGMA)
State laws under which gifts to minors may be made by transferring property to a custodian.

Uninsured and Underinsured Motorist Coverage
Part of a standard auto insurance policy that provides coverage for losses you and others suffer when you're involved in an accident with an uninsured driver, or a driver without adequate insurance. UM/UIM is not a required coverage in every state, but it is highly recommended. Some states also offer Uninsured Motorists Property Damage Coverage (UMPD) to pay for damage to a vehicle. Most states also offer Uninsured Motorists Property Damage Coverage (UMPD) which will cover damage to your vehicle caused by an uninsured driver. But, this coverage may only be purchased if you also buy collision coverage for your car.

Unisex Pricing
A policy whose premium is the same for both men and women, mandated by certain states and optional in others.

Universal Life Insurance
A form of permanent cash value life insurance that provides both life insurance protection and a savings component with a guaranteed minimum rate of return, plus an additional return when the insurance company's investments perform well. Other key features include the ability to adjust both your premium payments and the amount of your insurance coverage.

Unlimited Marital Deduction
A federal gift and estate tax deduction allowed for transfers of property between spouses. Specifically, the marital deduction for both federal estate and gift taxes has no dollar or percentage limit as long as the donee (the spouse to whom the property is transferred) is a citizen of the U.S.

Unsecured
A pledge or promise of payment to a creditor or obligor that is not supported by or guaranteed with collateral.

Utilization Management
A method of managing medical care costs by controlling the fees charged by providers for various medical treatments, as well as the appropriateness of the treatment. Utilization management controls the component of appropriateness for medical care by using established criteria to review the care patients receive and make sure it is necessary and appropriate.

Variable Annuity
A type of annuity that has a variety of investment options available for your selection. The rate of return you receive will depend on the performance of the investments you choose.

Variable Life Insurance
One of several types of life insurance policies that provide both life insurance protection and a savings component. The return on the savings portion of a variable life policy will generally vary, as it depends on the performance of the underlying securities.

Variable Universal Life Insurance
A form of permanent cash value life insurance that combines features of both variable life and universal life. As with universal life, you have flexibility with both premium payments and death benefit coverage. As with variable life, the rate of return on the cash value portion of the policy is not fixed, but rather depends on the performance of the underlying investments selected.

Venture Capital
Important source of financing for startup companies or others embarking on new or turnaround ventures that entail some investment risk but offer the potential for above average future profits. Venture is also referred to as risk capital.

Venture Capital Firm
A firm that exists to invest capital in startup companies or more mature companies that are undergoing expansion. In addition to capital, such a firm provides expert advice on management, marketing, planning, and other matters. Often, a venture capital firm is an independent business with no outside affiliations, or it may be an affiliate or subsidiary of a commercial bank, investment bank, insurance company, industrial company, or technology company.

Vesting
The right an employee gradually acquires by length of service at a company to receive employer-sponsored benefits, such as profit-sharing or a pension. After the vesting period elapses, entitlement to those benefits remains even if employment is subsequently terminated with the company.

Vested Interest
From a legal standpoint, a vested interest is an interest in something that is certain to occur as opposed to being contingent on an event that might not happen. Thus, a vested interest refers to a present fixed right of future use or enjoyment.

Vesting Schedule
The schedule according to which an employee of a company acquires the right to receive employer-sponsored benefits, such as payments from a pension fund, profit-sharing plan, or other qualified plan or trust, based on length of service with the company. Under the Tax Reform Act of 1986, employees must generally be vested 100% after five years of service or at 20% a year starting in the third year of service and becoming 100% vested after seven years.

Vision Care Insurance
Insurance that provides coverage for expenses relating to routine eye care (e.g., eye examinations, glasses, contact lenses).

Voting Stock
Shares in a corporation, that entitle the shareholder to voting and proxy rights with regard to selection of directors and certain other corporate matters. Common stock typically carries voting rights, while preferred stock generally does not.

Waiver of Premium
A clause or rider on a life insurance, disability, or long-term care insurance policy that cancels the premium payments the insured must make if he or she is disabled longer than a certain time period (usually six months) and as long as he or she continues to be disabled. The policy remains in force even though the insured is no longer paying the premiums.

Will
A document that, when signed and witnessed, gives legal effect to the wishes of an individual, called a testator, to provide for the disposal of property upon death.

Withholding Allowances
Deductions from salary payments and other compensation to provide for an individual's tax liability. Federal income taxes and Social Security contributions are withheld from paychecks and are deposited in a Treasury tax and loan account with a bank. The annual amount of withholding is reported on an income statement, (form W-2), which must be submitted with federal, state and local tax returns. Tax liability not provided for by withholding must generally be paid as estimated payments.

Whole Life Insurance
A life insurance policy that remains in full force and effect for the entire life of the insured provided that premiums are paid.

401(k) Plan
A defined contribution plan whereby an employee may elect, as an alternative to receiving taxable cash in the form of compensation or a bonus, to contribute pretax dollars to a qualified tax-deferred retirement plan. Also known as cash or deferred arrangement (CODA) or salary reduction plan.

403(b) Plan
A qualified retirement plan available only to employees of nonprofit organizations (e.g., charities, hospitals, and educational institutions). A 403(b) offers retirement savings opportunities similar to a 401(k) plan, providing for contributions up to a predefined limit that are excluded from an employee's gross income for federal and most state income taxes. Also comes in the form of a tax-sheltered annuity or TSA.

Back