FAQ

Acceleration Clause
A loan provision that allows a lender, according to the terms of a mortgage or other loan contract, to make the entire unpaid balance of the loan (including principal and interest) due and payable if specified events of default should occur. Such conditions include failure to meet loan payments on time, insolvency, and nonpayment of taxes on mortgaged property.

Accelerated Death Benefit Rider (ADB)
A rider added to a life insurance policy to protect the insured against financial loss in the event of a terminal illness. An ADB makes living benefits payable to the insured for medical expenses prior to death. Accelerated (or living) benefits paid reduce the death benefit payable to the beneficiary (ies) upon death.

Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries, but not illness. In the event of death, payment is made to the insured's beneficiary. If bodily injury occurs (e.g., the loss of a limb), the insured receives a sum specified by the contract. This coverage is usually purchased in combination with dismemberment insurance and is commonly called AD&D or Accidental Death & Dismemberment.

Accrued Benefit
Pension benefits earned (vested) based on years of service at a company and credited to the employee using an actuarial method.

Actual Cash Value
The fair market value of an item at the time it was damaged, stolen, or destroyed. As it relates to car insurance, when a car is damaged or stolen and the owner has purchased Comprehensive and Collision coverage, the insurance company will review the condition of the body, interior and tires, and any additional parts or equipment. Based on the pre-accident condition of the car, a claim adjuster will find similar models that are for sale in your area – and use those prices to determine the Actual Cash Value. Some companies offer Guaranteed Replacement Cost on new cars, and in that case, the claim payment will cover the cost of a new car.

Actuary
A specialist in the mathematics of risk, especially as it relates to insurance calculations such as expectancy, premiums, dividends, and annuity rates.

Additional Insured
An additional individual or organization that is covered under the policy but does not have legal ownership of the policy or the ability to modify it.

Additions and Alterations
Improvements made to a home (e.g., a new bathroom or a remodeled kitchen) that increase the home's value and that may require additional homeowners insurance coverage.

Adjuster
Individual employed by an insurance company to settle claims brought by policyholders or claimants. The adjuster evaluates each claim and then makes payment based on the coverage available in its policy contract.

Adjusted Gross Estate
For estate tax purposes, gross taxable estate minus expenses and losses.

Adjusted Gross Income
For federal income tax purposes, gross income less adjustments (e.g., IRA deductible contributions, self-employment health insurance deductions, etc.), but before standard or itemized deductions and personal exemptions.

Adjustment Period
For adjustable-rate loans, the period of time between interest rate changes. For example, a mortgage with an adjustment period of one year is called a one-year ARM, and the interest rate can change once each year.

Administrator
An individual or professional organization, such as a bank's trust department, appointed by the probate court to administer an estate when the owner dies without having made a will or without nominating an executor. An executor may also be appointed if the named executor declines to serve.

Alien
An individual who is not a citizen or national of the United States. Aliens are further defined as resident or nonresident depending on the situation.

Alimony
Support payable to a divorced spouse as required by a divorce decree or legal separation agreement. Payments are deductible by the payor and are taxable income to the payee.

All-Risk
A type of homeowners insurance that covers losses resulting from each and every peril, except for those specifically excluded by the policy. Also known as open peril coverage. In contrast, a policy that covers only specified perils is called Named Peril coverage.

Alternate Payee
According to the terms of a qualified domestic relations order (QDRO), an individual who has been granted the right to receive all or part of a participant's benefits under a qualified retirement plan. The alternate payee is generally a spouse, former spouse, child, or other dependent of the qualified plan participant.

Alternate Valuation Date
For federal estate tax purposes, the value of the gross estate six months after the date of death, or, if the assets are disposed of within those six months, as of the date of disposition. The alternate valuation date election can be used only if the value of the gross estate declines.

Alternative Minimum Tax (AMT)
A federal tax aimed at guaranteeing that individuals, trusts, estates, and corporations pay a minimum amount of income tax, preventing them from taking full advantage of exemptions and other tax benefits that would otherwise allow them to pay little or no income tax.

Amortization
For loan purposes, the systematic process by which a lender calculates loan payments so as to liquidate a debt over time. Payments are made at specific time intervals to reduce the outstanding debt to zero at the end of the loan period.

Annual Gift Tax Exclusion
An IRS provision that allows you to give $12,000 (as of 2008) per year to an unlimited number of donees (persons or organizations) without incurring gift or estate tax, up to a lifetime limit of $1,000,000. Any amount you use out of your lifetime gift tax limit will count against the estate tax exclusion, which is $2,000,000 as of 2008 and $3,500,000 as of 2009.

Annuity
A contract sold by life insurance companies that offers tax-deferred accumulation of earnings and various distribution options such as partial withdrawals, full surrender or a guaranteed income called annuitization. An annuitization option is one that pays a fixed or variable payment to the contract owner, either for a fixed number of years or for life.

Annuity Payments
Periodic payments made to an annuitant or to the annuitant's designated beneficiary. The payments may be made on an annual, semiannual, quarterly, or monthly basis, and may last for life or for a specified period. Moreover, depending on whether the annuity in question is a fixed annuity or a variable annuity, the annuitant (or his/her beneficiary) may receive either payments of a fixed dollar amount or payments that vary in amount according to the value of the underlying securities.

Appraisal
A professional, formal, written estimation of the value of property.

Appreciation
Increase over time in the value of an asset such as a stock, bond, commodity, or real estate.

Arrearage
Amount of any past due obligation. This term is used to refer to the amount of interest on bonds or dividends on cumulative preferred stock that is due and unpaid.

Assets
Property owned by a business, institution, or individual, such as cash, investments, personal property, real estate, and ownership in a business, that has a present market value or worth.

Asset Protection Allowance
Used when calculating the expected family contribution as part of the federal student aid application process, this allowance permits a family to exempt certain assets from consideration when determining need.

Assigned Risk Plan
State-managed auto insurance plan for individuals who cannot obtain conventional liability coverage because of their poor driving records. These drivers are placed in a residual market with insurance companies assigned to write policies for them at higher prices. These plans protect motorists who suffer injury or property damage through the negligence of bad drivers who otherwise might not buy insurance. Assigned risk plans also exist for health insurance.

Assignee
The party to whom an assignment (a transfer of property or rights to property) has been granted.

Association Plan
A group insurance policy purchased by an association or organization to provide coverage for its members.

At-Risk
Property and assets exposed to the danger of loss.

At-Risk Rules
Tax laws that apply to any activity carried on as a trade or business or for production of income. In general, financial losses from such activities are only allowable as tax deductions to the extent of the taxpayer's actual financial risk from the activity. Losses that exceed the "at-risk" amount are not deductible.

Attach
To seize property and/or assets, or to obtain a legal writ granting the right to seize the property and/or assets. This usually occurs when an individual has outstanding debt, is financially unable to pay the debt in cash, and has property/assets of sufficient value to cover the amount of the debt.

Attained Age
A person's age at any point in time, determined for life insurance purposes, often expressed as the age reached at the last birthday.

Attorney-in-Fact
A person designated of a durable power of attorney to act as the agent for the principal (creator).

Base Year
The base year is the year prior to the year you complete the FAFSA (Free Application for Federal Student Aid) when applying for student financial aid.

Basis
The original cost, plus out of pocket expenses, of an asset (such as property, stock, or a business interest) that is used to determine gain or loss when the asset is disposed, whether through sale, gift, or bequest. The basis is affected by the nature of the transaction by which the asset was acquired. For example, property received as a gift will have a different method of basis determination than property purchased at fair market value.

Bear Market
A falling market, or a market in which prices are generally decreasing. A bear market in stocks is usually brought on by the anticipation of declining economic activity while a bear market in bonds is usually caused by rising interest rates.

Beneficiary
An individual designated in a will to receive an inheritance, or the individual designated to receive the proceeds of an insurance policy, retirement account, trust, or other asset.

Benefit Period
The period of time benefits are received based on a contractual agreement. The term is commonly used to refer to health or disability benefits.

Blue Chip Stock
Stock of large, stable, financially strong companies that have a long history of profits, dividend payments, and a reputation for quality management, products, and services.

Bodily Injury Liability Coverage
Part of a standard auto insurance policy that covers you (up to the policy limits) for car accidents that result in bodily injuries to other drivers or pedestrians for which you are legally at fault. Covered losses generally include medical expenses, pain and suffering, and lost income. This coverage also pays for legal defense costs if you are sued as a result of an accident you caused. Bodily Injury Liability Coverage is required in most "at-fault" states and may be elected in some "no-fault" states.

Borrowings
Borrowings are loans of any type.

Bull Market
A rising market or a market in which prices are generally increasing for stocks, bonds, or commodities.

Business Overhead Expense Insurance
A business disability policy designed to pay the ongoing expenses of a business in the event the business owner becomes disabled.

Buy-Sell Agreement
A contract used in business succession planning for sole proprietors, partnerships, and closely held corporations that provides for the sale of a business upon an owner's death, disability, retirement, or other triggering event.

Cafeteria Plans
An employee benefits plan that allows employees to customize their benefit package. Employees receive a fixed amount of dollars that can be allocated between several fringe benefits.

Capital Asset
A long-term asset, owned for personal or investment purposes, that is not bought or sold in the normal course of business. In general, the term includes fixed assets such as land, buildings, equipment, furniture, and fixtures.

Capital Gains
Gain realized from the sale of certain assets that represent the difference between the purchase price of an asset and the selling price when the difference is positive. Capital gains are separated into short-term capital gains and long-term capital gains. A long-term capital gain applies to assets such as a stocks, bonds, or mutual funds held for at least 12 months,. Assets held less than 12 months generate short-term capital gains, which are subject to regular income tax rates.

Capital Gains Tax
Tax on the gain realized from the sale of capital assets such as stock, mutual funds, business interests, or other asset. Long-term capital gains tax rates apply to assets held longer than 12 months.

Capital Loss
Amount by which the proceeds from the sale of a capital asset are less than its cost basis.

Carrier
Insurance company that actually underwrites and issues the insurance policy. The term refers to the fact that the company carries (or assumes) certain risks for the policyholder.

Carryover
Refers to the process of shifting to a future taxable year those losses and other deductions that exceed limits for the current tax year.

Carryover Basis
Basis in property that may 'carry over' from the transferor to the transferee. Generally this occurs when there is an exchange of property, or property is transferred by gift.

Cash
Paper currency and coins, negotiable money orders and checks, and bank balances.

Cash Reserve
An emergency or contingency fund (or credit) set aside and held in an easily accessible form (such as a savings account) for the purpose of meeting emergency expenses and/or short-term cash flow needs.

Cash Surrender Value
The amount that is available to the owner if a life insurance policy is surrendered. The amount represents the cash value minus surrender charges and any outstanding loans due upon cancellation of the policy.

Cash Value
The cash within a permanent life insurance policy. Cash value is the premium paid less the cost of insurance policy. Cash value is also adjusted by any investment performance within the insurance policy.

Cash Value Life Insurance
A permanent insurance policy that builds cash value, often described as a savings account within the policy. Cash value life insurance differs from term insurance, where premiums purchase pure insurance protection only.

Casualty
Liability or loss resulting from an accident.

Certificate of Deposit (CD)
Debt instrument issued by a bank that usually pays interest based on rates set by competitive forces in the marketplace. The interest rate on a CD is guaranteed for a specific period of time.

Certificates of Coverage
A statement of coverage, also known as a Certificate of Insurance, that an individual receives when insured under a group contract. The certificate serves as proof of insurance, and outlines benefits and provisions.

Child Support
Amount payable to a custodial parent, often by court order, by a non-custodial parent on behalf of a minor child or children. Support payments generally are not taxable income to the recipient or deductible by the payer.

Churning
Refers to excessive trading of a client's account for the purpose of increasing broker commissions, and leaving the client worse off or no better off than before. Churning is illegal under SEC and exchange rules.

Claim
Request by an insured for the insurance company to cover an incurred loss. A claim may be filed online, by phone or in writing.

Claimant
One who submits a claim for an incurred loss.

Class of Stock
A type of share with particular rights and privileges such as the right to vote on corporate matters. The most common classes of stock are common stock, voting preferred stock, and non-voting preferred stock.

Closed-End Lease
Auto lease that allows you to walk away from the lease at the end of the lease term without paying for any difference between the anticipated residual value and the actual value of the car.

Closing on Sale-Contingency Clause
When such a clause is included in the contract, the seller of the home you are buying agrees to the following: (1) the closing will be delayed until you've sold and closed on your present home (usually within a time limit of three to six months), and (2) if you're unable to sell and close on your present home within this time limit, the contract to purchase the new home is automatically canceled. Unless you and the seller later agree to extend the time limit, your entire deposit is returned, and you are no longer obligated to purchase the home.

COBRA (Consolidated Omnibus Budget Reconciliation)
Regulations requiring an employer who employs more than 20 people to offer continued group insurance coverage to former employees for up to 18 months. If the employee dies, the employer must offer continued group health insurance coverage to widowed spouses and dependent children for up to 36 months.

Collateral
Asset pledged to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.

Collateral assignment
Assignment of an asset (e.g., a life insurance policy's death benefit or its cash surrender value) to a creditor as collateral for a loan.

Collateralized
Refers to a loan or other contract that is secured by collateral in the form of property or other assets. In the case of a loan, the lender can exercise its right to seize the collateral backing the loan in the event the borrower defaults.

Collision Coverage
Collision coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by an impact with another vehicle or object or a rollover. Collision coverage includes a deductible, such $250 or $500. This means that you are responsible for paying the amount of the deductible in any loss, before the insurance company is responsible for payment. For example, if the cost to repair your car is $1,500 and you have a $250 deductible, your company will pay $1,250 toward the repair costs. You are responsible for paying the first $250 to the body shop when the work is completed.

Common Law Marriage
A marriage deemed valid under some state laws which is created by an agreement to marry, followed by cohabitation between two people legally capable of making a marriage contract. Such a marriage requires a mutual agreement to enter into a marriage, cohabitation sufficient to establish the relationship of husband and wife, and an assumption of marital duties and obligations. The cohabitation requirement (e.g., the length of time the two people have to live together under the same roof) and other criteria defining a common law marriage may vary from state to state.

Common Policy Provisions
Words, sentences, and paragraphs in an insurance policy that generally take the form of clauses that govern the policy and that set forth the rights and obligations of both insured and insurer under the policy. Common policy provisions for a life insurance policy include the suicide clause, the incontestable clause, and the beneficiary clause.

Common Stock
Units of ownership in a public corporation that typically entitle shareholders to vote on corporate matters as well as receive dividends on their holdings. Although the claims of preferred shareholders generally take priority over those of common shareholders in the event of insolvency, common stock generally has more potential for appreciation.

Community Property
Marital property as defined by state law under which spouses own equal interests in property acquired during a marriage. This does not include property brought to the marriage or acquired by gift or inheritance. Currently there are nine community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.

Compensable Injury
An injury that qualifies for benefits paid under workers' compensation.

Comprehensive Coverage
Comprehensive coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by hazards other than collision, such as fire, theft, explosion, windstorm, hail, water or contact with an animal. Like Collision coverage, Comp coverage includes a deductible, such as $250 or $500. This means that you are responsible for paying the amount of the deductible in any loss, before the insurance company is responsible for payment. For example, if the cost to replace your stolen car is $10,000 and you have a $500 deductible, your company will pay you $9,500.

Consumer Price Index (CPI)
Measure of change in consumer prices, published monthly by the U.S. Bureau of Labor Statistics in the Department of Labor. This index is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules.

Contestability Period
Period of time, generally two years, during which an insurance company can declare a life insurance contract void because of misrepresentation or concealment by the insured in obtaining the policy. Once this period has elapsed, the company cannot cancel the policy or refuse to pay claims for any reason other than nonpayment of premiums.

Convertible Term Insurance
Term life insurance coverage that can be converted into permanent life insurance upon the policy's expiration. The insured generally cannot be denied permanent coverage or charged an additional premium because of health problems.

Copayment
Partial payment of certain medical costs that individual participants may be required to make under a health insurance policy. For example, under your employer's health plan, you might have to pay $15 toward each prescription.

Cost Basis
The original price of an asset, plus any additions and reinvested earnings, that is used to determine capital gains or losses at the time of sale of the asset. In the case of an inheritance, the cost basis is the appraised value of the asset at the time of the donor's death.

Countable Assets
In terms of eligibility for Medicaid, countable assets are anything of value you own that is not exempt by law or otherwise inaccessible to you. Countable assets include, but are not limited to: savings and checking accounts, stocks, bonds, CDs, Treasury notes and bills, savings bonds, investment property and vacation homes, second vehicles, livestock, IRAs and other retirement plans, mutual funds, precious metals and coins, and whole life insurance above a certain surrender value. States use the total value of your countable assets as one of three tests to determine your eligibility for Medicaid.

Covered Expenses
In health insurance, reimbursement for an insured's medically-related expenses, including, but not limited to surgery, medicines, hospitalization, ambulance service, and X-rays.

Coverage Forms
Attachments to an insurance policy to complete the coverage provided by the policy. Also know as endorsement forms.

Credit Insurance
Insurance issued to creditors as protection against losses on outstanding loans due to the death or disability of the debtor.

Crummey Power
A right exercised by the beneficiary of a trust to withdraw money from the trust for a limited amount of time each year.

Custodial Parent
The parent granted legal custody of a minor child by a divorce decree or a written separation agreement.

Death Benefit
The amount payable, as stated in a life insurance policy, to the designated beneficiary(ies) upon the death of the insured. The amount paid is the face value, plus any riders, less any outstanding loans.

Debt Financing
Raising capital by borrowing from banks or other creditors.

Decedent's Final Return
The income tax return filed for a decedent for income earned in the year death occurred. The deadline to file is April 15th of the year following death.

Declarations Page
The section of a property and casualty insurance contract containing such information as the name, description, and location of insured property; the name and address of the policy holders; the period for which the policy is in force; premiums payable; and the amount of coverage. Also know as a Dec Page.

Declination
An insurer's refusal to insure an individual after careful evaluation of the application for insurance and any other relevant factors.

Deductible
The amount that must be paid out of pocket by the insured for covered losses before the insurance company pays a claim. In the case of car insurance, Comprehensive and Collision coverages generally have a deductible of $250 or $500. Choosing a higher deductible ($1,000) will save money, but, it’s a trade-off between saving money on your annual premium and having to pay the deductible if you have a loss. For health insurance, deductibles usually apply on an annual basis.

Deduction
An expense allowed by the IRS or state tax authority that is used to offset taxable income. Federal deductions include some interest paid, state and local taxes, and charitable contributions.

Deed of Title
A written document conveying title of property, mostly commonly used when transferring legal title to real estate from one party to another.

Deferred Annuity
An annuity in which the income payments/withdrawals begin at some future date.

Defined Benefit Plan
An employer-sponsored retirement plan that promises to pay a specified amount to each employee who retires after a set number of years of service with the company. Generally the employer makes all contributions to such a plan, although employees do contribute to them in some cases. This is also referred to as a Defined Benefit Pension Plan or pension.

Defined Contribution Plan
An employer-sponsored retirement plan in which the level of contributions is fixed through annual or periodic contributions to accounts set up for each employee. The employer contribution may be a percentage of the employee's salary, or may be related to years of service. Employee contributions are also permitted. The benefit at retirement depends on the return from investments. Common examples of defined contribution plans include 401(k), 403(b), and 457 plans, profit-sharing plans, and employee stock ownership plans (ESOPs).

Demand Loan
A loan with no set maturity date that can be called for repayment when the lender chooses. Interest on these loans is usually billed at fixed intervals.

Demutualization
The process of changing the legal structure of an insurance company from a mutual form of ownership to a stock form of ownership.

Dental Insurance
Individual or group plan that helps pay the costs of normal dental care as well as damage to teeth from an accident.

Dependent
An individual for whom the taxpayer provides at least 50 percent of the support regardless of where they live. Generally the individual bears a specific relationship to the taxpayer (i.e., child, sibling, parent) and/or resides primarily in taxpayer's household.

Deposit Premium
The premium deposit paid by a prospective policyholder when an application is made for an insurance policy. It is usually equal to at least the first month's estimated premium and is applied toward the total policy premium when billed.

Depreciation
The annual deduction allowed to recover the cost of business property with a useful life of more than one year, such as machinery and equipment. The deduction does not apply to stock in trade, inventories, land, or personal assets and is reported as an expense that when subtracted from revenue, reduces the company's taxable income. In auto insurance, depreciation is used to determine the actual cash value of a vehicle, in the event it is determined to be a total loss. Factors such as miles driven, model year and overall condition will be used to determine the current value of the car.

Difference in Conditions Insurance (DIC)
"All-risks" policy that covers other perils not insured by basic property insurance contracts, supplemental to and excluding the coverage provided by underlying contracts.

Direct Response System
A marketing method where insurance is purchased by customers without the solicitation or advice of an agency (though an agent may be needed to complete the transaction). Potential customers are solicited by advertising in the mail, newspapers, magazines, television, and other media.

Disability
A physical or mental impairment that substantially limits one or more of an individual's major life activities. Disability may be partial or total.

Disability Benefit Period
The period during which disability insurance benefits are paid. While this period may vary between policies, benefits paid until age 65 are common for long-term policies and benefits paid for 26 weeks are common for short-term policies.

Disability Income Rider
Addition to a life insurance policy stating that when an insured becomes disabled for at least six months, premiums are waived. Depending on the rider, the insured may also begin to receive monthly income payments from the policy.

Disability Insurance
Also known as disability income insurance, this type of policy provides income benefits to the insured if he or she becomes ill or is injured and can no longer work.

Disappearing Deductible
Deductible in an insurance contract that provides for a decreasing deductible amount as the size of the loss increases, so that small claims are not paid but large losses are paid in full. In car insurance, some companies reward safe drivers by offering to waive a deductible for a Comprehensive or Collision loss after a certain number of years of claim-free driving.

Discharge of Bankruptcy
Refers to a court order which terminates bankruptcy proceedings and frees the debtor of legal responsibility for dischargeable debts and other specified obligations.

Discount Rate
The rate of interest banks must pay when they borrow funds from the Federal Reserve to meet their reserve requirement.

Discovery
Refers to the process by which a party to a legal action supplies the other party with certain relevant information and/or documents (as required by law or by a judge) either before or during the legal proceedings.

Discretionary Income
Amount of a consumer's income remaining after essentials such as food, housing, and utilities and prior commitments have been paid.

Discretionary Trust
A trust which allows the trustee discretion in making distributions of income or principal to the beneficiary.

Dismemberment Insurance
A form of health insurance that provides payment when the insured loses one or more limbs, or the sight in one or both eyes. This coverage is usually issued in combination with accidental death insurance and is commonly called AD&D or Accidental Death & Dismemberment.

Dividend
Distribution of a company's earnings to shareholders, generally on a quarterly basis, paid in cash or additional shares of the company's stock. The dividend amount per share is decided by the company's board of directors. Dividends must be declared as income by the shareholder in the year received.

Dividend Addition
An amount of paid-up life insurance purchased with a policy dividend and added to the face amount of the policy.

Dollar Threshold
In certain states with no-fault auto insurance, the dollar threshold prevents individuals from suing to recover for pain and suffering unless their medical expenses exceed a specified dollar amount.

Domestic Partner Benefits
Employer benefits offered to unmarried partners of employees. Although laws regarding domestic partner benefits apply only to same-sex couples, in practice, many employers offer domestic partner benefits to both same- and opposite-sex couples. Benefits may include health insurance, leave to care for an ill partner, and bereavement leave at a partner's death.

Domicile
The place an individual resides and that is intended to be the permanent residence. Domicile does not refer to a summer home or a temporary residence. Once a domicile has been established, it will remain so until the individual moves to a different location with the intent of making that location the permanent residence.

Double Indemnity
Also called an accidental death benefit, a life insurance policy provision that doubles payment of a designated death benefit when death results from certain specified causes (usually certain types of accidents).

Driver Education Credit
Discount on auto insurance premiums for which young drivers become eligible upon completion of a driver education course.

Dunning Letters
Written correspondence received from creditors requesting payment of debt and/or threatening legal or other action if payment is not made by a certain date.

Duplication of Benefits
Overlapping or identical medical insurance coverage under two or more separate health plans.

Durable Power of Attorney
Legal document which appoints an individual to act on the principal's behalf and remains in effect even if the principal becomes incapacitated.

Durable Power of Attorney for Health Care
A durable power of attorney for health care. Allows a representative to make medical decisions only for an individual who is seriously ill or incapacitated. Also called a health care proxy.

Dwelling Policy An insurance policy for liability covering a building's structure and usually its contents when the building is used as a dwelling. This type of coverage is normally purchased when the building can't be covered under a homeowner's policy (for example, when the individual does not own a home). Earned Income
Income generated by providing goods or services and received in the form of wages and salaries.

Earned Income Limit
An annually adjusted limit that applies to Social Security recipients who continue to work while receiving benefits. This applies only to individuals under age 70, and limits earned income to an annually adjusted level, above which Social Security benefits are reduced. Also known as the retirement earnings test.

Earnings Record
Record compiled by the Social Security Administration that shows an individual's actual lifetime earnings as reported to the SSA by an employer, or for self-employed individuals, by the Internal Revenue Service (IRS). Only earnings that are less than the maximum earnings limit for that year are credited to the earnings record and will be used to compute Social Security benefits.

Elimination period
Period of time (beginning with the first day of illness or injury) during which no benefits are payable under a disability insurance policy. Benefits are paid only for costs incurred after the end of the elimination period.

Endorsement
A written agreement attached to an insurance policy to add or subtract coverage. Once attached, the endorsement takes precedence over the original terms of the policy.

Enrolled Agent
An individual who has demonstrated technical competence in the field of taxation and can represent taxpayers before administrative levels of the Internal Revenue Service.

Equitable Division State
The philosophy followed by most states, providing that property must be divided fairly, rather than equally, when determining how divorcing couples divide property. This applies to property acquired during a marriage as well as separate property and property brought to a marriage.

Equity
An ownership interest such as that held by shareholders in a corporation. Equity also represents the difference between the market value of real estate and the outstanding balance on the loan(s) secured by that property.

Estate
All assets a person owns at the time of death, including securities, real estate, business interests, physical property, and cash, less outstanding liabilities. The estate is distributed to heirs according to the terms of the person's will or, if there is no will, by court ruling.

Estate Freeze
Techniques or methods used to control the future appreciation of assets for the purpose of reducing estate taxes.

Estate Planning
The process of developing and implementing a master plan that facilitates the distribution of your property after your death according to your goals and objectives.

Estate Tax
A tax imposed by the federal government and some state governments on the transfer of assets to heirs.

Exclusions
Items that are specifically denied coverage under the terms of an insurance policy. For example, most property/casualty contracts exclude coverage for normal wear and tear. You can often purchase additional coverage to override one or more exclusions.

Execution
The signing, sealing, and delivery of a contract or agreement making it valid. Also, a broker who buys or sells shares of stock upon a client's request is said to have executed an order.

Executor/Executrix
An individual or professional organization, such as a bank's trust department, named in a will to administer an estate upon the death of the owner.

Exempt
Assets that are not considered for bankruptcy proceedings. Exempt is also used to refer to assets not considered in the determination of eligibility for Medicaid.

Extended Coverage
An endorsement added to an insurance policy, or a clause included in the policy, to provide additional coverage for risks other than those covered under the basic policy provisions.

Face Amount
The amount of death benefit coverage that is purchased under a life insurance policy.

Fair Market Value
The price at which property would change hands between a willing buyer and a willing seller, where both parties have reasonable knowledge of the relevant facts and neither party is under any compulsion to buy or sell.

Family Support Ratio
A formula used to determine life insurance need using the income replacement approach. This formula considers the percentage of the insured's after-tax income that goes toward supporting family members minus the percentage that would be needed for the insured's self-maintenance.

Fannie Mae
The Federal National Mortgage Corporation (FNMA) is a publicly owned government-sponsored corporation that was established in 1938 to purchase government-backed and conventional mortgages. The objective of this organization is to increase the affordability of home mortgage funds for low, moderate, and middle-income home buyers. Fannie Mae is a shareholder-owned company that is traded on the New York Stock Exchange.

Federal Estate Tax
A tax that is imposed by the federal government, and some state governments, on the transfer of assets to heirs. The Taxpayer Relief Act of 1997 provided that the amount of assets each person can exclude from estate taxes is $675,000 in 2000 and 2001, rising to $2,000,000 as of 2008 and $3,500,000 as of 2009.

Federal Gift Tax
A federal tax that is imposed on the transfer of securities, property, or other assets. The tax is based on the fair market value of the transferred assets and applies to transfers valued over $12,000 per individual per year for 2008.

Federal Methodology
Federal methodology is a formula that was created by Congress and is used to determine financial need when an individual applies for federally funded student aid with the Free Application for Federal Student Aid (FAFSA).

Federal Unemployment Tax Act (FUTA)
Legislation under which federal and state governments require employers (and, in some states, employees) to contribute to a fund that pays unemployment insurance benefits.

FICA—Federal Insurance Contributions Act
Commonly known as Social Security, it is a federal law that requires employers to withhold wages and make payments to finance the Old Age, Survivors, Disability, and health insurance (OASDHI) plan.

Fiduciary
A person, company, or association that holds assets in trust for a beneficiary. The fiduciary is charged with the responsibility of investing the assets wisely for the beneficiary's benefit. Examples of fiduciaries include executors of wills and estates, trustees, and those who administer the assets of underage or incompetent beneficiaries.

Fiduciary Capacity
A person is said to act in a fiduciary capacity when business is transacted, or money and property are handled for the benefit of another. The term is not limited to technical or express trusts, but may also apply to such offices or relations as attorneys, guardians, executors, brokers, and agents.

Fiduciary Income Tax Return
An income tax return that is filed by the court representative or estate administrator for a decedent's estate, trust, or a bankruptcy estate to report income, deductions, gains, losses, distributions, income that is accumulated or held for future distribution, income tax liability of the estate or trust, and employment taxes on wages paid to household employees. The return is not required if the decedent's estate is not probated.

Fiduciary Responsibility
The duty that arises when one individual acts on behalf of, or for the benefit of, a third party.

Financial Responsibility Law
A law that requires the operator of an automobile to show proof of financial ability to pay for automobile-related losses. In many states evidence usually takes the form of a minimum amount of automobile liability insurance.

Fixed Annuity
A type of annuity that guarantees your principal and provides an investment return at least equal to a specified fixed rate until you annuitize. In addition, the amount of your payout can be fixed once you begin receiving distributions from the annuity.

Fixtures
Improvements attached to real estate that are not intended to be moved and so become part of the real estate.

Flexible Spending Arrangement (FSA)
Account into which an employee contributes pre-tax earnings to pay for eligible healthcare-related expenses. The employee can draw from the account by electronic funds transfer, special FSA debit card, or by applying for a reimbursement check. All of these methods are usually subject to verification that the expense is FSA eligible by providing receipts. FSA funds expire at the end of each plan year, are not portable between employers, and cannot be used by self-employed people.

Float
The time period between the deposit of a check in a bank and payment. The term also applies to the number of shares of a corporation that are outstanding and available for trading by the public.

Floater
Coverage for property which moves from location to location. If the floater covers "scheduled" property, coverage is listed separately for each item. If the floater covers "unscheduled" property, all property is covered for the same limits of insurance.

Flood Insurance
Insurance that provides coverage for losses resulting from a flood. This coverage is not included in a standard homeowners policy, but can sometimes be added for an extra premium. In addition, depending on the community where you live, you may be eligible for federal flood insurance through the National Flood Insurance Act.

Forced Liquidation or Sale
A sale that occurs when creditors force a debtor to sell or auction off assets to satisfy debts.

Foreclose
The process by which a lender seizes an asset (usually a home or other real estate) after the owner has defaulted on the loan.

Fraudulent Conveyance
The gift, sale, or transfer of property made with the intent of defrauding creditors by attempting to place assets beyond the reach of creditors.

Freddie Mac
The Federal Home Loan Mortgage Corporation (FHLMC), a publicly chartered agency that buys qualifying residential mortgages from lenders, packages them into new securities backed by those pooled mortgages, provides certain guarantees, and then resells the securities on the open market. Established in 1970, the corporation's stock is owned by savings institutions across the U.S. and is held in trust by the Federal Home Loan Bank System.

Free Look Period
An insurer may cancel an auto insurance policy for any reason during the Free Look Period, which is usually the first 30 days of the policy. The exact number of days varies by state. For this reason, consumers should make careful decisions about changing companies after having a number of losses—because an insurer may decide to exercise its right to cancel a policy during the free look period, leaving the consumer in need of a replacement policy. In life insurance and annuities contracts, there is also a provision for a Free Look Period that allows the policyholder the right to cancel the contract within the first 10 days after purchase.

Fringe Benefits
Non-cash benefits (such as group health insurance, term life insurance, and disability insurance) made available to employees in addition to salary, but are generally not taxable to the employee.

Future Benefit Increase Rider
A rider attached to a disability insurance policy that guarantees the insured's right to purchase additional coverage without going through medical underwriting to prove physical insurability. Also called a Guaranteed Purchase Option Rider.

Gain
The profit made on a securities transaction realized when a stock, bond, mutual fund, futures contract, or other financial instrument is sold for more than its purchase price. When the security has been held for more than one year, the gain is taxable at more favorable capital gain rates. If the asset is held for less than one year the gain is taxed at regular income tax rates.

Generation Skipping Transfer (GST)
A transfer of property made to a family member who is more than one generation below the donor, that occurs either during life as a gift or at death by will or bequest.

Generation-Skipping Transfer Tax (GSTT)
A federal tax on transfers of property made to a family member who is more than one generation below the donor, that occur either during life as a gift or at death by will or bequest.

Gift Tax
A graduated tax imposed by the federal government (and most state governments) on transfers of assets over $12,000 per year per donee.

Gifting Strategies
Gifting strategies are estate planning techniques that allow a donor to transfer assets to heirs during the donor's lifetime with the intention of reducing federal and state estate taxes.

Grace Period
A period of time in most loan contracts and insurance policies during which default or cancellation will not occur even though payment is due. Some auto insurance policies have a grace period that extends coverage after a policy has technically been cancelled, but many will not accept a payment after the date of cancellation – leaving the consumer with no coverage. This term also refers to the number of days (typically 25) between when a credit card bill is sent and when the payment is due without incurring interest charges.

Gross Estate
The total value of all property in an estate before liabilities (i.e., debts and taxes) are deducted.

Group Disability Insurance
A disability insurance policy that covers a group of individuals who are affiliated in some way, either through an employer, trade association, or other organization. Group disability coverage is generally less expensive than individual disability coverage, however, benefits are limited to a stated length of time and the maximum monthly income benefit is usually no more than 50 to 60 percent of earnings.

Group Insurance
An insurance contract that covers a group of individuals who are affiliated in some way, either through an employer, trade association, or other organization.

Guaranteed Insurability Rider
An addition to an insurance policy that guarantees the insured can purchase more insurance at specified ages without providing proof of insurability.

Guaranteed Renewable
A provision in an insurance contract that guarantees that the contract is renewable for the period stated in the contract provided that premiums are paid in a timely fashion. The insurer cannot make any changes in the provisions other than a change in the premium rate for all insureds in the same class.

Guarantor
An individual who is responsible for another person's loan or other debt in the event that the principal debtor defaults and cannot meet the debt.

Guardian
An individual who has the legal right to care for a minor or act as an administrator of the assets of another who is incapacitated or declared incompetent.

Guardianship
A formal, court-appointed method of substitute decision making on behalf of an individual who is a minor or who has been declared legally incapacitated or incompetent. Guardians of the estate are sometimes referred to as conservators. Guardianship can be general, limited, or temporary and can act on behalf of the person, the estate, or both (plenary).

Hazard
A circumstance that increases the likelihood or probable severity of a loss. For example, an unattended lit cigarette is a hazard that increases the likelihood of a fire.

Health Maintenance Organization (HMO)
Health insurance plan that entitles individual members to an array of medical services provided by participating physicians, hospitals, and clinics.

Health Savings Account (HSA)
Interest-bearing account into which a person contributes pre-tax earnings to pay for eligible healthcare-related expenses. The person can usually draw from the account by electronic funds transfer, special HSA debit card, or by applying for a reimbursement check. All of these methods are usually subject to verification that the expense is HSA eligible by providing receipts. HSA funds do not expire and are portable between employers. An HSA must be paired with a qualifying High Deductible Health Plan that meets IRS guidelines. Self-employed people are also eligible for HSAs.

Heir
An individual who inherits some or all of the estate of a deceased person by virtue of being in the direct line of descent, or being designated in a will or by legal authority. The term is often applied to those who would inherit by will, deed, or operation of law.

Heirs and Assigns
Heirs are individuals who inherit some or all of the estate of a deceased person by virtue of being in the direct line of descent, or being designated in a will or by a legal authority. Assigns or assignees is a broader term that includes anyone to whom property is, will, or may be assigned. An assign may receive property from an assignor by conveyance, descent, or an act of law.

High-3 Average Pay
Any three consecutive years of creditable service, at the employee's highest compensation level, that is used to calculate a maximum retirement benefit.

Hold Harmless Agreement
A clause in a contract in which one party agrees not to hold the other responsible for, or to protect the other from, any claims.

Holding Period
Length of time an asset is held by its owner.

Homestead Exemption
A state law provision that permits the home to be exempted from creditors claims.

Hospice
Facility that provides short-term continuous care in a home-like setting for terminally ill people with a life expectancy of six months or less. Some health insurance plans cover hospice stay up to a certain limit with no deductible.

Immediate annuity
An annuity that begins to make income payments immediately (or soon after) after the first premium is paid, as opposed to a deferred annuity.

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

 

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