Section 1035 sets out provisions for the exchange of similar (insurance related) assets without any tax consequence upon the conversion. If the exchange qualifies for like-kind exchange consideration, income taxes are deferred until the new property or asset is sold. The 1035 exchange provisions are only available for a limited type of asset which includes cash value life insurance policies and annuity contracts.
An annual report filed by corporations each year as required by the SEC. The 10K must be filed within 90 days after the end of the fiscal year and provides a comprehensive overview of a company's business practices and financial stability.
A 401(k) plan is a tax-deferred defined contribution retirement plan that gives eligible employees the opportunity to defer a portion of their current compensation into the plan. Amounts that are deferred are excluded from the participant's gross income for the year of the deferral. The plan may provide for employer matching contributions and discretionary profit-sharing contributions.
Tax deferred annuity retirement plan available to employees of public schools and colleges, and certain non-profit hospitals, charitable, religious, scientific and educational organizations.
Non-qualified deferred compensation plans available to employees of state and local governments and tax-exempt organizations.
accelerated death benefits (adb's)
Some life insurance policies make a portion of the death benefit available prior to the death of the insured. Such benefits are usually available only due to terminal illness or for long-term care situations.
accidental death benefit
An accidental death benefit is a rider added to an insurance policy which provides that an additional death benefit will be paid in the event death is caused by and accident. This rider is often called "double indemnity."
A balance sheet item representing the amount of money a company owes to its creditors.
A balance sheet item representing the amount of money a company is owed by its customers for goods and services it has provided.
One of several methods of accounting. Requires that all interest and income be included as it is earned and that all expenses are included as incurred.
adjustable rate mortgage (arm)
An adjustable Rate Mortgage offers an initial interest rate that is usually lower than a fixed rate, but that adjusts periodically according to market conditions and financial indices. The rate may go up and/or down, depending on economic conditions. To limit the borrower's risk, the ARM will almost always have a maximum interest rate allowed, called a "rate cap.".
The amortization of a debt is its systematic repayment through installments of principal and interest. An amortization schedule is a periodic table illustrating payments, principal, interest, and outstanding balance.
annual percentage rate (apr)
The Annual Percentage Rate is the cost of credit expressed as a yearly rate. The APR is a means of comparing loans offered by various lenders on equal terms, taking into account interest rates, points, and other finance charges. The federal Truth-in-Lending Act requires disclosure of the APR.
An individual who receives payments from an annuity. The person whose life the annuity payments are measured on or determined by.
A contract between an insurance company and an individual which generally guarantees lifetime income to the individual or whose life the contract is based in return for either a lump sum or periodic payment to the insurance company. Interest earned inside an annuity is income tax-deferred until it is paid out or withdrawn.
An appraisal is an estimate of a property's value, usually real estate, at a specific point in time and as determined by a qualified professional appraiser.
Appreciation is the increase in value of an asset. The term "appreciation" may be applied to real estate, stocks, bonds, etc.
Acting at arm's length predicates that two parties negotiate with opposing economic interests.
The price that a seller is willing to sell a security or commodity for.
A balance sheet is a financial statement that
is divided into three major parts: assets, liabilities and shareholders'
The terms on a balloon mortgage are insufficient to completely amortize
the loan. A balloon, or lump sum, payment is required at the maturity of
the loan to completely pay off the remaining principal. Balloon mortgages
often contain a contractual opportunity to refinance when the balloon
payment is due at prevailing rates.
The amounts that banks are required to keep on deposit at a Federal
Reserve Bank, as determined by reserve ratios. Funds in excess of these
reserves are loaned out or invested by the banks.
A federal court proceeding in which a debtor who is unable to continue to
meet his/her financial obligations may be relieved from the payment of
certain debts. This action seriously affects the borrower's credit
An amount usually representing the actual cost of an investment to the
buyer. The basis amount of an investment is important in calculating
capital gains and losses, depreciation, and other income tax calculations.
Basis Points is a term used by investment professionals to describe yields
of bonds. One basis point equals one 100th of 1%, or .01%. A bond yield increase from 10.0% to
10.1% represents an increase of 10 basis points.
A prolonged decline in overall stock prices occurring over a period of
months or even years.
The person who is designated to receive the benefits of a contract.
A statistically generated number that is used to measure the volatility of
a security or mutual fund in comparison to the market as a whole.
The price that a buyer is willing to pay for a security or commodity.
The equity issues of financially stable, well-established companies that
usually have a history of being able to pay dividends in bear and bull
A certificate of indebtedness issued by a government entity or a
corporation, which pays a fixed cash coupon at regular intervals. The
coupon payment is normally a fixed percentage of the initial investment.
The face value of the bond is repaid to the investor upon maturity.
The individual(s) that are appointed to run the day-to-day operations of a
qualified plan, as well as the trustee(s) and investment managers must be
bonded. The bond is required to provide protection to the plan against
loss due to fraud, theft, forgery or dishonesty.
The value that belongs to a company's owners or shareholders after total
liabilities have been subtracted from total assets. Also called
A prolonged increase in overall stock prices usually occurring over a
period of months or even years.
A buy-down refers to the payment of additional discount points in return
for a below market interest rate (and therefore a lower monthly payment)
on a home mortgage.
An agreement between shareholders or business partners to purchase
each others' shares in specified circumstances.
A general term encompassing all markets for financial instruments with
more than one year to maturity.
All ownership shares of a company, both common and preferred listed
at par value.
Assets that can be quickly converted to cash. These include receivables,
treasury bills, short-term commercial paper, short-term municipal and
corporate bonds and notes.
Permanent life insurance policies provide both a death benefit and in an
investment component called a cash value. The cash value earns interest
and often appreciates. The policyholder may accumulate significant cash
value over the years and, in some circumstances, "borrow" the
appreciated funds without paying taxes on the borrowed gains. As long as
the policy stays in force the borrowed funds do not need to be repaid, but
interest may be charged to your cash value account.
certificate of deposit (cd)
A Certificate of Deposit is a low risk, often federally guaranteed
investment offered by banks. A CD pays interest to investors for as long
as five years. The interest rate on a CD is fixed for the duration of the
charitable remainder trust (crt)
The Charitable Remainder Trust is an irrevocable trust with both
charitable and non-charitable beneficiaries. The donor transfers highly
appreciated assets into the trust and retains an income interest. Upon
expiration of the income interest, the remainder in the trust passes to a
qualified charity of the donor's choice. If properly structured, the CRT
permits the donor to receive income, estate, and/or gift tax advantages.
These advantages often provide for a much greater income stream to the
income beneficiary than would be available outside the trust.
A fund whose value is held within a fixed number of shares. Until the fund
is wound up, shares can be bought and sold on the stock exchange or the
A co-borrower is individually or jointly obligated to repay a loan entered
into with a third party. The co-borrower may or may not share in ownership
of loan collateral.
An instrument in writing executed by a testator for adding to, altering,
explaining or confirming a will previously made by the testator; executed
with the same formalities as a will; and having the effect of bringing the
date of the will forward to the date of codicil.
Assets pledged as security for a loan. If the borrower defaults on
payment, the lender may dispose of the property pledged as security to
raise money to repay the loan.
The fee a broker or insurance agent collects for administering a trade or
A commodity is a physical substance such as a food or a metal which
investors buy or sell on a commodities exchange, usually via futures
A security that represents ownership in a corporation.
The computation of interest paid using the principal plus the previously
An individual who rolled over a total distribution from a qualified plan
into an IRA can later roll over those assets into a new employer's plan.
In this case the IRA has been used as a holding account (a conduit).
A mortgage loan that conforms to Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.
Currently, conforming first mortgages are under $275,000 ($413,000 in
Alaska and Hawaii).
A construction loan is a short term loan applied to the construction of a
new home. The builder gradually withdraws the loan proceeds and the home
serves as collateral on the loan.
Debt incurred for consumable or depreciating non-investment assets. Items
include credit card debt, store-financed consumer purchases, car loans,
and family loans that will be repaid.
An individual whose opinion is the opposite of the majority.
A conventional mortgage is not insured, guaranteed or funded by the
Veterans Administration, the Federal Housing Administration, or Rural
Economic Community Development.
A convertible mortgage is an adjustable mortgage (ARM) that allows the
borrower to convert to a fixed rate mortgage during a specified period of
convertible term insurance
Term life insurance that can be converted to a permanent or whole life
policy without evidence of insurability, subject to time limitations.
A legal business entity created under state law. Because the corporation
is a separate entity from its owners, shareholders have no legal liability
for its debts.
A sudden decline in stock or bond prices after a period of market strength.
An individual or party who agrees to assume a debt obligation of a third
party in the event the principal borrower defaults on the terms of the
The rate of interest paid on a bond, expressed as a percentage of the
bond's par value.
Cards such as Visa and MasterCard allow the holder to charge purchases
rather than pay cash.
credit bureau repositories
A credit bureau repository is an organization that compiles credit history
information directly from lenders and creditors into credit summaries and
reports. These reports are made available to lenders and creditors to
assist them in gauging an individual's credit worthiness.
critical illness insurance
Insurance protection designed to provide a lump-sum payment equal to
the full value of the policy or a percentage of the policy depending upon
the product design, to the insured/policy owner upon the diagnosis of a
covered critical illness. Typical illnesses covered include heart
attack, stroke, cancer, paralysis, renal failure and Alzheimer's
disease. Many policies offer a partial payment for certain medical
procedures such as coronary bypass surgery or angioplasty. Some
policies offer a return of all premiums in the event of death of the
insured, others pay the full benefit upon the insured's death.
The level of risk when investing in international markets, due to the
fluctuations in exchange rates of the various world currencies. Investing
in any foreign country should be preceded by a careful estimation of how
well its currency is likely to do against the dollar.
A financial institution, usually a bank or trust company, that holds a
person or company's cash and or securities in safekeeping.
Companies that report strong earnings when the overall economy is doing
well and weaker earnings when the economy is in recession.
Debit cards allow the cost of a purchase to be
automatically deducted from the customer's bank account and credited to
The fixed income sector of the capital markets devoted to trading debt
securities issued by corporations and governments.
debt to income ratio
The ratio of a person's total monthly debt obligations compared to their
total monthly resources is called their debt to income ratio. This ratio
is used to evaluate a borrower's capacity to repay debts.
The term decedent refers to a person who has died.
A term life insurance featuring a decreasing death benefit. Decreasing
term is well suited to provide for an obligation that decreases over the
years such as a mortgage.
deed of trust
A document used to convey title (ownership) to a property used as
collateral for a loan to a trustee pending the repayment of the
loan. The equivalent of a mortgage.
A form of tax sheltering in which all earnings are allowed to compound
tax-free until they are withdrawn at a future date. Placing funds in a
qualified plan, for example, triggers deductions [not all qualified plans
provide for tax deductions; contributions may, however, be excluded from
gross income, i.e. 401(k) plans] for the current tax year and postpones
capital gains or other income taxes until the funds are withdrawn from the
Income withheld by an employer and paid at some future time, usually upon
retirement or termination of employment.
defined benefit plan
A defined benefit plan pays participants a specific retirement benefit
that is promised (defined) in the plan document. Under a defined benefit
plan benefits must be definitely determinable. For example, a plan that
entitles a participant to a monthly pension benefit for life equal to 30
percent of monthly compensation is a defined benefit plan.
defined contribution plan
In a defined contribution plan, contributions are allocated to individual
accounts according to a pre-determined contribution allocation. This type
of plan does not promise any specific dollar benefit to a participant at
retirement. Benefits received are based on amounts contributed, investment
performance and vesting. The most common type of defined contribution plan
is the 401(k) profit-sharing plan.
A period in which the general price level of goods and services is
Charges made against earnings to write off the cost of a fixed asset over
its estimated useful life. Depreciation does not represent a cash outlay.
It is a bookkeeping entry representing the decline in value of an asset
A means of authorizing payment made by governments or companies to be
deposited directly into a recipient's account. Used mainly for the deposit
of salary, pension and interest checks.
Insurance designed to replace a percentage of earned income if accident or
illness prevents the beneficiary from pursuing his or her livelihood.
After-tax income available for spending, saving or investing.
Spreading investment risk among a number of different securities,
properties, companies, industries or geographical locations. Diversification does not assure against market
dividend reinvestment plan (drip)
An investment plan that allows shareholders to receive stock in lieu of
A distribution of the earnings of a company to it's shareholders.
Dividends are "declared" by the company based on profitability
and can change from time to time. There is a direct relationship between
dividends paid and share value growth. The most aggressive growth
companies do not pay a dividend, and the highest dividend paying companies
may not experience dramatic growth.
dollar cost averaging
Buying a mutual fund or securities using a consistent dollar amount of
money each month (or other period). More securities will be bought when
prices are low, resulting in lowering the average cost per share.
Dollar cost averaging neither guarantees a profit nor eliminates the
risk of losses in declining markets and you should consider your
ability to continue investing through periods of market volatility and/or
The down payment on a property is the amount of cash applied to the
purchase, with the remainder of the purchase accomplished through a
mortgage or other debt.
Similar to a deposit, earnest money is the
money given by the buyer to the seller of a property as an assurance of
their intentions to purchase the property.
earnings per share (eps)
Total net profits divided by the number of outstanding common shares of a
Economic events are often felt to repeat a regular pattern over a period
of anywhere from two to eight years. This pattern of events ends to be
slightly different each time, but usually has a large number of
similarities to previous cycles.
effective tax rate
The percentage of total income paid in federal and state income taxes.
The market in which all the available information has been analyzed and is
reflected in the current stock price.
employee stock ownership plans (esops)
An ESOP plan allows employees to purchase stock, usually at a discount,
that they can hold or sell. ESOPs offer a tax advantage for both employer
and employee. The employer earns a tax deduction for contributions of
stock or cash used to purchase stock for the employee. The employee pays
no tax on these contributions until they are distributed.
Escrow funds are funds accumulated and held in an account for the periodic
payment of property taxes and insurance.
A decedent's estate is equal to the total value of their assets as of the
date of death. The estate includes all funds, personal effects, interest
in business enterprises, titles to property, real estate, stocks, bonds
and notes receivable.
The orderly arrangement of one's financial affairs to maximize the value
transferred at death to the people and institutions favored by the
deceased, with minimum loss of value because of taxes and forced
liquidation of assets.
An individual may have to pay a 15% tax on distributions received from
qualified plans in excess of $150,000 during a single year. The tax,
however, does not apply to distributions due to death, distributions that
are rolled over, and distributions of after-tax contributions.
The person named in a will to manage the estate of the deceased according
to the terms of the will.
The face amount stated in a life insurance
policy is the amount that will be paid upon death, or policy maturity. The
face amount of a permanent insurance policy may change with time as the
cash value in the policy increases.
fair market value
The fair market value of a property or other asset is the price that a
buyer and seller can establish in an arms-length transaction where neither
one is compelled to buy or to sell.
An inter vivos trust established with family members as beneficiaries.
federal housing administration (fha)
The Federal Housing Administration (FHA) is a government agency that sets
standards for underwriting residential mortgage loans made by private
lenders and insures such transactions.
federal national mortgage association (fnma or fannie mae)
FNMA is a private corporation that acts as a secondary market investor in
buying and selling mortgage loans.
An individual or institution occupying a position of trust. An executor,
administrator or trustee.
A person who helps you plan and carry out your financial future.
Any investment paying a fixed interest rate such as a money market
account, a certificate of deposit, a bond, a note, or a preferred stock. A
fixed investment is the opposite of a variable investment.
fixed rate mortgage
With a fixed rate mortgage, your interest rate will remain the same for
the entire term of the loan. Although the rate will begin slightly higher
than a comparable adjustable rate mortgage (ARM), the interest rate you
pay can never go up for as long as you have the mortgage.
A variation in the market price of a security.
A foreclosure is the legal process by which a borrower losses their
ownership interest in a collateralized property due to default on the
A person who manages the assets of a mutual fund.
Fundamental analysis is a technique of estimating a stock's future value
based on the in-depth study of the stock's underlying financial
statements. Fundamental analysis is the opposite of technical analysis.
The future worth of a payment, or stream of payments, projected at a given
interest rate for a given period of time.
A market in which contracts for future delivery of a commodity are bought
generally accepted accounting principals (gaap)
Conventions, rules and procedures that define
accepted accounting practices in the U.S.
A period (usually 31 days) following each premium due date, other than the
first due date, during which an overdue premium may be paid, and during
which time all policy provisions remain in force and effect.
A form of insurance designed to insure classes of persons rather than
The common equity of a company that consistently grows significantly
faster than the economy.
guaranteed investment certificate (gic)
A type of debt security sold to individuals by banks and trust companies.
They usually cannot be cashed before the specified redemption date, and
pay interest at a fixed rate.
A third party who agrees to repay any outstanding balance on a loan if you
fail to do so. A guarantor is responsible for the debt only if the
principal debtor defaults on the loan.
A person or persons named to care for minor children until they reach the
age of majority. A will is the best way to ensure that the person or
persons whom you wish to have care for your minor children are legally
empowered to do so in the event of your death.
Hazard insurance protects the insured from
losses arising due to physical property damage associated with
catastrophic hazards such as flood, fire, earthquake, tornado, etc. Hazard
insurance will often be required by a lender to protect their collateral
from such risks.
home equity line of credit (heloc)
A home equity line of credit allows a homeowner to borrow against the
equity in their home with specific limits and terms. This is an open end
loan which allows the borrower to borrow and repay funds as needed.
home equity loan
A home equity loan is a collateralized mortgage, usually in a subordinate
position, entered into by the property owner under specific terms of
The description of a security for which it is
difficult to find a buyer or seller. An illiquid investment is an
investment that may be difficult to sell quickly at a price close to its
market value. Examples include stock in private unlisted companies,
commercial real estate and limited partnerships.
A life insurance illustration, or ledger, is a reference tool used to
illustrate how a given life insurance policy underwritten by a specific
insurer is expected to perform over a period of years. The insurance
illustration assumes that conditions remain unchanged over the period of
time that the policy is held.
Income averaging allows individuals who were age 50 before January 1, 1986
to pay tax on a lump sum distribution as though it had been received over
a five or ten year period, rather than all at once. By using income
averaging individuals may be able to pay income tax at a more favorable
A financial statement that shows the components of profit, such as sales,
expenses, taxes and net profit.
Stocks that have a consistent, stable, above-average dividend yield.
individual retirement account (ira)
An Individual Retirement Account (IRA) is a personal savings plan that
offers tax advantages to those who set aside money for retirement.
Depending on the individual's circumstances, contributions to the IRA may
be deductible in whole or in part. Generally, amounts in an IRA, including
earnings and gains, are not taxed until distributed to the individual.
A term used to describe the economic environment of rising prices and
declining purchasing power.
An in-force life insurance policy is simply a valid policy. Generally
speaking, a life insurance policy will remain in-force as long as
sufficient premiums are paid, and for approximately 31 days thereafter.
(See Grace Period)
Insurability refers to the assessment of the applicant's health and is
used to gauge the level of risk the insurer would potentially take by
underwriting a policy, and therefore the premium it must charge.
A life insurance policy covers the life of one or more insured
The simple interest rate attached to the terms of a mortgage or other
loan. This rate is applied to the outstanding principal owed in
determining the portion of a payment attributable to interest and to
principal in any given payment.
interest rate risk
Is the uncertainty in the direction of interest rates. Changes in interest
rates could lead to capital loss, or a yield less than that available to
other investors, Putting at risk the earnings capacity of capital.
A term describing the legal status of a person who dies without a will.
A firm that engages in the origination, underwriting, and distribution of
A corporation or trust whose primary purpose is to invest the funds of its
Choosing which investments are right for you will depend on a number of
factors, including; your primary objectives, your time horizon and your
A term used to describe your total investment holdings.
The chance that the actual returns realized on an investment will differ
from the expected return.
The method used to select which assets to include in a portfolio and to
decide when to buy and when to sell those assets.
ira (individual retirement account)
An Individual Retirement Account (IRA) is a personal savings plan that
offers tax advantages to those who set aside money for retirement.
Depending on the individual's circumstances, contributions to the IRA may
be deductible in whole or in part. Generally, amounts in an IRA, including
earnings and gains, are not taxed until distributed to the individual.
An individual may withdraw, tax-free, all or part of the assets from one
IRA, and reinvest them within 60 days in another IRA. A rollover of this
type can occur only once in any one-year period. The one-year rule applies
separately to each IRA the individual owns. An individual must roll over
into another IRA the same property he/she received from the old IRA.
A loan that is larger than the limits set for
conventional loans by the Federal National Mortgage Association (FNMA) or
Federal Home Loan Mortgage Corportation (FHLMC). This limit is currently
set at $300,700.
A bond that pays an unusually higher rate of return to compensate for a
low credit rating.
A Keogh is a tax deferred retirement plan for
self-employed individuals and employees of unincorporated businesses. A
Keogh plan is similar to an IRA but with significantly higher contribution
Using "leverage" is the process of
investing using borrowed funds. Leveraging your investments magnifies your
returns, both positive and negative.
leveraged buyout (lbo)
Leveraged buyouts are deals in which a company is bought with mostly
borrowed money, money frequently raised through selling high-yield and
high-risk junk bonds.
The risk that the legal system may assess punitive damages against you if
property damage or personal injuries can be attributed to your
carelessness or negligence.
A lien represents a claim against a property or asset for the payment of a
debt. Examples include a mortgage, a tax lien, a court judgment, etc.
Life expectancy represents the average future time an individual can
expect to live. Life expectancies have been increasing steadily over the
past century and may continue to increase in the future. As people are
living longer the cost of retirement is increasing.
A contract between you and a life insurance company that specifies that
the insurer will provide either a stated sum or a periodic income to your
designated beneficiaries upon your death.
Occurs when a person who does not have a terminal or chronic illness
sells his/her life insurance policy to a third party for an amount that is
less than the full amount of the death benefit. The buyer becomes
the new owner and/or beneficiary of the life insurance policy, pays all
future premiums, and collects the entire death benefit when the the
insured dies. Some states regulate the purchase as a security while
others may regulate it as insurance.
Liquidity is the measure of your ability to immediately turn assets into
cash without penalty or risk of loss. Examples include a savings account,
money market account, checking account, etc.
If you become incapacitated this document will preserve your wishes and
act as your voice in medical decisions, if you are unable to speak for
yourself as a result of medical reasons.
A loan-to-value ratio represents the relationship between all outstanding
and proposed loans on a property and the appraised value of the property.
For example, an $80,000 loan on a $100,000 property would represent an 80%
loan-to-value ratio. This ratio assists a lender in determining the risk
associated with the loan. The higher this ratio, the riskier the loan.
A long position in an investment indicates a current ownership in that
investment which would increase in value as the underlying asset(s)
increase in value, opposite of a short position.
The amount of money supplied by an investor as
a portion of the total funds needed to buy or sell a security, with the
balance of required funds loaned to the investor by a broker, dealer, or
A special account set up by a broker for a client who wants to buy and
sell securities using margin.
A call from a broker to a client asking for more money to back up a
security purchased on margin when such a security has declined in value.
If more money is not supplied, the broker usually sells the security.
An order to buy at the lowest price going, or sell at the highest price
Every investment carries some element of market risk, the risk that the
entire market will decline, reducing the investment's value regardless of
medical power of attorney
This special power of attorney document allows you to designate another
person to make medical decisions on your behalf.
An individual must start receiving distributions from a qualified plan by
April 1 of the year following the year in which he/she reaches age 70.
Subsequent distributions must occur by each December 31st. The minimum
distributions can be based on the life expectancy of the individual or the
joint life expectancy of the individual and beneficiary.
money purchase plan
A Money Purchase Plan has contributions that are a fixed percentage of
compensation and are not based on the employer's profits. For example, if
the plan requires that contributions be 10% of the participant's
compensation, the plan is a Money Purchase Pension Plan. With this type of
plan, the employer is committed to making contributions each year even if
the employer has no profits or is experiencing cash flow problems.
Employee contributions are limited to 25% of compensation. Employer
contributions are limited to the smaller of $30,000 or 25 percent of a
Mortality is the risk of death of a given person based on factors such as
age, health, gender, and lifestyle.
A legal instrument providing a loan to the mortgagee to be used to
purchase a real property in exchange for a lien against the property.
A mortgage broker acts as an intermediary between a borrower and a lender.
A broker's expertise is to assist the borrower in identifying mortgage
lenders and products that they might not identify otherwise.
mortgage insurance (mi)
Mortgage insurance protects the lender against the default of higher risk
loans. Most lenders require mortgage insurance on loans where the
loan-to-value ratio is higher than 80% (less than 20% equity).
A bond offered by a state, county, city or other political entity (such as
a school district) to raise public funds for special projects. The
interest received from municipal bonds is often exempt from certain income
A mutual fund is a pooling of investor (shareholder) assets, which is
professionally managed by an investment company for the benefit of the
fund's shareholders. Each fund has specific investment objectives and
associated risk. Mutual funds offer shareholders the advantage of
diversification and professional management in exchange for a management
net asset value
The value of all the holdings of a mutual fund, less the fund's
liabilities [also describes the price at which fund shares are redeemed].
Your net worth is the difference between your total assets and total
A loan that does not conform to Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Such
loans include jumbo loan, sub-prime loans and high risk loans.
A note is a legal document that acknowledges a debt and the terms and
conditions agreed upon by the borrower.
An uneven number of securities that represents
less than a board lot.
The price that a buyer is willing to pay for an investment.
An open-end mutual fund continuously issues and redeems units, so the
number of units outstanding varies from day to day. Most mutual funds are
open-end funds. The opposite of closed-end fund.
The origination fee on a mortgage is usually the amount charged by the
lender for originating the loan. Origination fees vary by lender and are
expressed in points where one point is equal to 1% of the original loan
over-the-counter (otc) market
Market created by dealer trading as opposed to the auction market, which
prevails on most major exchanges.
paper gain (loss)
Unrealized capital gain (loss) on securities
held in portfolio, based on a comparison of current market price to
A bond selling at par.
Payments made on your behalf by your employer. They are automatically
deducted from your pay check.
Points are charges added to a mortgage loan by the lender and are based on
the loan amount. One point is equal to 1% of the original loan balance.
A contractual arrangement between the insurer and the insured describing
the terms and conditions of the life insurance contract.
The policy owner can borrow from the cash value component of many
permanent insurance policies for virtually any purpose. Any policy loans
that are outstanding at the time of death of the insured will be deducted
from the benefit paid to the beneficiary.
Political risk is the risk that stock prices may decline dramatically
during periods of political unrest or crisis.
power of attorney
A legal document authorizing one person to act on behalf of another.
The payment that the owner of a life insurance policy makes to the
insurer. In exchange for the premium payment, the insurer assumes the
financial risk (as defined by the insurance policy) associated with the
death of the insured.
The current worth of a future payment, or stream of payments, discounted
at a given interest rate over a given period of time.
The principal amount of a loan or mortgage is the outstanding balance,
private mortgage insurance
Private mortgage insurance protects the lender against the default of
higher risk loans. Most lenders require private mortgage insurance on
loans where the loan-to-value ratio is higher than 80% (less than 20%
The process used to make an orderly distribution and transfer of property
from the deceased to a group of beneficiaries. The probate process is
characterized by court supervision of property transfer, filing of claims
against the estate by creditors and publication of a last will and
profit sharing plan
A Profit-Sharing Plan is the most flexible and simplest of the defined
contribution plans. It permits discretionary annual contributions that are
generally allocated on the basis of compensation. The employer will
determine the amount to be contributed each year depending on the
cash-flow of the company. The deduction for contributions to a
Profit-Sharing Plan cannot be more than 15% of the compensation paid to
the employees participating in the plan. Annual employer contributions to
the account of a participant cannot exceed the smaller of $30,000 or 25
percent of a participant's compensation.
prohibited ira transactions
Generally, a prohibited transaction is any improper (self-dealing) use of
the IRA by the account owner. Some examples include borrowing money from
an IRA, using an IRA to secure a loan and selling property to an IRA.
A detailed statement prepared by an issuer and filed with the SEC prior to
the sale of a new issue. The prospectus gives detailed information on the
issue and on the issuer's condition and prospects.
qualified retirement plan
A qualified retirement plan is a retirement
plan that meets certain specified tax rules contained primarily in section
401(a) of the Internal Revenue Code. These rules are called "plan
qualification rules". If the rules are satisfied the plan's trust is
exempt from taxes.
To refinance one's mortgage is to retire the
existing mortgage using the proceeds of a new mortgage and using the same
property as collateral. This is usually done to secure a lower interest
rate mortgage or to access equity from the property.
A registered representative is licensed with the NASD (National
Association of Securities Dealers), through association with an NASD
member broker / dealer, to act as an account representative for clients
and collect commission income.
A debt or liability that does not have a fixed principal balance or
payment. Examples include credit cards, home equity lines of credit, etc.
A life insurance rider is an amendment to the standard policy that expands
or restricts the policy's benefits. Common riders include a disability
waiver of premium rider and a children's life coverage rider.
Investment risk is the chance that the actual returns realized on an
investment will differ from the expected return.
rule of 72
A way to determine the effect of compound interest. Divide 72 by the
expected return on your investment. If your expected return is 8%,
assuming that all interest is reinvested, you will double your money in 9
safety of principal
Safety of principal is an objective that
emphasizes the security of the invested principal.
salary reduction simplified employee pension (sarsep)
A SARSEP is a simplified alternative to a 401(k) plan. It is a SEP that
includes a salary reduction arrangement. Under this special arrangement,
eligible employees can elect to have the employer contribute part of their
before-tax pay to their IRA. This amount is called an "elective
The main regulatory body regulating the securities industry is called the
Securities and Exchange Commission.
A mortgage on real property in a junior position to a primary or first
mortgage. The increased risk associated with a second mortgage is often
reflected in a higher interest rate and a shorter term of repayment.
Stocks and bonds are traditionally referred to as securities. More
specifically, stocks are often referred to as "equities" and
bonds as "debt instruments."
Securities and Exchange Commission
The main regulatory body regulating the securities industry is called the
Securities and Exchange Commission.
A short position in an investment indicates a position in an investment
that would increase in value as the underlying asset(s) decrease in value.
Opposite of a long position.
The sale of stock that you do not yet own in order to take advantage of an
expected share price decline. If the stock declines in price, the stock is
purchased at the now lower price and the short position is closed.
simplified employee pension (sep)
A SEP provides employers with a "simplified" alternative to a
qualified profit-sharing plan. Basically, a SEP is a written arrangement
that allows an employer to make contributions towards his or her own and
employees' retirement, without becoming involved in a more complex
retirement plan. Under a SEP, IRAs are set up for each eligible employee.
SEP contributions are made to IRAs of the participants in the plan. The
employer has no control over the employee's IRA once the money is
A small cap stock is one issued by a company with less than $1.7 billion
in market capitalization.
A card with an embedded computer chip which stores more information,
performs more functions and is more secure than a credit card or debit
An individual can set up and contribute to an IRA for his/her spouse. This
is called a "Spousal IRA" and can be established if certain
requirements are met. In the case of a spousal IRA, the individual and
spouse must have separate IRAs. A jointly owned IRA is not permitted.
Stock certificates represent an ownership position in a corporation.
Stockholders are often entitled to dividends, voting rights, and financial
participation in company growth.
The investor's share of the income earned by the company issuing the
A market for trading of equities, a public market for the buying and
selling of public stocks.
This is when you tell your broker to sell the stock if it drops to a
Planning for a business to pass to the next generation of owner/managers.
When a policy owner surrenders his/her permanent life insurance policy to
the insurance company, he or she will receive the surrender value of that
policy in return.The surrender value is the cash value of the
policy plus any dividend accumulations, plus the cash value of any paid-up
additions minus any policy loans, interest, and applicable surrender
An income tax credit directly reduces the
amount of income tax paid by offsetting other income tax liabilities.
A reduction of total income before the amount of income tax payable is
The term tax deferred refers to the deferral of income taxes on interest
earnings until the interest is withdrawn form the investment. Some
vehicles or products that enjoy this special tax treatment include
permanent life insurance, annuities, and any investment held in IRA's.
Technical analysis is a technique of estimating a stock's future value
strictly by examining its prices and volume of trading over time.
Technical analysis is the opposite of fundamental analysis.
tenants in common
Two or more people who own the same piece of property, with the inherent
condition that if one of the tenants die, his interest automatically
passes on to his heirs.
Term insurance is life insurance coverage that pays a death benefit only
if the insured dies within a specified period of time. Term policies do
not have a cash value component and must be renewed periodically as
dictated by the insurance contract.
A trust created under the terms of a will and that takes effect upon the
death of the testator.
A ticker symbol is a combination of letters that identifies a
A legal document establishing property ownership.
A detailed examination of legal records to determine the history and legal
ownership of a property.
top heavy plans
Each year, a qualified plan must be tested to determine whether it is
"top-heavy". Generally, a "top-heavy" plan is one in
which more than 60 percent of the benefits under the plan are for key
employees (usually owners and officers). Additional requirements apply to
a top-heavy plan such as faster vesting and mandatory employer
In order to make a disability claim a person must meet the definition of
disability set forth in the insurance contract. There are two general
definitions of disability used in today's contracts. The first definition
is that the insured is unable to perform all of the substantial and
material duties of his/her own occupation. The second, and more
restrictive, definition is that the insured is unable to perform any
occupation for which he/she is reasonably suited by education, training,
Treasury bills, often referred to as T-bills, are short-term securities
(maturities of less than one year) offered and guaranteed by the federal
government. They are issued at a discount and pay their full face value at
Treasury bonds are issued with maturities of more than 10 years and are
offered and guaranteed by the U.S. Government. They are issued at a
discount and pay their full face value at maturity.
Treasury notes are issued with maturities between one and 10 years. These
notes are offered and guaranteed by the U.S. Government. They are issued
at a discount and pay their full face value at maturity.
TSA (tax-sheltered annuity)
Tax deferred annuity retirement plan available to employees of public
schools and colleges, and certain non-profit hospitals, charitable,
religious, scientific and educational organizations.
A person, banker or group that guarantees to
furnish a definite sum of money by a definite date in return for an issue
of bonds or stock.
The one assuming a risk in return for the payment of a premium, or the
person who assesses the risk and establishes premium rates.
In the bond/stock market means a brokerage firm or group of firms that has
promised to buy a new issue of bonds/shares from a government or company
at a fixed discounted price, then arranges to resell them to investors at
The number of people unemployed measured as a percentage of the labor
universal life insurance
An adjustable Universal Life insurance policy provides both a death
benefit and an investment component called a cash value. The cash value
earns interest at rates dictated by the insurer. The policyholder may
accumulate significant cash value over the years and, in some
circumstances, "borrow" the appreciated funds without paying
taxes on the borrowed gains (taxes may be required if policy is
surrendered). As long as the policy stays in force the borrowed funds do
not need to be repaid, but interest may be charged to your cash value
account. Premiums are adjustable by the policy owner.
A variable investment is any investment whose
value, and therefore returns, fluctuates with market conditions such as a
common stock, a plot of raw land, and a hard asset.
variable universal life insurance
A Variable Life insurance policy provides both a death benefit and an
investment component called a cash value. The owner of the policy invests
the cash value in subaccounts selected by the insurer. The policyholder
may accumulate significant cash value over the years and
"borrow" the appreciated funds without paying taxes on the
borrowed gains (taxes may be required if policy is surrendered). As long
as the policy stays in force the borrowed funds do not need to be repaid,
but interest may be charged to your cash value account.
variable rate mortgage (VRM)
A Variable Rate Mortgage offers an initial interest rate that is usually
lower than a fixed rate, but that adjusts periodically according to market
conditions and financial indices. The rate may go up and/or down,
depending on economic conditions. To limit the borrower's risk, the VRM
will almost always have a maximum interest rate allowed, called a
A common term for funds that are invested by a third party in a business
either as equity or as a form of secondary debt. In the event of failure
or business wind-up, these funds rank behind all other secured creditors.
The law requires that a qualified plan have a schedule under which a
participant earns an ownership interest in employer provided contributions
based on his or her years of service with the employer. Amounts
contributed by the participant are always 100% vested.
Occurs when a person with terminal or chronic illness sells his/her life
insurance policy to a third party for an amount that is less than the full
amount of the death benefit. The buyer becomes the new owner and/or
beneficiary of the life insurance policy, pays all future premiums, and
collects the entire death benefit when the insured dies. Some states
regulate the purchase as a security while others may regulate it as
waiver of premium
A waiver of premium rider on an insurance
policy sets for conditions under which premium payments are not required
to be made for a time. The most popular waiver of premium rider is the
disability waiver under which the owner of the policy (also called the
policyholder) is not required to make premium payments during a period of
whole life insurance
A traditional Whole Life insurance policy provides both a death benefit
and a cash value component. The policy is designed to remain in force for
a lifetime. Premiums stay level and the death benefit is guaranteed. Over
time, the cash value of the policy grows and helps keep the premium level.
Although the premiums start out significantly higher than that of a
comparable term life policy, over time the level premium eventually is
overtaken by the ever-increasing premium of a term policy.
The most basic and necessary of estate planning tools, a will is a legal
document declaring a person's wishes regarding the disposition of their
estate. A will ensures that the right people receive the right assets at
the right time. If an individual dies without a will they are said to have
An account offered by investment dealers whereby investors are charged an
annual management fee based on the value of invested assets.
Any loan not expected to be recovered and is recorded as a loan loss.
The yield on an investment is the total
proceeds paid from the investment and is calculated as a percentage of the
A zero-coupon bond is a bond sold without
interest-paying coupons. Instead of paying periodic interest, the bond is
sold at a discount and pays its entire face amount upon maturity, which is
usually a one year period or longer.