INSURANCE GLOSSARY

1035 Exchange

A method of exchanging insurance-related assets without triggering a taxable event. Cash-value life insurance policies and annuity contracts are two products that may qualify for a 1035 exchange.

401(k) Plan

A qualified retirement plan available to eligible employees of companies. 401(k) plans allow eligible employees to defer taxation on a specific percentage of their income that is to be put toward retirement savings; Taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement. Employers may match part or all of an employee’s contributions. Employees may be responsible for investment selections and enjoy the direct tax savings.

401(k) Loan

A loan taken from the assets within a 401(k) account; 401(k) loans charge interest and are normally paid back through payroll deductions. If the borrower leaves an employer before a 401(k) loan has been repaid, the full amount of the loan is generally due. If the borrower fails to repay the loan, it is considered a distribution, and ordinary income taxes may be due along with any applicable tax penalties. Note: under the Tax Cuts and Jobs Act, you don’t have to pay taxes or the penalty if you repay the loan by the due date of your tax return for the year that you leave your job (including extensions). For example, if you leave your job in 2021, you’d have until April 15, 2022, to repay the loan.

403(b) Plan

A 403(b) plan is similar to a 401(k). A 403(b) is a qualified retirement plan available to employees of non-profit and government organizations.

Accidental Death and Dismemberment (AD&D) Rider

A supplement to many life insurance policies that provides an additional cash benefit to the insured or his/her beneficiaries if an accident causes either the death of the insured or causes the insured to lose any two limbs or the sight in both eyes.

Account Balance

The amount held in an account at the end of a reporting period. For example, a credit card account balance would show the amount owed to a lender as a result of purchases made during a specific period.

Actual Cash Value

The value of property based on the cost of repairing or replacing it with property of the same kind and quality. Typically, actual cash value equals the current replacement cost minus depreciation (age, condition, length of time in use and obsolescence).

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that is adjusted periodically based on an index. Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages because the lender is able to transfer some of the risk to the borrower; if prevailing rates go higher, the interest rate on a variable mortgage may adjust upward as well.

Adjusted Gross Income (AGI)

One figure used in the calculation of income tax liability. AGI is determined by subtracting allowable adjustments from gross income.

Adjuster

A person who investigates and settles losses for an insurance carrier.

Administrator

A probate-court-appointed person who is tasked with settling an estate for which there is no will.

After-Tax Return

The return on an investment after subtracting any taxes due.

Agent

In insurance, the person authorized to represent the insurer in negotiating, servicing or affecting insurance policies.

Aggressive Growth Fund

A mutual fund offered by an investment company that specifically pursues substantial capital gains. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Alternative Minimum Tax (AMT)

A method of calculating income tax with a unique set of rules for deductions and exemptions that are more restrictive than those in the traditional tax system. The AMT attempts to ensure that certain high-income taxpayers don’t pay a lower effective tax rate than everyone else. To determine whether or not the AMT applies, taxpayers must fill out IRS Form 6251.

Annual Out-of-Pocket Maximum

A dollar amount set by the plan which puts a cap on the amount of money the insured must pay out of his or her own pocket for covered expenses over the course of a calendar year.

Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a percentage of the loan amount. The APR includes interest owed and any fees or additional costs associated with the agreement.

Annual Report

A report required by the Securities and Exchange Commission (SEC) of any company issuing registered stock that describes a company’s management, operations and financial reports. Annual reports are sent to shareholders and must also be available for public review.

Annuity

A contract with an insurance company that guarantees current or future payments in exchange for a premium or series of premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, penalties may apply. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

Applicant

The party applying for an insurance policy.

Application

A printed form developed by an insurer that includes questions about the prospective insured and the desired insurance coverage and limits.

Appraisal

A formal assessment of a property’s value at a specific point in time, performed by a qualified professional.

Asset

Anything owned that has a current value that may provide a future benefit.

Asset Allocation

A method of allocating funds to pursue the highest potential return at a specific level of risk. Asset allocation normally uses sophisticated mathematical analysis of the historical performance of asset classes to attempt to project future risk and return. Asset allocation is an approach to help manage investment risk. It does not guarantee against investment loss.

Asset Class

A specific category of investments that share similar characteristics and tend to behave similarly in the marketplace.

Assigned Risk

A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.

Audit

In accounting, the formal examination of a company’s financial records by a qualified professional to determine the records’ accuracy, consistency and conformity to legal standards and established accounting principles. In taxes, the formal examination of a tax return by the Internal Revenue Service or other authority to determine its accuracy.

Auto Collision Coverage

Optional auto insurance which pays for damage to your car caused by collision with another car or object, or by rolling the car over. Frequently required if you have a car loan.

Auto Comprehensive Physical Damage Coverage

Optional auto insurance which pays for damage to your auto caused by things other than collision or rolling the car over, such as fire, theft, vandalism, flood or hail. Frequently required if you have a car loan.

Automatic Premium Loan

A provision in some life insurance policies that authorizes a policy loan using the cash value accumulated by the insurance policy to pay for past due premiums at the end of the grace period. This prevents a lapse of coverage.

Automatic Reinvestment

An arrangement under which an institution automatically deposits dividends or capital gains generated by an individual’s investment back into the investment to purchase additional shares.

Balanced Mutual Fund

A mutual fund offered by an investment company which attempts to hold a balance of stocks and bonds. Mutual funds are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Bear Market

A market experiencing an extended period of declining prices. A bear market is the opposite of a bull market.

Beneficiary

Any person, persons or other entity designated to receive the policy benefits upon the death of the policyholder.

Binder

A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

Binding Receipt

A premium receipt acknowledging temporary insurance coverage immediately until the insurance company rejects the application or approves it and issues a policy.

Blue Chip Stock

The stock of an established company which has a history of generating a profit and possibly a consistent dividend.

Bond

A debt instrument under which the issuer promises to pay a specified amount of interest and to repay the principal at maturity. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

Book Value

The value of a company’s assets minus its liabilities, preferred stock and redeemable preferred stock.

Broker

A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.

Bull Market

A market experiencing an extended period of rising prices. A bull market is the opposite of a bear market.

Buy-and-Hold

An investment strategy that advocates holding securities for the long term and ignoring short-term price fluctuations in the market.

Buy-Sell Agreement

Agreement that a deceased business owner’s interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.

Calendar Year Deductible

The amount of health care expenses that the insured person must pay before insurance payments for covered eligible expenses.

Cancellation

The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Capital Gain or Loss

The difference between the price at which an asset was purchased and the price for which it was sold. When the sale price is higher than the purchase price, the difference is a capital gain; when the sale price is lower than the purchase price, the difference is a capital loss.

Case Management

A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.

Cash Alternatives

Assets that are most easily converted into cash and which have a very low risk of price fluctuation. For example, money market funds may be considered a cash alternative. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.

Cash Value (cash surrender value)

The cash amount payable to a life insurance policyowner in the event of termination or cancellation of the policy before its maturity or the insured event.

Certificate of Deposit (CD)

A deposit with a bank, thrift institution or credit union that promises a fixed interest rate on funds deposited for a specified period of time. Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor per institution and generally provide a fixed rate of return, whereas the value of money market mutual funds can fluctuate.

Certificate of Insurance

A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

Charitable Lead Trust

A trust established for the benefit of a charitable organization under which the charitable organization receives payment of a specified amount (at least annually) from the trust. On the death of the grantor, remainder interest in the trust passes to their heirs. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Charitable Remainder Trust

A trust established for the benefit of a charitable organization under which the grantor can designate an income beneficiary to receive payment of a specified amount—at least annually—from the trust. The grantor may also be the income beneficiary. On the death of the grantor, remainder interest in the trust passes to the charitable organization. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Claim

A person’s request for payment from an insurer for a loss covered by the insurance policy.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

COBRA requires organizations with twenty or more employees to offer the continuation of group health benefits (Medical, Dental, Vision and Medical Reimbursement Account) to employees (and covered dependents) upon experiencing a “qualifying event.”

Employers are required to provide initial COBRA notification to covered employees and dependents, a letter detailing an individual’s rights upon experiencing a “qualifying event,” and an explanation of the conversion privilege. The legislation defines the following six situations as “qualifying events” that require COBRA continuation:

  • Termination of employment
  • Reduction of work hours
  • Employee’s death
  • Employee’s divorce (or legal separation in some states)
  • Medicare entitlement
  • Change in “dependent” status
Coinsurance Provision

A specified percentage of the cost of treatment the insured is required to pay for all covered medical expenses remaining after the policy’s deductible has been met.

Collision Insurance

Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.

Commercial Paper

An unsecured, short-term debt security issued by a corporation to finance short-term liabilities. These notes are normally backed only by the issuing corporation’s promise to pay the face amount on the maturity date specified on the note, which is usually less than six months.

Commission

The amount of money, usually a percentage of the premiums that is paid to an insurance agent for selling an insurance policy.

Common Stock

A security that represents partial ownership of a corporation. Those who hold common stock are entitled to participate in stockholder meetings and to vote for the board of directors and may receive periodic dividends.

Community Property

State laws under which most property and debts acquired during a marriage—except for gifts or inheritances—are owned jointly by both spouses and are divided upon divorce or annulment. In the United States, nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Compound Interest

A process under which interest is computed both on an account’s principal and on any gains reinvested in prior periods. This is contrasted with simple interest, in which interest is calculated only on the principal amount.

Comprehensive Auto Insurance

Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.

Compulsory Auto Liability Insurance

Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.

Conditions

The part of your insurance policy that states the obligations of the person insured and those of the insurance company.

Consumer Price Index (CPI)

The U.S. government’s main measure of inflation, calculated monthly by the Department of Labor.

Contingent Beneficiary

In a life insurance policy, the person designated to receive the policy benefits if the primary beneficiary dies before the insured.

Contract

A legally enforceable agreement between two or more parties.

Conversion Privilege

The right to convert or change insurance coverage from an individual term insurance policy to an individual whole life insurance policy.

Convertible Term Life Insurance

A term life insurance policy under which the policyholder has the right to convert the policy to permanent life insurance, subject to limitations. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Copay

The fee you pay for certain medical services or for each prescription. For example, you may pay $20 for an office visit or $10 to fill a prescription and the health plan covers the balance of the charges. (1) A fee that many insurance plans require an insured to pay for certain medical services (such as a physician’s office visit). (2) An amount that the insured must pay toward the cost of each prescription under a prescription drug plan.

Corporate Bond

A debt security issued by a corporation under which the issuer promises to make periodic interest payments and to repay the investor’s principal at maturity. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, investors will receive the interest payments due plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

Corporation

A legal organization created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. Corporations are taxable entities—they are taxed separately from their members or shareholders. Corporations are able to borrow money and to make a profit separately from their members or shareholders.

Coverdell Education Savings Account (Coverdell ESA)

A tax-advantaged investment account that allows accumulation of funds to cover future education expenses, subject to limitations. Coverdell ESAs allow money to grow tax deferred and proceeds to be withdrawn tax free for qualified education expenses at a qualified institution.

Creditable Coverage

The pre-existing condition exclusion is reduced one month for every month that a person had coverage in a previous qualifying plan as long as the gap in coverage between the previous plan and the new plan is 63 days or less.

Credit Score

A statistical estimation of how likely a potential borrower is to pay his or her debts and, by extension, how much credit he or she should have.

Declination

The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.

Debt-to-Equity Ratio

The ratio of a company’s total debt to its total shareholder equity. Some use the debt-to-equity ratio to attempt to ascertain a company’s capability to repay its creditors.

Deductibles

The portion of the loss that the policyholder agrees to pay out of pocket, before the insurance company pays the amount they are obligated to cover. For example, if the covered claim is $1000 and your deductible is $250, you pay $250 and your company will pay $750. Deductibles help to keep insurance rates reasonable. Raising the amount of the deductible lowers the cost of insurance.

Deed

A legal document that confirms ownership of an asset or that confirms the passage of an interest, right or ownership in the asset from one person or legal entity to another.

Deferred Annuity

A contract with an insurance company that guarantees a future payment or series of payments in exchange for current premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

Defined Benefit Plan

A retirement plan under which the benefit to a retiring employee is defined. Defined benefit plans are normally funded by employer contributions.

Defined Contribution Plan

A retirement plan under which the annual contributions made by the employer or employee are defined. Benefits may vary depending on the performance of the investments in the account.

Deflation

A reduction in the price of goods and services. Deflation is the opposite of inflation.

Dependent

A person for whom the insured has some legal obligation to. For most plans, it is the insured’s spouse and/or children. Some plans also allow non-traditional spousal relationships (significant other, life partner, etc.) to be considered a dependent with some additional certifying paperwork.

Depreciation

Reduction in the value of property due to age and use.

Direct Rollover

The direct transfer of assets from the trustee or custodian of one qualified retirement plan or account to the trustee or custodian of another. Done correctly, direct rollovers do not trigger taxable events.

Disability Income Insurance

An insurance policy that pays a portion of the insured’s income when a specified disability makes working uncomfortable, painful or impossible.

Diversification

An investment strategy under which capital is divided among several assets or asset classes. Diversification operates under the assumption that different assets and/or asset classes are unlikely to move in the same direction, allowing gains in one investment to offset losses in another. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Dividend

Taxable payments made by a company to its shareholders. Some dividends are paid quarterly and others are paid monthly. Companies can adjust common share dividends at any time, pending approval by the company’s board of directors.

Dollar-Cost Averaging

An investment strategy under which a fixed dollar amount of securities is purchased at regular intervals. Under dollar-cost averaging, more shares are purchased when prices are low and fewer shares when prices rise. Keep in mind that dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in a rising market. Investors should evaluate their financial ability to continue making purchases through periods of declining and rising prices.

Double Indemnity

A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured’s death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other causes, within 60 or 90 days after such injury.

Dow Jones Industrial Average (DJIA)

An average calculated by summing the prices of 30 actively leading stocks on the New York Stock Exchange (NYSE) and dividing the sum by a divisor which has been adjusted to account for cases of stock splits, spinoffs or similar structural changes. Individuals cannot invest directly in an index.

Early Withdrawal

Withdrawal of funds from an investment before its maturity date or withdrawal of funds from a tax-deferred account before the legally imposed age requirements have been satisfied. Early withdrawals may be subject to penalties.

Emergency Room Visit

A visit to a hospital for treatment of an accidental injury or for emergency medical care. To qualify as an emergency, the symptoms must be sudden, severe and require immediate medical attention. Some states judge emergencies by the “prudent layperson” law, meaning that the health plan must cover a trip to the emergency room “if a prudent layperson, acting reasonably, would have believed that an emergency medical condition existed.” Keep in mind that some plans won’t cover a trip to the emergency room if the symptoms appeared more than 24 hours earlier.

Employee Retirement Income Security Act (ERISA)

A federal law that establishes the regulations under which retirement plans are governed and spells out the federal income tax regulations and effects for qualified retirement plans.

Employee Stock Ownership Plan (ESOP)

A defined-contribution plan that provides a company’s workers with an ownership interest in the company—usually as shares of company stock.

Employer-Sponsored Retirement Plan

A retirement plan sponsored by an employer for the benefit of its employees. These typically fall into one of two types: defined-contribution plans (such as SEP IRAs, 401(k) plans and 403(b) plans) and defined-benefit plans (such as traditional pensions).

Endorsement

Attachment or addendum to an insurance policy; an endorsement changes the contract’s original terms.

Equity

The value of real property or a business after all liabilities have been paid. A home worth $300,000 with a $200,000 mortgage would have $100,000 in equity.

Estate Management

The preparations necessary to manage a person’s financial and healthcare matters during his or her lifetime and to effectively and economically distribute the assets within that estate upon his or her death.

Estate Tax

Federal and/or state taxes that may be levied on the assets of a deceased person upon his or her death. These taxes are paid by the deceased person’s estate rather than his or her heirs.

Exchange-Traded Funds (ETFs)

A share of an investment company that owns a block of shares selected to pursue a specific investment objective. ETFs trade like stocks and are listed on stock exchanges and sold by broker-dealers. Exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Exclusions and Limitations

Conditions, situations and services not covered by the health plan.

Executive Bonus Plan

An executive benefit paid for by an employer.

Executor

A person named by a will or appointed by the probate court to distribute the deceased’s assets as directed by the will or, in the absence of a will, in accordance with the probate laws of the state.

Extended Term Life Insurance

A nonforfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the original policy.

Face Amount

The amount stated in the life insurance policy as the death benefit.

Federal Income Tax Bracket

A series of income ranges within which a taxpayer’s income is taxed at a certain rate. Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within the bracket’s range.

Federal Reserve System (The Fed)

The United States’ central bank. The Federal Reserve System consists of a series of 12 independent banks that operate under the supervision of a seven-member, federally appointed board of governors. The Fed strives to maintain maximum employment, stable price levels and moderate long-term interest rates. It establishes and enforces the regulations banks, savings and loans and credit unions must follow. It also acts as a clearing house for certain financial transactions and provides banking services to the federal government.

Financial Aid

Loans, grants, scholarships and work-study programs provided by federally and privately funded sources to enable students to attend college.

Financial Statement

A formal record of the financial activities of a business, person or other entity. For a business, financial statements typically include a balance sheet, a profit and loss statement and a cash flow statement.

Financial Industry Regulatory Authority (FINRA)

FINRA is an independent regulator that oversees all securities firms doing business in the U.S. FINRA seeks to protect investors by making sure the securities industry operates fairly and honestly.

First-to-Die Life Insurance

Joint life insurance taken out on the lives of two or more people that pays its death benefit when the first insured person dies.

Fixed Annuity

A contract with an insurance company that guarantees investment growth at a fixed interest rate as well as current or future payments in exchange for a premium or series of premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

Fixed-Rate Mortgage

A mortgage with a set interest rate that will not change over the life of the loan.

Floater

Additional coverage for items not otherwise included in the basic policy (such as jewelry or antiques).

Foreclosure

The legal process under which a creditor seizes the property of a borrower who has not made timely payments on his or her debt.

Front-End Load

A sales fee paid at the time an investment is purchased. This fee is deducted from the investment—thus lowering the size of the investment.

Fundamental Analysis

A method of evaluating securities that examines financial and economic factors—such as the current finances of a company and the prevailing economic environment—to determine whether the company’s future value is accurately reflected in its current stock price.

Gift

The voluntary transfer of assets under which the giver receives no compensation and retains no interest in his or her gift.

Gift Tax

A tax the federal government and some states levy on the transfer of property as a gift. Generally, gift taxes increase with the amount of the gift and are paid by the donor.

Grace Period

The specified length of time, after a life or health premium payment is due in which the insured may make the payment and keep the policy in force. (Usually 30 days.)

Gross Monthly Income

Total monthly income generated from all sources before taxes and other expenses are considered.

Group Health Insurance

An insurance plan designed for a group, such as employees of a single employer. Insurance is provided to them under a single policy.

Guaranteed Renewable Policy

A health insurance policy that the insurer is required to renew—as long as premiums are paid—at least until the insured attains the age limit specified in the policy, or the policy is cancelled by the insured. The insurer may increase the premium rate for any class of guaranteed renewable policies.

Guaranty Association

Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.

Health Savings Account (HSA)

An account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes. Unlike Flexible Spending Accounts (FSAs), funds can be rolled over from year to year if not spent.

HIPPA – Health Insurance Portability and Accountability Act of 1996

Under this federal law (known as HIPAA), group health plans cannot deny coverage based solely on an individual’s health status. This law also gives employees who change or lose their jobs better access to health coverage, guarantees renewability and availability to certain employees and limits exclusions for pre-existing conditions. For example, under this law, group health plans must credit any employee the amount of time that they spent on any health plan prior to the new plan, which is known as “prior credible coverage.” A pre-existing condition will be covered without a waiting period when an employee joins a new group plan if the employee has been insured for the previous 12 months with credible health insurance, with no lapse in coverage of 63 days or more. This means that if an employee has been insured for 12 months or more, the employee will be able to go from one job to another and his or her pre-existing coverage will remain intact—without additional waiting periods. However, if an employee has a pre-existing condition and was not covered previously for 12 months before joining a new plan, the longest the employee will have to wait for their pre-existing coverage to be covered is 12 months.

HMO (Health Maintenance Organization)

A health care financing and delivery system that provides comprehensive health care for subscribing members in a particular geographic area using managed care techniques. Most HMOs require that you only utilize physicians within their network, often going so far as to require you to choose a primary care physician who directs most courses of your treatment.

Home Equity

The real value of a home after all liabilities have been paid. Thus, a home worth $300,000 with a $200,000 mortgage would have $100,000 in equity.

Income

Monies or other compensation received from any source. This includes wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest and dividends. Generally, all income is taxable unless it is specifically exempted by law.

Incontestable Clause

A life insurance policy wording that provides a time limit (e.g., two years) on the insurer’s right to dispute a policy’s validity based on material misstatements in the application.

Indemnification

Compensation to the victim of a loss, in whole or in part, by payment, repair or replacement. Indemnity. Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.

Index

An average of the prices of a hypothetical basket of securities representing a particular market or portion of a market. Among the most well-known are the Dow Jones Industrials Index, or the Dow; the Standard & Poor’s 500 Index, or the S&P 500; and the Russell 2000 Index. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.

Individual Retirement Account (IRA)

A qualified retirement account for individuals. Contributions to a Traditional IRA may be fully or partially deductible, depending on your individual circumstance. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10-percent federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

Inflation

An upward movement in the average level of prices. Each month, the Bureau of Labor Statistics reports on the average level of prices when it releases the Consumer Price Index (CPI).

Initial Public Offering (IPO)

A company’s first public offering of stock. In an IPO, investment banks buy a company’s shares and then offer them to the public at an offering price. As the stock is traded, the market price may be more or less than the offering price. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Insolvent

Having insufficient financial resources (assets) to meet financial obligations (liabilities).

Insurable Risk

The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously and (e) the loss produced by a risk must be definite and have a potential to be financially serious.

Insurable Interest

Any interest a person has in property that is the subject of insurance, so that damage to this property would cause the insured a financial loss.

Insurance Company

An organization that has been chartered by a governmental entity to transact the business of insurance.

Insured

A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.

Insurer

The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

Interest Rate

The cost to borrow money expressed as a percentage of the loan amount over one year.

Intestate

The condition of an estate when its owner dies without leaving a valid will. In such circumstances, state law normally determines who inherits property and who serves as guardian for any minor children.

Investment Objective

The stated financial goal of an investment.

Irrevocable Beneficiary

A named beneficiary whose rights to life insurance policy proceeds cannot be canceled or changed by the policyowner unless the beneficiary consents.

Irrevocable Trust

A trust that cannot be altered, stopA trust that cannot be altered, stopped or canceled after its creation without the permission of the beneficiary or trustee. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.ped or canceled after its creation without the permission of the beneficiary or trustee. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Joint Tenancy

A form of property ownership under which two or more people have an undivided interest in the property and in which the survivor or survivors automatically assume ownership of the interest of any joint tenant who dies.

Jointly Held Property

Property owned simultaneously by more than one person. All co-owners have an equal right to use the property, and no co-owner can exclude another co-owner from the property. The most common forms of jointly held property are joint tenancy, tenancy in common and, in some states, community property.

Keogh Plan

A tax-deferred retirement plan for self-employed individuals and employees of unincorporated businesses. Keogh plans are similar to IRAs but have significantly higher contribution limits. Distributions from Keogh plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

Key Employee

Insurance protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.

Key Person Insurance

Company-owned insurance designed to cover the cost of replacing a key employee if he or she were to die or become disabled.

Lapse

Termination of a policy due to nonpayment of premiums.

Liability

A legal obligation to compensate a person harmed by one’s acts or omissions.

Liability Coverage

Insurance that provides compensation for a harm or wrong to a third party for which an insured is legally obligated to pay.

Life Insurance

A contract under which an insurance company promises, in exchange for premiums, to pay a set benefit when the policyholder dies. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Lifetime Maximum

The maximum amount of money a plan will pay towards healthcare services over the course of the insured’s lifetime.

Liquidity

The ease and speed with which an asset or security can be bought or sold.

Living Trust

A trust created by a living person which allows that person to control the assets they contribute to the trust during their lifetime and to direct their disposition upon their death.

Living Will

A written document that allows the originator to designate someone to make medical decisions on their behalf in the event that they become incapacitated due to accident or illness.

Long-Term-Care Insurance

Insurance that covers the cost of medical and non-medical services needed by those who have a chronic illness or disability—most commonly associated with aging. Long-term-care insurance can cover the cost of nursing home care, in-home assistance, assisted living and adult day care.

Loss

The happening of the event for which insurance pays.

Loss Expense – Allocated

Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.

Loss Expense – Unallocated

Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.

Lump-Sum Distribution

A one-time payment of the entire amount held in an employer-sponsored retirement, pension plan, annuity or similar account, rather than breaking payments into smaller installments.

Management Fee

The cost of having assets professionally managed. This fee is normally a fixed percentage of the fund’s asset value; terms of the fee are disclosed in the prospectus.

Marital Deduction

A provision of the tax code that allows an individual to transfer an unlimited amount of assets to their spouse at any time—including upon the individual’s death—without triggering a tax liability.

Market Risk

The risk that an entire market will decline, reducing the value of the investments in it without regard to other factors. This is also known as Systemic Risk.

Market Timing

An investment philosophy under which investors buy and sell securities in an attempt to profit from short-term price fluctuations.

Maturity

The date on which a debt security comes due for payment and on which an investor’s principal is due to be repaid.

Medicaid

The federal government’s health program for eligible individuals and families with low income and resources. It is means tested, meaning those who apply for benefits must demonstrate they have need.

Medical Payments Coverage

Medical and funeral expense coverage for bodily injuries sustained from or while occupying an insured vehicle, regardless of the insured’s negligence.

Medicare

The federal government’s health program for individuals aged 65 and over and for individuals who have certain disabilities or end-stage renal disease.

Misrepresentation

Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Money Market Fund

A mutual fund that invests in assets that are easily converted into cash and which have a low risk of price fluctuation. This may include money market holdings, Treasury bills and commercial paper. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.

Municipal Bond

A debt security issued by a state, county, city or other political entity (such as a school district) to raise public funds for special projects. The income from municipal bonds is normally exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Bond prices rise and fall daily. Municipal bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions and default risk. Some municipal bonds may be subject to the federal alternative minimum tax. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.

Municipal Bond Fund

A mutual fund offered by an investment company which specifically invests in municipal bonds. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Mutual Fund

A pooled investment account offered by an investment company. Mutual funds pool the monies of many investors and then invest the money to pursue the fund’s stated objectives. The resulting portfolio of investments is managed by the investment company. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

National Association of Securities Dealers Automated Quotations (NASDAQ)

An American stock exchange originally founded by the National Association of Securities Dealers. When the NASDAQ stock exchange began trading on February 8, 1971, it was the world’s first electronic stock market.

Negligence

Failure to use a generally acceptable level of care and caution.

Net Asset Value

The net market value of a mutual fund’s current holdings divided by the number of outstanding shares. The product of this division estimates the per-share value of the fund’s assets.

Net Income

A company’s total revenues minus its costs, expenses and taxes. Net income is the bottom line of a company’s income statement (which may also be called the profit and loss statement).

Network

A group of doctors, hospitals and other health-care providers contracting with a health plan, usually to provide care at special rates and to handle paperwork with the health plan.

Net Worth

The value of a company’s or individual’s assets minus liabilities.

New York Stock Exchange (NYSE)

A stock exchange located on Wall Street in New York City, NY. Many regard the NYSE as the largest exchange in the U.S., and possibly in the world.

No-fault Insurance

A system of compensation enacted by law in many states under which indemnification is made by the insured’s own insurance company regardless of who is at fault. Details of this system vary significantly from state to state.

Non-contributory Retirement Plan

A retirement plan that is funded entirely by employer contributions, with no employee contributions.

Non-formulary Drugs

Non-formulary drugs often require a higher copayment. Non-formulary drugs are those that have not yet been reviewed or have been denied formulary status, typically because they offer no extra benefit over the drugs already on a plan’s formulary list.

Non-qualified Plan

A retirement or employee benefit plan that is not eligible for favorable tax treatment.

Old-Age, Survivors and Disability Insurance (OASDI)

The official name of the Social Security program. In addition to retirement benefits, it offers disability income, veterans’ pensions, public housing and food stamps.

Offer and Acceptance

The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.

Out-of-Network

Health care services received outside the HMO, POS or PPO network.

Out-of-Pocket Expense

Any medical care costs not covered by insurance, which must be paid by the insured.

Paid-up Policy

An in-force life insurance policy for which no further premium payments are required.

Partnership

A contract under which two or more individuals manage and operate a business venture.

Peril

The cause of loss or damage.

Personal Injury Protection

First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.

Physical Damage

Damage to or loss of the automobile resulting from collision, fire, theft or other perils.

Permanent Life Insurance

A class of life insurance policies that do not expire—as long as premiums are kept current—and which combine a death benefit with a savings component. This savings portion can accumulate a cash value against which the policy owner may be able to borrow funds. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Personal Property Insurance

Protects against the loss of, or damage to, property other than real property (real estate) caused by specific perils.

Point-of-Service Plan

An HMO (see Health Maintenance Organization) plan that also incorporates an indemnity plan option allowing members to obtain medical care from providers outside of the HMO network at a reduced benefit and at greater out-of-pocket expense.

Policy

The written forms that make up the insurance contract between an insured and insurer. A policy includes the terms and conditions of the coverage, the perils insured or excluded, etc.

Policy Declarations

The part of the insurance contract that lists basic underwriting information, including the insured’s name, address and description of insured locations as well as policy limits.

Policy Limits

The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.

Policy Loan

A loan made by an insurance company to a policyholder. Policy loans are secured by the cash value of a life insurance policy. Withdrawals of earnings are fully taxable at ordinary income tax rates. If you are under age 59½ when you make the withdrawal, you may also be subject to a 10% federal income tax penalty. Also, withdrawals may reduce the benefits and value of the contract.

Policyholder

The person or entity who holds an insurance policy; usually the client in whose name an insurance policy is written.

Policyowner

An individual with an ownership interest in an insurance policy.

Policy Period

The amount of time an insurance contract or policy lasts.

Policy Rider

A provision to a life insurance policy that is purchased separately from the basic policy and that provides additional benefits at additional cost.

Portfolio

The combined investments of an individual investor or mutual fund.

Power of Attorney

A legal document that grants one person authority to act for another person in specific legal or financial matters in the event that said individual becomes incapacitated.

PPO (Preferred Provider Organization)

An organization where providers are under contract to an insurance company or health plan to provide care at a discounted or negotiated rate. Typically, you can see any doctor in the PPO network without requiring special approval, and you usually do not need to choose a primary care physician. Most PPOs will also allow you to seek care outside of the PPO network; however, the benefits are usually reduced and the insured has a greater out-of-pocket expense.

Pre-existing Condition

(1) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself before the policy was issued and that was not disclosed on the application for insurance. (2) According to most group health insurance policies, a condition (excluding pregnancy) for which an individual received medical care during the three to six months immediately prior to the enrollment of their coverage.

Pre-existing Conditions Provision

A health insurance policy provision stating that benefits will not be paid for any illness and/or condition that existed prior to one becoming an insured under the particular health plan in question, until the insured has been covered under the policy for a specified period.

Preferred Risk

A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.

Preferred Stock

Securities that represent ownership in a corporation and have a higher claim on a company’s assets and earnings than common stock. Dividends on preferred stock are generally paid out before dividends to common stockholders.

Premium

The price for insurance coverage as described in the insurance policy for a specific period of time.

Prenuptial Agreement

A contract entered into by those contemplating marriage that sets forth how their individual property will be divided should they ultimately divorce.

Price/Earnings Ratio (P/E Ratio)

A ratio calculated by dividing a stock’s price by its earnings per share. Investors use this ratio to learn how much they are paying for a company’s earnings.

Primary Beneficiary

The person designated as the first to receive the proceeds of a life insurance policy upon the death of the insured.

Primary Care Physician (PCP)

A general or family practitioner who serves as the insured’s personal physician and first contact with a managed care system. The PCP will usually direct the course of your treatment and/or refer you to other doctors and/or specialists in the network.

Prime Interest Rate

The interest rate commercial banks charge their most credit-worthy or “prime” customers. The prime interest rate is influenced by the federal funds rate.

Principal

The original amount invested in a security, excluding earnings; the face value of a bond; or the remaining amount owed on a loan, separate from interest.

Probate

The court-supervised process in which a deceased person’s debts are paid and any remaining assets distributed to their heirs.

Probationary Period

The length of time that a new group member must wait before becoming eligible to enroll in a group insurance plan.

Profit-Sharing Plan

A defined-contribution plan under which employees share in company profits. The funds within the plan accumulate tax deferred.

Proof of Loss

A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.

Property

Anything over which a person or business has legal title. Property may be held in common or privately owned.

Property Damage Coverage

An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.

Prospectus

A legal document that provides the information an investor needs to make an informed decision about an investment offered for sale to the public. Prospectuses are required by and filed with the Securities and Exchange Commission.

Protection Amount

The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured. This amount will be reduced by the amount of any outstanding policy loan.

Qualified Retirement Plan

A retirement plan that is established and operates within the rules laid down in Section 401(a) of the Internal Revenue Code, and thus receives favorable tax treatment.

Rate

The pricing factor upon which the insurance buyer’s premium is based.

Rated Policy

Sometimes called an “extra-risk” policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI (Driving Under the Influence) or other traffic violations.

Rate of Return

A measure of the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment’s initial cost. Rates of return usually account for any income received from the investment in addition to any realized capital gains.

Real Estate Investment Trust (REIT)

A pooled investment that invests primarily in real estate. REITs trade like stocks on the major exchanges. Keep in mind that the return and principal value of REIT prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Rebating

Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.

Redemption

The return of an investor’s principal in a debt security—such as a preferred stock or bond—upon maturity or cancellation by the entity that originally issued the security. Redemption can also refer to the sale of units in a mutual fund.

Reimbursement

The payment of an amount of money by an insurance policy for a covered loss.

Reinstatement:

The process by which a life insurance company puts back in force a policy that has lapsed or has been canceled for nonpayment of premium.

Replacement Cost Coverage

In the event of a covered loss, you may be reimbursed for the cost you incur to replace many of your damaged contents with similar property, brand new. The total amount you’d be reimbursed is subject to the terms and conditions of your particular policy, including applicable deductible and coverage limits.

Renewable Term Life Insurance

A renewable life policy permits the owner of the policy to automatically renew the policy beyond its original term by acceptance of a premium for a new policy term without evidence of insurability.

Required Minimum Distribution (RMD)

The amount that must be withdrawn annually from a qualified retirement plan, beginning April 1 of the year following the year in which the account holder reaches age 72.

Revenue

The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.

Revocable Beneficiary

A life insurance policy whose designation as beneficiary can be revoked or changed by the policyowner at any time prior to the insured’s death.

Revocable Trust

A trust that can be altered or canceled by its grantor. During the life of the trust, any income earned is distributed to the grantor; upon the grantor’s death, the contents of the trust are transferred to its beneficiaries according to the terms of the trust.

Rider

An addition to an insurance policy that becomes a part of the contract.

Risk

The possibility or chance of loss or injury.

Risk Tolerance

A measurement of an investor’s willingness or ability to handle investment losses.

Rollover

A tax-free transfer of assets from one qualified retirement program to another. Rollovers must be made in accordance with specific requirements to avoid a taxable event.

Roth IRA

A qualified retirement plan in which earnings grow tax deferred and distributions are tax free. Contributions to a Roth IRA are generally not deductible for tax purposes, and there are income and contribution limits. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Roth IRA Conversion

The process of transferring assets from a traditional, SEP or SIMPLE IRA to a Roth IRA. Roth IRA conversions are subject to specific requirements and may be taxable.

Salvage

Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.

Savings Incentive Match Plan for Employees (SIMPLE)

A qualified retirement plan that allows employees and employers to contribute to traditional IRAs set up for employees. SIMPLE plans are available to small businesses—those with 100 or fewer employees—that do not currently offer another retirement plan.

Securities and Exchange Commission (SEC)

A federal agency with a mandate to protect investors to maintain fair, orderly and efficient markets and to facilitate capital formation. The SEC acts as one of the primary regulatory agencies for the investment industry.

Self-Directed IRA

An individual retirement arrangement in which the account holder can direct the investment of funds, subject to certain conditions and limits.

Settlement

An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.

Share

A unit of ownership in a corporation or financial asset.

Split-Dollar Plan

An arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.

Split-Dollar Life Insurance

An arrangement under which a life insurance policy’s premium, cash values and death benefit are split between two parties—usually a corporation and a key employee or executive. Under such an arrangement an employer may own the policy and pay the premiums and give a key employee or executive the right to name the recipient of the death benefit. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Spousal IRA

An individual retirement arrangement under which an IRA is established for a non-working spouse and is funded with contributions from the working spouse. Spousal and non-spousal IRAs are subject to combined annual contribution limits and must meet certain requirements. Contributions to a traditional IRA may be fully or partially deductible, depending on your individual circumstance. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a spousal IRA. Withdrawals are taxed as ordinary income, and if taken before age 59½, may be subject to a 10-percent federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

Standard Industrial Classification (SIC)

The Standard Industrial Classification (SIC) system is a series of number codes that attempts to classify all business establishments by the types of products or services they make available. Establishments engaged in the same activity, whatever their size or type of ownership, are assigned the same SIC code. These definitions are important for standardization. Insurance companies use SIC codes to determine specific rates for various industries. HealthInsurance.com uses these codes to ensure that you receive the best possible rate for your occupation.

Standard & Poor’s 500 Index (S&P 500)

An average calculated by summing the prices of 500 leading companies in leading industries of the U.S. economy and dividing the sum by a divisor which is regularly adjusted to account for stock splits, spinoffs or similar structural changes. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.

Standard Risk

A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.

Standard Risk Rate

The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.

Stock

An equity investment in a company. Stockholders own a share of the company and are entitled to any dividends and financial participation in company growth. They also have the right to vote on the company’s board of directors. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Stock Certificate

A legal document that certifies ownership of a specific number of shares of stock in a corporation. In many transactions, the stockholder is registered electronically, and no certificate is issued.

Stock Purchase Plan

A program under which an employer offers its employees the opportunity to buy stock at a favorable price, often through payroll deduction.

Stock Split

A decision by a company to increase the number of shares of stock it has outstanding by issuing more shares to its current shareholders. For example, in a 2-for-1 split, each shareholder would receive as many new shares as they own—effectively doubling the number of shares they own. The price per share adjusts to account for the split. In the example of a 2-for-1 split, each of the new shares would have a par value of half the prior price.

Subrogation

Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. The general rule is that, after paying your claim, your insurer is “subrogated” to the rights of your policy and can “step into your shoes” to go after or sue the negligent party on your behalf.

Substandard Risk

A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.

Stop-Loss Provision

A major medical policy provision under which the insurer will pay 100% of the insured’s eligible medical expenses after the insured has incurred a specified amount of out-of-pocket expenses in deductible and coinsurance payments.

Tax Credit

A credit subtracted from income taxes after preliminary tax liability has been calculated.

Tax Deduction

An amount that can be subtracted from a taxpayer’s income before taxes are calculated. Taxpayers may use the standard deduction or may itemize deductions if allowable itemized deductions exceed the standard deduction.

Tax Deferred

A condition of certain plans and accounts under which the funds in the plan or account, along with any accrued interest, dividends or other capital gains, are not subject to taxes until the funds are withdrawn.

Tax-Exempt Bonds

Debt securities issued by a state, county, city or other political entity (such as a school district) that generate income which is exempt from federal income taxes. Income from such bonds may also be exempt from state income taxes in the state in which the bond is issued. However, some tax-exempt bonds may be subject to the federal alternative minimum tax. Bond prices rise and fall daily. Municipal bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions and default risk. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.

Taxable Income

A taxpayer’s gross income, minus any adjustments, itemized deductions or the standard deduction and personal exemptions. Taxable income is used to compute tax liability.

Technical Analysis

A method of evaluating securities by examining recent price movements and trends in an attempt to identify patterns that can suggest future activity. Generally, technical analysis is the opposite of fundamental analysis.

Tenancy in Common

A form of property ownership under which two or more people have an undivided interest in the property and in which the interest of a deceased owner passes to their beneficiaries rather than to the surviving owners.

Term Insurance

Life insurance that provides coverage for a specific period. If the policyholder dies during that time, their beneficiaries receive the benefit from the policy. If the policyholder outlives the term of the policy, it is no longer in effect. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Testamentary Trust

A trust created by a will or trust that is established on the death of the trustor. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Theft Limit (or Inside Policy Limits)

The highest amount an insurance company will pay on certain items of personal property. For instance, some policies have a $5,000 limit for computers. If an item would cost more than the limit to replace, you may need to purchase supplementary coverage.

Time Horizon

The amount of time an investor plans to hold an investment or portfolio of investments.

Title

A legal document that serves as evidence of ownership of an asset or security.

Total Return

The total of all earnings from an investment or portfolio, including both capital appreciation and any income received.

Treasuries

Debt securities issued by the United States government. Treasury bills normally have maturities of less than one year, while Treasury notes have maturities between one and 10 years, and Treasury bonds have maturities between 10 and 30 years. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury security prior to maturity, it could be worth more or less than the original price paid.

Trust

A trust is a legal arrangement that creates a separate entity which can own property and is managed for the benefit of a beneficiary. A living trust is created while its grantor is still alive. A testamentary trust is created upon the grantor’s death—usually by another trust or by a will. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Trustee

An individual, corporation or other entity that manages property held in a trust.

Trustee-to-Trustee Transfer

A means for transferring assets from one qualified retirement program to another without triggering a taxable event.

Umbrella Liability Insurance

Umbrella liability insurance is becoming more popular as people are realizing how inexpensive an umbrella policy and umbrella coverage can be. See how umbrella liability protection can be a nice added cushion of insurance on top of your existing policies.

Underwriter

(a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.

Underwriting

The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.

Uniform Gift to Minors Act (UGMA)

An act available in some states that allows assets to be held in a custodian’s name for the benefit of a minor without the need to set up a trust. Once the child to whom the assets have been gifted reaches the age of maturity in their state, the assets become their property and can be used for any purpose.

Unilateral

A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policyowner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policyowner.

Uninsured (Underinsured) Motorist Coverage

A form of insurance that pays the policyholder and passengers in their car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

Uninsurable Risk

One not acceptable for insurance due to excessive risk.

Universal Life Insurance

Permanent life insurance that allows the policyholder to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax deferred. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Unlimited Marital Deduction

A provision of the tax code that allows an individual to transfer an unlimited amount of assets to their spouse at any time—including upon the individual’s death—without triggering a tax liability.

Urgent Care

Urgent care is appropriate when a medical urgency arises which necessitates immediate care, but has not reached the level of extreme emergency. Most managed care plans require you to seek urgent care at a participating urgent care facility or hospital.

Usual, Customary and Reasonable Fee

The maximum dollar amount of a covered expense that is considered eligible for reimbursement under a major medical policy.

Variable Interest Rate

An interest rate that moves up and down with a specific measure or index, such as current money market rates or a lender’s cost of funds.

Variable Universal Life Insurance

Permanent life insurance that allows the policyholder to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax deferred. Within certain limits, policyholders can direct how this cash value will be allocated among subaccounts offered within the policy. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Volatility

A measure of the range of potential fluctuations in a security’s value. A higher volatility means the security’s value can potentially fluctuate over a larger range of potential outcomes—up and down.

Waiver

An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.

Whole Life Insurance

Permanent life insurance with fixed premiums and death benefit. Whole life insurance policies accumulate cash value which grows tax deferred. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Will

A legal document by which an individual or a couple identifies their wishes regarding the distribution of their assets after death as well as the guardianship of any minor children.

Withholding

The process by which an employer holds back part of an employee’s compensation to pay their share of income, Social Security and Medicare taxes. Amounts withheld are paid to the IRS in the employee’s name.

Yield

A measure of the performance of an investment. Yield is calculated by dividing the income received from an investment by the investment’s initial cost. Yield differs from rate of return in that it accounts only for income; rate of return also includes appreciation or depreciation in the value of the investment.

Zero-Coupon Bond

A bond that does not pay interest during its life. Zero-coupon bonds are purchased at a discount from their face value. When a zero-coupon bond matures, the investor receives the face value of the bond. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less that the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus his or her original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk. Bond prices rise and fall daily. Bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions and default risk. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.

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