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Life Insurance Terms
And
Definitions
Like any industry,
the life insurance industry has it's own
unique terms.
Term Life America Insurance
we wants you to understand our language so you can make the best
choice for your family. Therefore, we are providing this
glossary of life insurance terms.
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Adjusted Gross Income (AGI)
-
An interim calculation in the computation of income tax
liability. It is computed by subtracting certain
allowable adjustments from gross income. top
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Administrator
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A person appointed by the court to settle an estate when
there is no will. top
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After-Tax Return
-
The return from an investment after the effects of taxes
have been taken into account. top
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Aggressive Growth Fund
-
A mutual fund whose primary investment objective is
substantial capital gains. top
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Alternative Minimum Tax
-
A method of calculating income tax that disallows
certain deductions, credits, and exclusions. This was
intended to ensure that individuals, trusts, and estates
that benefit from tax preferences do not escape all
federal income tax liability. People must calculate
their taxes both ways and pay the greater of the two. top
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Annuity
-
An insurance-based contract that provides future
payments at regular intervals in exchange for current
premiums. Annuity contracts are usually purchased from
banks, credit unions, brokerage firms, or insurance
companies. top
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Asset
-
Anything owned that has monetary value. top
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Asset Allocation
-
The process of repositioning assets within a portfolio
to maximize return for a given level of risk. This
process is usually done using the historical performance
of the asset classes within sophisticated mathematical
models. top
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Asset Class
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A category of investments with similar
characteristics. top
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Audit
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The examination of the accounting and financial
documents of a firm by an objective professional. The
audit is done to determine the records' accuracy,
consistency, and conformity to legal and accounting
principles. top
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Balanced Mutual Fund
-
A mutual fund whose objective is a balance of stocks and
bonds. Such funds tend to be less volatile than
stock-only funds. top
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Bear Market
-
When the stock market appears to be declining overall,
it is said to be a bear market. top
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Beneficiary
-
A person named in a life insurance policy, annuity,
will, trust, or other agreement to receive a financial
benefit upon the death of the owner. A beneficiary can
be an individual, company, organization, and so on. top
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Blue Chip Stock
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The common stock of a company with a long history of
profitability and consistent dividend payments. top
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Bond
-
A bond is evidence of a debt in which the issuer
promises to pay the bondholders a specified amount of
interest and to repay the principal at maturity. Bonds
are usually issued in multiples of $1,000. top
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Book Value
-
The net value of a company's assets, less its
liabilities and the liquidation price of its preferred
issues. The net asset value divided by the number of
shares of common stock outstanding equals the book value
per share, which may be higher or lower than the stock's
market value. top
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Bull Market
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When the stock market appears to be advancing overall,
it is said to be a bull market. top
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Buy-Sell Agreement
-
A buy-sell agreement is an arrangement between two or
more parties that obligates one party to buy the
business and another party to sell the business upon the
death, disability, or retirement of one of the
owners. top
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Capital Gain or Loss
-
The difference between the sales price and the purchase
price of a capital asset. When that difference is
positive, the difference is referred to as a capital
gain. When the difference is negative, it is a capital
loss. top
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Cash Equivalents
-
Short-term investments, such as U.S. Treasury
securities, certificates of deposit, and money market
fund shares, that can be readily converted into cash. top
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Cash Surrender Value
-
The amount that an insurance policyholder is entitled to
receive when he or she discontinues coverage.
Policyholders are usually able to borrow against the
surrender value of a policy from the insurance company.
Loans that are not repaid will reduce the policy's death
benefit. top
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Certified Financial Planner (CFP)
-
A designation granted by the CFP Board of Standards
(Denver, CO) to individuals who complete a comprehensive
curriculum in financial planning, pass a written
examination, and have qualifying experience. This
curriculum includes risk management, tax planning,
employee benefits, investments, and estate planning. top
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Certified Public Accountant (CPA)
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A professional license granted by a state board of
accountancy to an individual who has passed the Uniform
CPA Examination (administered by the American Institute
of Certified Public Accountants) and has fulfilled that
state's educational and professional experience
requirements for certification. top
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Charitable Lead Trust
-
A trust established for the benefit of a charitable
organization under which the charitable organization
receives income from an asset for a set number of years
or for the trustor's lifetime. Upon the termination of
the trust, the asset reverts to the trustor or to his or
her designated heirs. This type of trust can reduce
estate taxes and allows the trustor's heirs to retain
control of the assets. top
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Charitable Remainder Trust
-
A trust established for the benefit of a charitable
organization under which the trustor receives income
from an asset for a set number of years or for the
trustor's lifetime. Upon the termination of the trust,
the asset reverts to the charitable organization. The
trustor receives a charitable contribution deduction in
the year in which the trust is established, and the
assets placed in the trust are exempt from capital gains
tax. top
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Chartered Financial Consultant (ChFC)
-
A designation granted by the American College (Bryn
Mawr, PA) to individuals who pass a series of written
examinations on topics related to financial services,
taxation, economics, and estate planning. top
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Chartered Life Underwriter (CLU)
-
A designation granted by the American College (Bryn
Mawr, PA) to individuals who pass a series of written
examinations on topics related to insurance, taxation,
economics, and estate planning. top
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COBRA
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The Consolidated Omnibus Budget Reconciliation Act is a
federal law requiring employers with more than 20
employees to offer terminated or retired employees the
opportunity to continue their health insurance coverage
for 18 months at the employee's expense. Coverage may be
extended to the employee's dependents for 36 months in
the case of divorce or death of the employee. top
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Coinsurance or Co-Payment
-
The amount an insured person must pay for a covered
medical and/or dental expense if his or her insurance
doesn't provide 100 percent coverage. top
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Commodities
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The generic term for goods such as grains, foodstuffs,
livestock, oils, and metals which are traded on national
exchanges. These exchanges deal in both "spot" trading
(for current delivery) and "futures" trading (for
delivery in future months). top
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Common Stock
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A unit of ownership in a corporation. Common
stockholders participate in the corporation's profits or
losses by receiving dividends and by capital gains or
losses in the stock's share price. top
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Community Property
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State laws vary, but generally all property acquired
during a marriage - excluding property one spouse
receives from a will, inheritance, or gift - is
considered community property, and each partner is
entitled to one half. This includes debt accumulated.
There are currently nine community property states:
Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington, and Wisconsin. top
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Compound Interest
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Interest that is computed on the principal and on the
accrued interest. Compound interest may be computed
continuously, daily, monthly, quarterly, semiannually,
or annually. top
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Consumer Price Index
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The U.S. Department of Labor's main indicator of
inflation. The Consumer Price Index is calculated each
month from the cost of some 400 retail items in urban
areas throughout the United States. top
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Deduction
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An amount that can be subtracted from gross income, from
a gross estate, or from a gift, thereby lowering the
amount on which tax is assessed. top
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Defined Benefit Plan
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A qualified retirement plan under which a retiring
employee will receive a guaranteed retirement fund,
usually payable in installments. Annual contributions
may be made to the plan by the employer at the level
needed to fund the benefit. The annual contributions are
limited to a specified amount, indexed for inflation. top
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Defined Contribution Plan
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A retirement plan under which the annual contributions
made by the employer or employee are generally stated as
a fixed percentage of the employee's compensation or
company profits. The amount of retirement benefits is
not guaranteed; rather, it depends upon the investment
performance of the employee's account. top
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Diversification
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Investing in different companies, industries, or asset
classes. Diversification may also mean the participation
of a large corporation in a wide range of business
activities. top
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Dividend
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A pro rata portion of earnings distributed in cash by a
corporation to its stockholders. In preferred stock,
dividends are usually fixed; with common shares,
dividends may vary with the fortunes of the company. top
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Dollar Cost Averaging
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A system of investing in which the investor buys a fixed
dollar amount of securities at regular intervals. The
investor thus buys more shares when the price is low and
fewer shares when it rises, and the average cost per
share is lower than the average price per share. This
strategy does not protect against loss in declining
markets and involves continuous investments, regardless
of fluctuating price levels. top
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Efficient Frontier
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A statistical result from the analysis of the risk and
return for a given set of assets that indicates the
balance of assets that may, under certain assumptions,
acheive the best return for a given level of risk. top
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Employer-Sponsored Retirement Plan
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A tax-favored retirement plan that is sponsored by an
employer. Among the more common employer-sponsored
retirement plans are 401(k) plans, 403(b) plans,
simplified employee pension plans, and profit-sharing
plans. top
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Equity
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The value of a person's ownership in real property or
securities; the market value of a property or business,
less all claims and liens upon it. top
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ERISA
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The Employee Retirement Income Security Act is a federal
law covering all aspects of employee retirement plans.
If employers provide plans, they must be adequately
funded and provide for vesting, survivor's rights, and
disclosures. top
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ESOP (employee stock ownership plan)
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A defined contribution retirement plan in which company
contributions must be invested primarily in qualifying
employer securities. top
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Estate Conservation
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Activities coordinated to provide for the orderly and
cost-effective distribution of an individual's assets at
the time of his or her death. Estate conservation often
includes wills and trusts. top
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Estate Tax
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Upon the death of a decedent, federal and state
governments impose taxes on the value of the estate left
to others (with limitations). top
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Executive Bonus Plan
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The employer pays for a benefit that is owned by the
executive. The bonus could take the form of cash,
automobiles, life insurance, or other items of value to
the executive. top
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Executor
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A person named by the probate courts or the will to
carry out the directions and requests of the
decedent. top
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Fixed Income
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Income from investments such as CDs, Social Security
benefits, pension benefits, some annuities, or most
bonds that is the same every month. top
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401(k) Plan
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A defined contribution plan that may be established by a
company for retirement. Employees may allocate a portion
of their salaries into this plan, and contributions are
excluded from their income for tax purposes (with
limitations). Contributions and earnings will compound
tax deferred. top
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403(b) Plan
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A defined contribution plan that may be established by a
nonprofit organization or school for retirement.
Employees may allocate a portion of their salaries into
this plan, and contributions are excluded from their
income for tax purposes (with limitations).
Contributions and earnings will compound tax
deferred. top
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Fundamental Analysis
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An approach to the stock market in which specific
factors - such as the price-to-earnings ratio, yield, or
return on equity - are used to determine what sotck may
be favorable for investment. top
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Gift Taxes
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A federal tax levied on the transfer of property as a
gift. This tax is paid by the donor. The first $10,000 a
year from a donor to each recipient is exempt from tax.
Most states also impose a gift tax. The gift tax
exemption is indexed annually for inflation. top
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Holographic Will
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A will entirely in the handwriting of the testator.
Without witnesses, holographic wills are valid and
enforceable only in some states. top
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Index
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A calculation that uses a selection of stocks or bonds
to guage a certain market. The Dow Jones Industrial
Average, for example, is an index of 30 large industrial
companies on the New York Stock Exchange. top
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Individual Retirement Account (IRA)
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Contributions to a traditional IRA - up to $2,000 per
year - are deductible from earned income in the
calculation of federal and state income taxes if the
taxpayer meets certain requirements. The earnings
accumulate tax deferred until withdrawn, and then they
are taxed as ordinary income. Individuals not eligible
to make deductible contributions may make nondeductible
contributions, the earnings on which would be tax
deferred. top
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Inflation
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An increase in the price of products and services over
time. The government's main measure of inflation is the
Consumer Price Index. top
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Intestate
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A person who dies without leaving a valid will. State
law then determines who inherits the property or serves
as guardian for any minor children. top
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Investment Category
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A broad class of assets with similar characteristics.
The five investment categories include cash equivalents,
fixed principal, equity, debt, and tangibles. top
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Irrevocable Trust
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A trust that may not be modified or terminated by the
trustor after its creation. top
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Joint and Survivor Annuity
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Most pension plans must offer this form of pension plan
payout that pays over the life of the retiree and his or
her spouse after the retiree dies. The retiree and his
or her spouse must specifically choose not to accept
this payment form. top
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Joint Tenancy
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Co-ownership of property by two or more people in which
the survivor(s) automatically assumes ownership of a
decedent's interest. top
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Jointly Held Property
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Property owned by two or more persons under joint
tenancy, tenancy in common, or, in some states,
community property. top
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Keogh Plan
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This retirement plan, named for Eugene Keogh, is
designed for self-employed individuals. Up to $30,000 or
25 percent of self-employed income (whichever is less)
may be deducted from compensation and set aside into the
plan. top
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Liability
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Any claim against the assets of a person or corporation:
accounts payable, wages, and salaries payable, dividends
declared payable, accrued taxes payable, and fixed or
long-term obligations such as mortgages, debentures, and
bank loans. top
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Limited Partnership
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Limited partnerships pool the money of investors to
develop or purchase income-producing properties. When
the partnership subsequently receives income from these
properties, it distributes the income to its investors
as dividend payments. top
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Liquidity
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The ease with which an asset or security can be
converted into cash without loss of principal. top
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Living Trust
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A trust created by a person during his or her
lifetime. top
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Lump-Sum Distribution
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The disbursement of the entire value of a profit-sharing
plan, pension plan, annuity, or similar account to the
account owner or beneficiary. Lump-sum distributions may
be rolled over into another tax-deferred account. top
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Marginal Tax Bracket
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The range of taxable income that is taxable at a certain
rate. Currently, there are five marginal tax brackets:
15 percent, 28 percent, 31 percent, 36 percent, and 39.6
percent. top
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Marital Deduction
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A provision of the tax codes that allows all the assets
of a deceased spouse to pass to the surviving spouse
free of estate taxes. This provision is also referred to
as the unlimited marital deduction. top
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Money Market Fund
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A mutual fund that specializes in investing in
short-term securities and that tries to maintain a
constant net asset value of $1. top
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Municipal Bond
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A debt security issued by municipalities. The income
from municipal bonds is usually exempt from federal
income taxes. In many states, it is also exempt from
state income taxes in the state in which the municipal
bond is issued. top
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Municipal Bond Fund
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A mutual fund that specializes in investing in municipal
bonds. top
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Mutual Fund
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A collection of stocks, bonds, or other securities
purchased and managed by an investment company with
funds from a group of investors. top
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Net Asset Value
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The price at which a mutual fund sells or redeems its
shares. The net asset value is calculated by dividing
the net market value of the fund's assets by the number
of outstanding shares. top
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Pooled Income Fund
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A trust created by a charitable organization that
combines the contributions of several donors and
distributes income to those donors based on the earnings
of the trust. The trust is managed by the charitable
organization, and contributions are partially deductible
for income tax purposes. top
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Portfolio
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All the investments held by an individual or mutual
fund. top
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Preferred Stock
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A class of stock with claim to a company's earnings,
before payment can be made on the common stock, and that
is usually entitled to priority over common stock if the
company liquidates. Generally, preferred stocks pay
dividends at a fixed rate. top
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Prenuptial Agreement
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A legal agreement arranged before marriage stating who
owns property acquired before marriage and during
marriage and how property will be divided in the event
of divorce. ERISA benefits are not affected by
prenuptial agreements. top
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Price/Earnings Ratio (P/E Ratio)
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The market price of a stock divided by the company's
annual earnings per share. Because the P/E ratio is a
widely regarded yardstick for investors, it often
appears with stock price quotations. top
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Principal
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In a security, the principal is the amount of money that
is invested, excluding earnings. In a debt instrument
such as a bond, it is the face amount. top
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Probate
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The court-supervised process in which a decedent's
estate is settled and distributed. top
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Profit-Sharing Plan
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An agreement under which employees share in the profits
of their employer. The company makes annual
contributions to the employees' accounts. These funds
usually accumulate tax deferred until the employee
retires or leaves the company. top
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Prospectus
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A document provided by mutual fund companies to
prospective investors. The prospectus gives information
needed by investors to make informed decisions prior to
investing in a specific mutual fund. The prospectus
includes information on the minimum investment amount,
the fund's objectives, past performance, risk level,
sales charges, management fees, and any other expense
information about the fund, as well as a description of
the services provided to investors in the fund. top
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Qualified Domestic Relations Order (QDRO)
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At the time of divorce, this order would be issued by a
state domestic relations court and would require that an
employee's ERISA retirement plan accrued benefits be
divided between the employee and the spouse. top
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Qualified Retirement Plan
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A pension, profit-sharing, or qualified savings plan
that is established by an employer for the benefit of
the employees. These plans must be established in
conformity with IRS rules. Contributions accumulate tax
deferred until withdrawn and are deductible to the
employer as a current business expense. top
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Revocable Trust
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A trust in which the creator reserves the right to
modify or terminate the trust. top
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Risk
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The chance that an investor will lose all or part of an
investment. top
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Risk-Averse
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Refers to the assumption that rational investors will
choose the security with the least risk if they can
maintain the same return. As the level of risk goes up,
so must the expected return on the investment. top
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Rollover
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A method by which an individual can transfer the assets
from one retirement program to another without the
recognition of income for tax purposes. The requirements
for a rollover depend on the type of program from which
the distribution is made and the type of program
receiving the distribution. top
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Roth IRA
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A nondeductible IRA that allows tax-free withdrawals
when certain conditions are met. Income and contribution
limits apply. top
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Security
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Evidence of an investment, either in direct ownership
(as with stocks), creditorship (as with bonds), or
indirect ownership (as with options). top
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Simplified Employee Pension Plan
(SEP)
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A type of plan under which the employer contributes to
an employee's IRA. Contributions may be made up to a
certain limit and are immediately vested. top
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Single-Life Annuity
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An insurance-based contract that provides future
payments at regular intervals in exchange for current
premiums. Generally used as a supplement to retirement
income and pays over the life of one individual, usually
the retiree, with no rights of payment to any
survivor. top
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Split-Dollar Plan
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An arrangement under which two parties (usually a
corporation and employee) share the cost of a life
insurance policy and split the proceeds. top
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Spousal IRA
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An IRA designed for a couple when one spouse has no
earned income. The maximum combined contribution that
can be made each year to an IRA and a spousal IRA is
$4,000 or 100 percent of earned income, whichever is
less. This total may be split between the two IRAs as
the couple wishes, provided the contribution to either
IRA does not exceed $2,000. top
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Tax Bracket
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The range of taxable income that is taxed at a certain
rate. Brackets are expressed by their marginal rate. top
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Tax Credit
-
Tax credits, the most appealing type of tax deductions,
are subtracted directly, dollar for dollar, from your
income tax bill. top
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Tax Deferred
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Interest, dividends, or capital gains that grow untaxed
in certain accounts or plans until they are
withdrawn. top
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Tax-Exempt Bonds
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Under certain conditions, the interest from bonds issued
by states, cities, and certain other government agencies
is exempt from federal income taxes. In many states, the
interest from tax-exempt bonds will also be exempt from
state and local income taxes. top
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Taxable Income
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The amount of income used to compute tax liability. It
is determined by subtracting adjustments, itemized
deductions or the standard deduction, and personal
exemptions from gross income. top
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Technical Analysis
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An approach to investing in stocks in which a stock's
past performance is mapped onto charts. These charts are
examined to find familiar patterns to use an an
indicator of the stock's future performance. top
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Tenancy in Common
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A form of co-ownership. Upon the death of a co-owner,
his or her interest passes to his or her chosen
beneficiaries and not to the surviving owner or
owners. top
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Term Insurance
-
Term life insurance provides a death benefit if the
insured dies. Term insurance does not accumulate cash
value and ends after a certain number of years or at a
certain age. top
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Testamentary Trust
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A trust established by a will that takes effect upon
death. top
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Testator
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One who has made a will or who dies having left a
will. top
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Total Return
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The total of all earnings from a given investment,
including dividends, interest, and any capital gain. top
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Trust
-
A legal entity created by an individual in which one
person or institution holds the right to manage property
or assets for the benefit of someone else. Types of
trusts include: top
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Trustee
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An individual or institution appointed to administer a
trust for its beneficiaries. top
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Trustee-to-Trustee Transfer
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A method of transferring retirement plan assets from one
employer's plan to another employer plan or to an IRA.
One benefit of this method is that no federal income tax
will be withheld by the trustee of the first plan. top
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Unified Credit
-
A credit that may be applied against an individual's
gift or estate taxes. The unified credit will increase
in gradual steps until it eventually exempts an estate
valued up to $1,000,000 from federal estate taxes in
2006. top
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Universal Life Insurance
-
A type of life insurance that combines a death benefit
with a savings element which accumulates tax deferred at
current interest rates. Under a universal life insurance
policy, the policyholder can increase or decrease his or
her coverage, with limitations, without purchasing a new
policy. top
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Variable Universal Life Insurance
-
A type of life insurance that combines a death benefit
with a savings element that accumulates tax deferred at
current interest rates. Under a variable universal life
insurance policy, the cash value in the policy can be
placed in a variety of subaccounts with different
investment objectives. The policyholder can transfer
funds among the subaccounts as he or she wishes. Fees
are charged after a certain number of transfers. top
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Volatility
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The range of price swings of a security or market over
time. top
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Welfare Benefit Plan
-
An employee benefit plan that provides such benefits as
medical, sickness, accident, disability, death, or
unemployment benefits. top
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Whole Life Insurance
-
A type of life insurance that offers a death benefit and
also accumulates cash value, tax deferred at fixed
interest rates. Whole life insurance policies generally
have a fixed annual premium that does not rise over the
duration of the policy. Whole life insurance is also
referred to as "ordinary" or "straight" life
insurance. top
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Will
-
A legal document that declares a person's wishes
concerning the disposition of property, the guardianship
of his or her children, and the administration of the
estate after his or her death. top
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Yield
-
In general, the yield is the amount of current income
provided by an investment. For stocks, the yield is
calculated by dividing the total of the annual dividends
by the current price. For bonds, the yield is calculated
by dividing the annual interest by the current price.
The yield is distinguished from the return, which
includes price appreciation or depreciation. top
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Zero-Coupon Bond
-
This type of bond makes no periodic interest payments
but instead is sold at a steep discount from its face
value. Bondholders receive the face value of their bonds
when they mature. top
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TermLifeAmerica.com-
Lewis Fink is licensed as an insurance agent
offering Life Insurance in the following states:
Alabama - AL,
Arkansas - AR,
California - CA,
Colorado - CO,
Connecticut - CT,
Delaware - DE, District of Columbia - DC,
Florida - FL,
Georgia - GA,
Idaho - ID,
Illinois - IL,
Indiana - IN,
Iowa - IA,
Kansas - KS,
Kentucky - KY,
Louisiana - LA,
Maine - ME,
Maryland - MD,
Massachusetts - MA,
Michigan - MI,
Mississippi - MS,
Missouri - MO,
Montana - MT,
Nebraska - NE,
New Mexico - NM,
New Jersey - NJ,
New York - NY,
North Carolina - NC,
North Dakota - ND,
Ohio - OH,
Oklahoma - OK,
Pennsylvania - PA,
Rhode Island - RI,
South Carolina - SC,
South Dakota - SD,
Tennessee - TN,
Texas - TX,
Utah - UT,
Vermont - VT,
Virginia - VA, and
Wisconsin - WI.
Not all insurance products from all insurance companies are available in
all states.
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