© 1985, 2002 R. Griffith rgriffith@sfasu.edu
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Absolute assignment. In life insurance, the complete and
permanent transfer of all rights of ownership from the
owner to another party.
Abstract (title). A summary of ownership transfers and
claims against a piece of real estate.
Acceleration clause. Provision in an installment
contract that all the remaining balance becomes due if one payment
is missed.
Accidental death benefit (double indemnity). A life
insurance policy or rider which pays if death is caused by
accidental means. As a rider it often provides an amount of coverage equal to the original
policy’s face amount;
hence the name "double indemnity."
Accrual. In a pension plan, the retirement benefits which you have
earned; an accrual is an earned benefit.
Actual cash value. One basis for the valuation of an
insured loss, generally equal to the replacement cost of the
property, less depreciation.
Adam Smith. Eighteenth-century economist who is known as the
father of free market capitalism.
Adjustable rate mortgage. A mortgage loan whose
interest rate changes from time to time as a specified market
interest rate changes.
Adjusted gross income. For tax purposes, gross income
minus certain deductions such as employee expenses and
IRA contributions.
Advance funding. In a pension plan, the placing of funds
into the plan as the participants earn benefits, so that those
funds plus interest will be available at a later time to pay those benefits.
Alpha strategy. Investing in tangible, usable goods beyond
what you might have as part of your reserve fund.
Amended return. A new tax return which you file to replace
one you previously filed which had an error in it.
Amortize. To spread out over time; especially to pay a debt (e.g.,
a mortgage loan) by making regular periodic
payments on it.
Annual review. Examining your plans once a year to see the
changes that are needed in them and the actions you
need to take in the coming year to carry them out.
Annuitant. A person receiving an annuity. If the annuity is a life
annuity, the annuitant also is the person on whose
continued life the payment of benefits is based.
Annuity. A series of payments; a contract with an insurance company
for it to make a series of payments for
someone’s lifetime.
Apportionment. clause See Coordination of benefits clause.
Appraisal. Formal estimate of what a piece of property is worth.
Used by lending institutions as a basis for
determining how much to loan on a piece of property.
Ask price. Lowest price anyone is willing to sell a security for
at the moment.
Assay. Testing a bar of precious metals to determine its content and
purity.
Asset. Something you own.
Asset, financial. Something you own represented by a paper
certificate or bookkeeping entry.
Asset, tangible. Something you own which you can see and
touch.
Assignment clause. Provision in a life insurance policy
which allows the owner to transfer (assign) ownership of the
policy to anyone without the insurer’s consent.
Assume a loan. To undertake to pay off a loan obtained by
someone else when you buy the property on which the
loan was made.
Attainment goal. A positive good you are trying to
accomplish.
ATS account. A checking account in which the financial
institution will honor overdrafts by transferring the
necessary amount from your savings account.
Automatic loan provision. Life insurance provision
which may be included at no cost which assures you that a loan
from your policy’s cash value will be made to pay your premium, if you forget to pay
the premium on time.
Average tax rate. The amount of tax you pay divided by the
amount of taxable income you have.
Avoidance. Risk management technique where you completely
eliminate your relationship with a risk in order to
totally do away with the chance that it will affect you.
Balance sheet. A financial statement which shows assets,
liabilities, and net worth in an orderly fashion.
Balanced fund. Investment company which invests in both stocks
and bonds, varying the proportion according to the
market outlook.
Balloon payment. The required payment of the remaining
balance on a loan at the end of a shorter period than that
used to calculate the monthly payment.
Bank, commercial. A financial institution which offers
checking and other deposit accounts and makes a variety of
kinds of loans, including loans to businesses.
Barter. Exchanging goods or services for other goods or services
without the use of money.
Bear market. An extended downward movement in stock prices.
Beneficiary. Person who is entitled to receive the proceeds of
your life insurance policy if you die, or a person who
receives income from a trust. See Trust.
Better Business Bureau. An agency formed by
businesses in many cities to help protect consumers against
misrepresentation or other bad practices by firms.
Bid price. Highest price anyone is willing to pay for a security
at the moment.
Blank endorsement. Endorsing (signing over) a check by
writing only your name, which transforms the check into an
instrument that can be cashed by anyone.
Blue chip stock. Stock of a well-established company in
sound financial condition which is likely to maintain its
dividend payments to shareholders.
Bodily injury liability coverage. Auto
insurance which pays for injuries to others for which you become legally
obligated if your car, driven by you, a covered family member, or others who have your
permission, kills or injures
them.
Bond. A long-term debt represented by a formal written instrument.
Bond fund. Investment company which invests primarily in bonds.
Bracket creep. Being moved into a higher marginal tax bracket
because of inflation without your real income
increasing.
Brainstorming. Listing ideas as they occur to you without any
immediate evaluation.
Broker. Someone who acts as agent for a buyer or seller in a
financial transaction.
Budget. A pattern or plan for spending.
Bull market. A substantial, extended upward movement in stock
prices.
Bullion coins. Coins which are bought and sold on the basis of
their metal content with no extra value from collector
demand.
Business cycle. The recurring ups and downs in economic
activity.
Business risk. The possibility that something will go wrong
with the issuer of securities so that it will not be able to
pay the expected return on its securities.
C.F.P.. See Certified Financial Planner.
Callable bond. A bond which the issuer can pay off in advance
of maturitv by paying the holder a specified price.
Cancellable. In health insurance, policy which the insurer may
cancel at any time, so long as it provides you
adequate written notice.
Capital asset. An investment or personal asset. Inventory or
depreciable assets used in business are not capital
assets for tax purposes.
Capital gain. A gain on a capital asset.
Capital gains distribution. Dividend paid by an
investment company from its long-term capital gains which is treated
as a long-term capital gain in the hands of the shareholder.
Capital loss. A loss on a capital asset.
Carat. A basic measure of weight of precious gems.
Cash value (cash surrender value). The
savings portion of a life insurance policy, which you can surrender the policy
and take in cash or use in other ways, or can use as a basis for borrowing from the
insurer.
Cashier’s check. A check drawn by a financial
institution on itself. Used to provide assurance it will be paid when
presented.
Certificate of deposit. An interest bearing
instrument issued by a financial institution representing funds deposited
with it for a certain length of time and a specified rate of interest.
Certified check. A depositor’s check which a financial
institution has guaranteed to be good.
Certified Financial Planner. A professional
designation requiring adherence to a code of ethics, certain experience
and training, and passing a series of exams over a variety of financial planning topics.
Charge account. Arrangement with a particular merchant by
which you can pay later for what you buy.
Chartered Financial Counselor (ChFC). A
professional designation similar to the CLU designation, earned from the
same organization by passing 10 exams including some material which differs from the CLU
material.
Chartered Life Underwriter (CLU). A life
insurance professional designation earned by passing a series of 10
national exams, gaining experience in the industry, and upholding ethical practices.
Chartered Property and
Casualty Underwriter (CPCU). A property liability insurance professional designation
earned by passing a series of 10 national exams, gaining experience in the industry, and
upholding ethical
practices.
Chattel. mortgage A claim against personal property (e.g.,
automobile, furniture) used as collateral for a loan.
Check. A written order to transfer an amount a financial institution
owes you to someone else.
Check register. Record sheet in your checkbook in which you
should record each check as you write it.
Checkable deposits. Liabilities of a financial
institution which can be transferred from one holder to another by
written order.
Checking account. An amount owed to you by a financial
institution which can be transferred by a written order
(check).
Closed-end fund. Investment company which does not
continuously offer to sell and redeem its shares.
Closing costs. Expenses which must be paid as part of the
process of transferring ownership of real estate from the
seller to the buyer, e.g., loan origination or title examination fees.
CLU. See Chartered Life Underwriter.
Co-operative apartment. An apartment which you secure
the right to live in by buying stock in the co-operative
corporation which owns the building in which the apartment is located.
Codicil. An amendment to your will setting out changes to it.
Coinsurance. A clause in an insurance policy which requires you
to share losses with the insurer, usually on a
percentage basis.
Collateral. Property pledged as security for a loan so that
the creditor has the right to sell it if the loan is not paid.
Collateral assignment. In life insurance, a temporary
and often partial transfer of the right to collect proceeds if the
insured dies, usually made as security on a loan.
Collectibles. Items which have a demand from people who collect
them as a hobby.
Collision Coverage. Auto insurance which pays for damage
to vour car without regard to fault, if you roll it over or
collide with another object.
Commercial real estate. Real estate occupied by
business firms.
Common stock. An instrument representing ownership of a
corporation.
Common stock fund. A mutual fund which invests the bulk of
its assets in common stocks.
Comparative negligence. Your legal responsibility for
a part of another person’s loss, based on the proportionate
negligence of you and that person.
Compound interest. Interest which is added to principal so
that it becomes part of the amount on which future
interest is computed.
Comprehensive physical damage coverage.
Auto insurance also called "Other than collision," which will pay for
damage to your car not caused by collision or by rolling it over, without regard to fault.
Conditionally renewable. Insurance clause which
allows the insurer to refuse to renew your medical expense policy
if a certain condition exists.
Condominium. A single housing unit which you can own separately
even though it is part of a multi-unit building or
complex. Some facilities (e.g., a swimming pool) may be owned in common with other owners
of the units.
Confirmation. A written notice of a securities transaction,
setting out details of price, commission; etc.
Constant dollar adjustment. Adjustments of
accounting figures for changes in the general price level.
Consumer Price Index. A measure of the cost of living
for an urban wage earning family. Used as a measure of
inflation.
Contingent beneficiary. Sec Secondary beneficiarv.
Contractual plan. Agreement to buy shares of a mutual fund
over a long period with most of the sales commission
taken in the early years.
Contributory negligence. A person’s own
negligence, which prevents that person from being awarded damages even
though another person’s actions were the primary cause of a loss.
Conventional mortgage. One which is paid off in
constant payments over a long period but not guaranteed or
insured by any agency.
Convertible bond. A bond which can be exchanged for the
issuer’s stock at the option of the holder.
Coordination of
benefits ("other insurance") Clause. Provision which specifies how insurers
will share the payment
when there are two or more insurance policies which provide coverage on a loss.
Corollary. A statement or guideline that follows directly from a
principle already given.
Cost of living policy or rider. Life
insurance policy or rider which increases the available death benefit each year in
proportion to the annual increase in the consumer price index.
Coverage of senior charges. A basic measure of
riskiness calculated by relating earnings before interest and taxes
to the interest and preferred stock dividends which a company must pay.
CPCU. See Chartered Property and Casualty Underwriter.
CPI. The Consumer Price Index. A measure of the cost of living for an
urban wage earning family. Used as a
measure of inflation.
Credit. Term of many uses: amount of debt, ability to incur debt,
etc.
Credit bureau. An organization which gathers credit
information on consumers and reports it to merchants and
lenders.
Credit card. A device by which a merchant knows that the issuer
of the card has agreed to extend you credit for
purchases at firms accepting the card.
Credit life. Life insurance written in conjunction with a loan
to pay off the loan if the borrower dies.
Credit rating. An evaluation of a person’s
creditworthiness based on their apparent ability and willingness to pay.
Credit risk. The possibility that something will go wrong with
the issuer of securities so that it will not be able to pay
the expected return on its securities.
Credit scoring. Assigning point values to various factors
which influence a person’s creditworthiness to see if the
total points justifies extending credit to the person.
Credit union. A financial institution owned by its depositors
who are expected to have some common bond (e.g., be
employees of the same or similar employers).
Current assets. Assets which are expected to be or could be
converted to money within a year.
Current liabilities. Debts which are due within a year.
Current ratio. A measure of a company’s liquidity;
current assets divided by current liabilities.
Current yield. The rate of return on an investment measured by
its current income divided by its cost or current
value.
Cycle billing. The practice of sending bills at various times
during the month rather than all at the end of the month.
Debit card. A card used like a credit card, but which provides
that vour account will be charged for the purchase as
soon as the record of it reaches the financial institution issuing the card.
Debt. An amount owed.
Debt instrument. An investment which represents a promise to
pay.
Decreasing term. Term life policy or rider in which the face
amount payable at the insured’s death decreases
throughout the period of coverage.
Deductible. The first dollars of loss which you must absorb
before your insurer begins to pay.
Deductions. Outlays which can be deducted from income in figuring
taxable income.
Deed of trust. An arrangement used in some states (instead of
a mortgage) to pledge real estate as security for a
loan.
Deferred asset. Asset, such as a pension plan or IRA account,
which belongs to you but cannot be used currently.
Deficit spending. Spending in excess of income, especially
government spending in excess of tax revenues.
Deficits. The amount by which government spending exceeds tax
revenues.
Defined benefit plan. Pension plan in which the
benefits upon your retirement are set by plan provisions and your
employment, and the employer’s contributions needed to create the benefits are
dependent upon the benefits
promised.
Defined contribution plan. Pension plan in which
the employer’s contributions are set by plan provisions, and your
retirement benefits are dependent upon the amount and timing of contributions, interest on
investments, and other
factors.
Deflation. A decline in the general level of prices.
Demand deposit. A deposit in a financial institution payable
on the depositor’s request or written order.
Dependent. A child or other relative who receives more than half
of their support from the taxpayer.
Depression. A substantial, sustained decline in economic
activity.
Detached structures (HO-3 Coverage B).
Provides up to ten percent of the dwelling limit as additional coverage for
structures on your residence which are not connected directly to the house.
Direct borrowing. Borrowing from a financial institution to
finance a purchase rather than buying on credit from the
seller.
Disability income insurance. Health insurance
which pays a weekly or monthly amount if you are disabled and
cannot work, usually after a waiting period.
Discount broker. Stock brokerage firm which charges lower
commissions than a full-service broker.
Disinflation. A reduction in the rate of inflation.
Diversification. Reducing investment risk by buying
securities which are not subject to exactly the same sources of
risk.
Diversified fund. Investment company which invests in
securities of many issuers, not putting more than 5 percent
of its assets into any one issuer’s securities.
Dividend. A payment by a corporation to its stockholders. (In
life insurance, a return of a portion of the premium to the policyholder.)
Dividend option. A choice regarding the use of policyholder
dividends from participating insurance; in life insurance,
these include cash, premium reduction, accumulation at interest, paid-up insurance, and
possibly units of term.
Dividend reinvestment plan. An arrangement
offered by some companies to permit you to use the dividends the
company pays to buy more shares of the company’s stock, usually with little or no
commission.
Dividend yield. The rate of return on a stock measured by its
annual dividend divided by its cost or current price.
Double indemnity. See Accidental
death benefit.
Down payment. The difference between the price of a property
and the financing available to buy it; the amount put
up by the buyer.
Downswing phase. The part of the business cycle in which
economic activity is declining.
Dread disease policy. A health insurance policy which
provides only limited coverage against a narrowly-defined
cause of poor health. Examples include polio and cancer policies.
Driving trend. Tendency which will be most important in
shaping the future.
Due-on-sale clause. A mortgage provision which says that
the balance of the loan is payable if the property is sold.
Dwelling (HO-3 Coverage A). This homeowners
insurance coverage includes attached garages and workshops as
well as your residence, and provides protection against all risks of loss except those
specifically excluded.
Earnest money. A deposit made with an offer to buy property to
guarantee that the terms of the offer will be carried
out if accepted by the seller.
Earnings per share. Net income available for common
stockholders divided by number of shares outstanding.
EFT (Electronic Funds Transfer system).
Arrangements for making of payments through computerized systems
without the need of paper instruments like checks or invoices being handled.
Emergency fund. Money set aside to take care of unexpected
needs and uninsurable risks. See Reserve fund.
Employee Stock Ownership Plan (ESOP). A
capital-accumulation plan which can be used to provide funds for your
retirement, in which employees acquire stock in their employer’s corporation.
Endorsement (Rider). Provision which is added to an
insurance policy to change the policy; usually an extra
premium is charged for this.
Endorsement in blank. Endorsing (signing over) a check
by just signing your name on the back, which makes the
check a bearer instrument cashable by anyone.
Endowment policy. Life insurance which will pay the face
amount if you die during the period of coverage or if you
live until the coverage ends. It meets the second promise by accumulating savings.
Equity. The difference between the value of a property and the
balance of the debt owed on it.
Equity asset. An asset which represents ownership—for
example, common stock or real estate.
Equity instrument. An investment instrument which
represents ownership.
Escrow. (1) The deposit of money and deed with an independent agent
to ensure that both buyer and seller complete
the sale. (2) The amounts set aside by the lender from your monthly payment to cover taxes
and insurance.
Estate tax. A tax imposed on the net value of a person’s
assets when they die.
Estimated tax. Quarterly payments which you must make if the
amount of tax which you expect to owe for the year
exceeds the amount that will be withheld by as much as $500.
ESOP. See Employee Stock Ownership Plan.
Exchange privilege. Right to trade shares of one mutual
fund for shares of another fund in the same group.
Exclusions. Sources of income which are not subject to income
tax-for example, interest on municipal bonds or the
first $100 of dividend income.
Executor. The person who, on your death, sees that your financial
affairs are wound up properly and your assets
distributed as provided in your will.
Exemption. The amount of income per taxpayer or dependent from
otherwise taxable sources which is not taxable
(currently $1000).
Expansion phase. The part of the business cycle in which
economic activity is increasing.
Expected value of loss. The product of the expected
frequency of a loss occurring times the average expected
severity (amount) of loss given that the event occurs. Also called a pure premium.
Family income policy. Policy which pays one percent of
the face amount per month until the end of a designated
period if the insured dies within the period and then pays the face amount at the end of
the monthly benefit period.
Family maintenance policy. Policy which pays one
percent of the face amount per month for a stated period if the
insured dies within a given time after the policy begins, and then pays the face amount at
the end of the monthly
benefit period.
Family policy. Life insurance package policy which provides
whole life on the breadwinner and term life on the
spouse and dependent children.
FDIC (Federal Deposit Insurance Corp.).
Government agency which insures bank depositors against loss in case of
a bank failure.
Federal Reserve. The central banking authority in the United
States which is responsible for monetary policy.
Federal Savings & Loan
Insurance Corporation. Government agency which insures savings and loan depositors
against loss in case of a failure of the savings and loan association.
FHA mortgage. A mortgage loan insured by the Federal Housing
Administration.
Finance company. A firm in the business of making loans,
especially using furniture, appliances, etc., as collateral.
Financial asset. Something you own represented by a paper
certificate or bookkeeping entry.
Financial planning. The process of arranging your
financial affairs to make it most likely that you will achieve your
goals.
Financial statement. The presentation of the assets,
liabilities, and net worth (balance sheet) or the income and
expenses of an individual or business firm.
Finlandization. A country coming into a position of being
extremelv careful not to offend the Soviet Union without
being directly dominated by the Soviet Union (derived from Finland’s position since
World War II).
First-party coverages. Insurance which pays the
insured’s covered losses without regard to who is at fault.
Fixed dollar asset (or instrument). An
asset (or instrument) which promises or is expected to pay its holder a certain
number of dollars at some time in the future and usually a certain number of dollars of
income each year as well.
Form 1040. The tax return form which individuals file. Forms I04UA
and 1O40EZ are simplified versions.
Frequency. Measure of how often something (e.g., a loss) is likely
to occur.
Frequency of compounding. How often interest is
calculated and becomes part of principal. See Compound interest.
FSLIC. See Federal Savings & Loan Insurance Corp.
Full-service broker. Stock brokerage firm which provides
stock recommendations and other research.
Fundamental analysis. An approach to investing based on
calculating the investment value of a stock.
Funding. The extent to which amounts have been set aside to meet the
liabilities of a pension plan.
Funds budget. A plan for setting aside money for expenses and
outlays that do not recur each month.
Futures contract. An agreement to buy or sell a certain
amount of a commodity at a later time.
General partner Partner. (member of a partnership)
who participates in the management of a partnership and is
liable for its debts.
Generic goods. Items sold without any brand identification.
Gift tax. A tax imposed on the transfer of assets from one person
to another without full consideration being given.
GNP. (Gross National Product) The total value of goods and services
produced by a country’s economy.
Goal. A general statement of what you are trying to accomplish.
Goal, attainment. A positive good you are trying to
accomplish.
Goal, protective. Wanting to avoid certain bad
consequences.
Grace period. Period of time after the premium due date for an
insurance policy during which you still can pay the
premium without having the policy lapse.
Graduated payment mortgage. A mortgage loan whose
payments increase after the first few years in accordance
with an agreed schedule.
Grantor. Someone who creates a trust and puts assets in it.
Gross income. The total amount of income from sources subject
to the income tax.
Gross National Product. See GNP:
Group insurance. Single policy of insurance, usually held by
the employer, which provides coverage to a number of
people, usually the employees.
Growth fund. Investment company whose primary objective is to
secure long-term growth of capital for its
shareholders.
Growth stock. Stock of a company whose earnings and dividends
are consistently increasing at a faster rate than
the general economy.
Guaranteed insurability option. Life
insurance policy rider which you can add for an extra premium, which gives you
the right to buy more life insurance at specified times without proving insurability. Also
called policy purchase
option.
Guaranteed renewable. The insurer cannot refuse to
renew your policy until you reach a specified age; however, it
may increase the premium for your entire class of policyholders.
Guardian. Someone who accepts responsibility for your minor
children on your death.
Health Maintenance Organization. (HMO) Group
prepaid medical practice where you pay a periodic fee and
receive a comprehensive package of medical services at little or no added cost.
HMO. See Health Maintenance Organization.
Homeowners insurance. Insurance policy which provides
an array of coverages for your property, your guests’
medical expenses, and liability to which you are exposed as a result of your use or
occupancy of your home,
condominium, or apartment.
Human life value approach. Estimating the amount
of life insurance needed based on the present value of the future
income which you would have provided for the support of your dependents during your
working lifetime, if you
lived.
Implicit income. Income which is not received in money.
Implicit price deflator. A broad measure of the
general price level in the economy.
Implicit rate of return. The amount of implicit
income or cost related to the amount of investment necessary to
produce it.
Income averaging. A tax calculation which reduces the tax
burden if a person’s income is substantially higher in the
current year than in the previous several years.
Income fund. Investment company whose primary objective is to
seek current income for its shareholders.
Income splitting. Dividing income among family members so
as to have it taxed at lower rates.
Income statement. An orderly presentation of your sources
of income and how that income will be used, either
planned for a future period or actual for a past period.
Incontestable clause. Life insurance policy provision
which says that the policy cannot be voided by the insurer
because of misstatements you made on the application; usually takes effect two years after
the policy is issued
Increasing term. Term life insurance which starts with a
face amount near zero and increases that face amount
steadily until it equals the policy’s maximum benefit just before the policy’s
coverage ends.
Index. A measure which traces the movement in some series, e.g., stock
prices or consumer prices.
Indexing of brackets. Adjusting the upper and lower
limits of marginal tax brackets upward for inflation.
Individual Retirement Account. (IRA)
Retirement program in which you can invest up to $2,000 a year of earned
income before income taxes. Taxes on the investment and its earnings are deferred until
your retirement.
Industrial (Debit) life insurance. Life
insurance, usually sold in small amounts, where the agent comes to your home
or place of work weekly or monthly to collect your premium.
Industrial production index. A measure of the
level of manufacturing production in the United States calculated
monthly by the Federal Reserve.
Inflation. A continuing rise in the average level of prices.
Inflation hedge. An investment that will consistently give a
return greater than the rate of inflation.
Inflationary expectations. The degree of future
inflation which people anticipate.
Inheritance tax. A tax imposed on assets received from the
estate of someone who dies.
Installment contract. Agreement to pay the purchase
price of an item in regular monthly payments.
Insurance. Risk transfer tool to shift your risk of loss from
specified causes to the insurer by paying the insurer
premiums, which the insurer pools in order to be able to pay for the losses when they
occur.
Insurer. Organization which accepts the risk you transfer to it in
exchange for your premium payment.
Inter vivos trust. A trust created while the grantor is
alive. See Trust.
Interest. The price for the use of money. The cost of borrowing
money or the return for lending money.
Interest rate risk. The possibility that the value of an
investment, or the income from it, will decline because of a
change in interest rates.
Intermediate objective. A step that moves you toward
a goal or longer term objective.
Interpolating. Finding the approximate value of a rate or
amount which falls between the rates or amounts in a table.
Intestate. Dying without a valid will, so that your property is
distributed according to the rules of your state’s law.
Inventories. Goods held by business firms for sale.
Investment club. An association of people who agree to put a
certain amount per month into a common fund and
decide jointly how it will be invested.
Investment risk. The possibility of your investment
declining in value or not giving you the return you expect.
Investment value. The present value of all future flows on
an asset, calculated at an appropriate required rate of
return.
Irrevocable beneficiary. Life insurance beneficiary
who may not be deleted as a beneficiary by the owner of the
policy, unless the beneficiarv consents.
IRA. See Individual Retirement Account.
Itemized deductions. Expenses which can be subtracted
from adjusted gross income in figuring taxable income.
Joint return. An income tax return filed by a married couple
pooling their income and deductions.
Joint tenancy. Owning property together with the provision
that if one owner dies, the other becomes the sole
owner.
Joint-and-Survivor life annuity. Life
annuity which originally provides benefit payments to two or more annuitants,
and continues to provide benefits as long as one of the original is alive.
Keogh Plan (HR 10 Plan). Pension plan for
self-employed persons and their employees.
Krugerrand. South African bullion coin containing an ounce of
gold; fractional ounce sizes are also available.
Leading indicators. Measures of the economy which tend to
move up or down in advance of the cyclical movement
in the economy.
Lease. A contract to rent a piece of property for a certain length of
time.
Lease-purchase. Renting an asset under terms which provide
that part or all of the rental payments go toward the
purchase price if you buy the asset.
Letter of Instruction. A letter to your family and
executor setting out the funeral arrangements you desire and
information which will help them handle your finances after you die.
Level term life insurance. Term life insurance
policy in which the face amount payable upon the insured’s death
remains constant throughout the period of coverage.
Leverage. Using borrowed money to buy an asset, which magnifies the
gains and losses on the asset.
Liability. An amount you owe.
Liability exposure. Possible legal obligation to pay
someone arising because you commit a tort which results in
injury to someone else or damage to their property.
Life annuity. A contract in which an insurer guarantees a
series of benefit payments for an annuitant’s lifetime. See
Annuity.
Limit order. Instructions to buy or sell a stock at a specified
price or better.
Limited partner. Partner (member of a partnership) who does
not take part in the management of a partnership and
is not personally liable for its debts.
Limited partnership. A partnership some of whose
partners (the limited partners) do not take an active part in its
management and are not liable for its debts.
Liquid asset. An asset which can be converted to money quickly
and easily or which will be paid off very soon.
Liquidity. Ease with which an asset can be converted into money
(or other usable form).
Listed stock. A stock traded on a stock exchange rather than in
the overthe-counter market.
Load fund. Investment company which charges a commission on the
sale of its shares.
Loading. Charge which the insurer adds to its pure premium to allow
for its expenses of operation, profit, a
statistical margin for error, and other factors.
Long-term economic trends. Changes in economic
factors which occur gradually over a longer period than a single
business cycle.
Long-term gain. A capital gain on an asset which you have
held for more than one year (six months in 1985-87).
Long-term goal. A goal that can only be achieved over an
extended time period.
Long-term instrument. A financial instrument which will
pay its promised amount after a year.
Loss control. Tool to manage risk in which you seek to reduce
the expected frequency and/or the expected severity
of loss, without completely eliminating the risk.
Loss of use (HO-3 Coverage D).Homeowners
insurance coverage which pays your additional living expenses if you
must live elsewhere while your home is repaired after it is damaged by an insured peril.
Loss prevention. Aspect of loss control in which you try to
reduce the expected frequency of loss.
Loss reduction. Aspect of loss control in which you try to
lessen the expected severity of losses which do occur.
Lower turning point. The time in the business cycle when
the economy stops going down and starts going up.
Major medical insurance. Insurance policy designed
to provide a high amount of coverage against a broad range of
medical expenses, usually coinsuring losses with you on a percentage basis after a
relatively large deductible.
Major purchase. A purchase which costs a significant portion
of your monthly income and is made infrequently.
Make a market. To stand ready to buy and sell a security at a
quoted bid and ask price.
Margin of safety. An allowance for being wrong, e.g.,
buying a stock only below your estimate of its value.
Marginal analysis. Seeing the effect of an additional
amount or time period.
Marginal return. The return you will make by holding an
investment for additional time or by investing an additional
amount.
Marginal tax rate. The rate of income tax paid on
additional income.
Market order. Instructions to buy or sell a stock at the best
available pnce whatever that price may be.
Market risk. The possibility that the value of an investment
will decline because of a change in investors’ opinions
apart from any change in interest rates or the condition of the issuer.
Marriage tax. The tax paid by a married couple in excess of the
total thev would pay if they were single.
Medical payments. Auto insurance which pays medical
expenses for you and your family members, incurred driving
your car, driving or riding in someone else’s car, or struck while a pedestrian, and
for guests in your car; all
regardless of fault.
Medical payments to others (HO-3
Coverage F). Homeowners insurance coverage which pays up to $500 per
person for the medical expenses of other people who are injured while on the property
where you live.
Medicare. Health insurance through the Social Security System
providing hospital, nursing home, and home health
care.
Misstatement of age or sex clause. Life
insurance policy provision which alters the face amount of the policy to fit
the correct information and premium when an error as to age or sex is discovered.
Modified life policy. Whole life insurance policy in
which premiums and cash value accumulation are very low for
the first few years and then are higher for the remainder of the policy.
Monetary policy. The government’s attempt (principally
through the Federal Reserve) to affect the economy by
influencing the money supply, interest rates, and the banking system.
Monetization. Turning something into money. The process by
which a financial institution creates money by giving
its debt (a checkable deposit) for the debt of a borrower.
Money market deposit account. An account
offered by financial institutions which requires a $2500 minimum, is not
restricted as to the rate it can pay, and restricts the number of transfers or withdrawals
per month.
Money market fund. A form of mutual fund which pools funds
from its shareholders and invests in short-term, high
qualitv financial instruments such as large bank CDs.
Money rate risk. The possibility that the value of an
investment, or the income from it, will decline because of a
change in interest rates.
Money supply. The total of currency, demand deposits, and other
checkable deposits available in the economy for
use in spending.
Mortality curve. Figure drawn illustrating mortality rates
at ages starting usually at birth, and continuing until all
persons in the group are dead.
Mortality rate. Measure of the expected frequency of death
for persons who are alive at the beginning of the year,
at specific ages. This provides the basis for life insurance and life annuity premium
determination.
Mortality table. Tabular presentation of mortality rates by
age and often by sex.
Mortgage. A claim against real estate used as collateral for a loan
-Municipal bonds Debts of state and local
government units. Municipal fund Investment company which invests primarily in state and
local government
obligations so that the income distributed to shareholders is tax free.
Mutual fund. Company which uses money from selling its shares to
buy securities. Often used synonymously with
investment company though a true mutual fund continuously offers to sell and redeem its
shares.
Mutual insurer. Insurer owned by its policyholders, which
sells participating policies.
NASDAQ. National Association of Securities Dealers Automated
Quotation system, which provides bid and ask
prices from many dealers in over-the-counter stocks.
Needs approach. Method for estimating the amount of life
insurance which you should buy, based on the difference
between your dependents’ needs and assets, calculated on a present value basis.
Negligence. Failure to act as a reasonably prudent person might
in the same circumstances, which can result in
liability being assessed against you in a court of law.
Negotiable order of withdrawal. A written
instrument which transfers an amount in your savings account to someone
else (practically a check). See NOW account.
Net asset value. The total assets of a company (e.g., a
mutual fund) less its liabilities. Usually expressed per share
by dividing by the number of shares outstanding. Mutual fund shares are usually redeemed
at the net asset value.
Net amount at risk. Difference between the cash value of
an insurance policy and its face amount; this may be
thought of as decreasing term life insurance.
Net worth. The difference between what you own and what you
owe.
New issues. Securities being sold by a company to raise money for
its operations.
No-Fault auto insurance. System of insurance in
which you are legally limited in your right to sue and be sued for
auto accidents; you or your insurer pay for your losses, no matter who causes the
accident, until a limit called a
threshold is reached, after which you may sue or be sued.
No-load fund. Investment company which charges no commission on
the sale of its shares. It sells its shares at net
asset value.
Nominal rate. The stated rate of interest on a loan or
investment, which may be different from the true rate.
Non-diversified investment company. One
which concentrates its assets in the securities of a small number of
issuers.
Non-recourse debt. Debt for which the borrower is not
personally liable-the lender can only foreclose the collateral
if the debt is not paid.
Noncancellable. In health insurance, this refers to a policy
which the insurer must allow you to renew up to a stated
maximum age, without increasmg your premiums.
Nonforfeiture option. Life insurance surrender option
which is required by law, giving the right to take cash,
extended term insurance, or a reduced paid-up policy.
Nonparticipating (Nonpar) policy. Insurance
policy whose premium is a set amount and will not change no matter
what the insurer’s loss experience is; usually sold by a stock insurance company.
NOW account. An interest bearing account on which you can give
written orders to transfer amounts to someone
else. Like a checking account in practice.
Numismatic coins. Coins which sell well above the value of
the metal in them because of their scarcity and demand.
Objective. A specific statement of something you want to
accomplish, set out in measurable, time tagged terms.
Objective, intermediate. A step that moves you
toward a goal or longer term objective.
Odd lot. A number of shares (or bonds) less than the standard
trading unit; for stocks generally less than 100
shares.
Open-end fund. Investment company which continuously offers to
sell and redeem its shares.
Opportunity cost. Costs that don’t require the payment
of money. The best alternative given up in order to take a
particular action.
Option. An instrument which gives the right to buy or sell shares of
a stock at a certain price for a certain time.
Ordinary (Straight) whole life. Whole life
insurance policy in which the premiums are payable until age 100 or prior
death.
Ordinary income. Income which is not classified as a capital
gain. It comes from sources such as wages, salary,
dividends, and interest.
"Other Insurance" clause. See
Coordination of benefits clause.
Other than collision. See Comprehensive Physical Damage
Coverage.
Over-the-counter market. Trading in securities other
than on an organized exchange.
Overdraft. The amount by which a check exceeds the balance in the
account on which it is written.
Overdraft account. A checking account in which a check you
write in excess of your account balance is covered by
an automatic loan.
P/E ratio. See Price/earnings ratio.
Package account. A checking account which includes other
services for a single fee.
Paid-Up life insurance. Life insurance policy which
will continue to provide protection for a period of time, but which
requires no further premium payments to remain in force.
Painless portfolio plan. A simple procedure for
investing in stocks by choosing those with relatively low
price/earnings ratios.
Participating (Par) policy. Insurance policy
which returns a portion of the premium as a policyholder dividend if the
company’s loss experience allows it; usually sold by a mutual insurer.
Payout ratio. The proportion of a company’s earnings being
given to the stockholders as dividends.
Peak (of business cycle). The time in the business
cycle when the economy changes from going up to going down.
Pension plan. Program which systemmatically provides for the
accumulation of funds for retirement and their payout
as benefits; usually made available through the employer.
Periodic withdrawal plan. Arrangement with mutual
fund to send you a regular monthly or quarterly check by
cashing in some of your shares.
Personal liability (HO-3 Coverage E).
Homeowners insurance coverage which protects you should liabilitv arise
from your ownership, use or occupancy of your home.
Personal property. Assets owned for use rather than for
investment or business purposes.
Personal property (HO-3 Coverage C).
Homeowners insurance coverage which provides coverage for your personal
property against a long list of perils while the property is at home.
Personal property endorsement. Rider on your
homeowners insurance policy
which schedules (lists) specific pieces of personal property at a stated value and insures
them at that value.
Personal umbrella liability policy.
Insurance contract which provides liability protection above the liabilitv limits of
your auto and homeowners policies.
Points. The number of percentage points less than the stated amount
of a mortgage loan which the lender actually
gives for the loan.
Policy loan. Loan you may get from the insurer if you are the
owner of an endowment or whole life insurance policy;
its amount is based on the policy’s cash value.
Policy loan provision. Part of a life insurance policy
which describes vour right to borrow, and your responsibilities if
you do so.
Policy purchase option. See Guaranteed insurability
option.
Pooling (insurance). Gathering together of a large
number of loss exposures in order to use statistical probability to
reduce uncertainty and to determine insurance premiums.
Pooling (investments). Arrangements for gathering
money from many investors to buy assets.
Portfolio. A well constructed set of assets, especially of
securities.
Preexisting condition. Physical or mental condition
existing at the inception of a health insurance policy, which
results in a lessening of coverage under the policy.
Preferred stock. An instrument which is legally ownership in
a corporation, but which has many of the
characteristics of debt because of its fixed claim and priority over the common stock.
Preliminary analysis. A simplified fundamental analysis
approach to selecting stocks by using a few key measures
of their riskiness and value.
Premium (Insurance). Price for insurance; based on your
expected frequency and severity of loss, plus loadings
which allow the insurer a margin of error, possible profit, and estimated operating
expenses.
Present value. The amount in current dollars which is
equivalent to an amount to be received in the future. The
amount which must be invested now at a given rate of interest to grow to a certain amount
at a specified time in the
future.
Price level risk. See Purchasing power risk.
Price/earnings ratio. A stock’s current price
divided by its most recent year’s earnings per share.
Primary beneficiary. Life insurance policy beneficiary
who, if living upon the death of the insured, will receive the
designated benefits.
Prime rate. The basic lending rate charged by banks to their best
customers.
Principal. The amount loaned, borrowed, or invested.
Productivity. How much output of goods and services an economy
generates for the amount of capital and labor
used.
Profit Sharing. Employee benefit plan in which the employer
may share profits with the employees; if the
employees’ share is deferred, it may be a source of retirement income.
Progressive tax rates. Income tax rates that are
higher on greater amounts of taxable income.
Property damage liability coverage. Auto
insurance which pays for damage to the property of others for which you
become legally obligated caused by your car, driven by you, a covered family member or
others who have your
permission. May pay your cost of legal defense.
Prospectus. Booklet giving financial statements and other
information provided by a company (e.g., a mutual fund)
selling stock or other securities.
Protection element. The difference between the face
amount of a life insurance policy andAts cash value. Called by
the insurer "net amount at risk."
Protective goal. Wanting to avoid certain bad consequences.
Purchasing power risk. The possibility that the
dollars you get back from an investment will not be worth as much as
the dollars you paid for it.
Pure premium. The average anticipated loss from a defined peril
or set of perils during a given time period, for a
specific person or property. The insurance cost before expenses, equal to expected value
of loss.
Pure risk. The possibility of something bad happening which is not
offset by the possibility of gain or income.
Qualified pension plan. Pension plan which satisfies
federal requirements so that the employer’s contributions are
made with pre-tax dollars and you are not taxed on the benefits until you actually receive
them.
Rate of return. The amount of return on an investment related
to the amount of the investment.
Ratio scale. A chart scale which shows equal percentage
differences as equal distances. Results in the slope of lines
drawn on the chart indicating the relative rate of change in the series being charted.
Real dollar terms. Measuring in purchasing power
terms-expressing an amount in the number of dollars in some
base period which would have bought as much as that amount buvs now.
Real estate investment trust. A company
somewhat like a mutual fund which invests in real estate and passes
through to its shareholders any income or gains from the real estate.
Real return. The percentage increase in purchasing power
achieved by an investment.
Recession. A decline in the economy. The part of the business
cycle in which economic activitv is decreasing.
Recovery phase. The part of the business cycle in which
economic activity is increasing. The upswing phase.
Registered representative. A person with a stock
brokerage firm who deals with customers of the firm.
Reinstatement clause. Life insurance policy provision
which allows you to restore your old policy under certain
conditions.
Replacement cost. One basis for valuing an insured loss, in
which the loss is estimated to be the cost to repair or
replace the damaged property with property of the same kind.
Reserve fund. Money set aside to take care of unexpected needs,
uninsurable risks, and opportunities. Also called
emergency fund.
Residential real estate. Real estate which people
can live in.
Restrictive endorsement. Endorsing (signing over) a
check by specifying that it is to be deposited into your account
and signing your name.
Retention. Risk treatment tool in which you bear the financial
impact of your own losses.
Retirement income policy. Variation of endowment
life insurance which accumulates enough cash value (usually by
age 65) to allow paying $10 a month for life for each $1,000 of its original face amount.
Return on equity. How much a company earns in a year for
each dollar of stockholders’ money invested in the
company.
Revocable beneficiary. Beneficiary under a life
insurance policy who may be removed as beneficiary by the owner
of the policy at any time the owner wishes.
Revolving charge account. Charge account which does
not require payment of the entire balance each month-a
certain percentage of the balance or a minimum payment must be paid.
REIT. See Real estate investment trust.
Rider (Endorsement). Amendment which is added to an
insurance policy to change the policy; usually an extra
premium is charged for it.
Risk. The possibility of something bad happening with financial
consequences.
Risk avoidance. Risk management technique where you
completely elimmate your relationship with a risk in order
to totally do away with the chance that it will affect you.
Risk transfer. Risk management tool in which you shift the
financial consequences of your possible loss to another
person or entity.
Round lot. Standard unit of trading for securities; generally 100
shares for stocks.
Rule of 78. Method of determining the portion of the interest
earned by the holder of an installment contract when it
is paid off early.
Runaway inflation. The level of prices rising at a very
high and increasing rate.
Safety. Assurance of getting your money out of an asset with no loss.
Most important characteristic of reserve fund
asset.
Salary reduction plan (401(k) Plan). Tax
deferred salary reduction plan which may be used to accumulate funds for
retirement.
Savings account. An account with a financial institution
which pays interest and is subject to withdrawal on short
notice (legally thirty days, in practice zero in most cases).
Savings and loan association. A financial
institution which accepts deposits and traditionally made primarily
mortgage loans.
Savings Bonds. Non-marketable obligations of the U.S. Treasury
which are issued in small denominations.
Scenario. Written sketches of alternate futures which are more than
outlines but less than future histories.
Second mortgage. A mortgage loan which has a lower priority
of claim against a property than the initial mortgage
on it.
Secondary (contingent) beneficiary. Life
insurance policy beneficiary who gains a right to policy proceeds if a
primary beneficiary is dead at the time the insured dies.
Securities. Paper representations of financial instruments such
as stocks and bonds.
Securities and Exchange Commission. (SEC)
Federal agency which regulates stock exchanges, brokerage firms,
trading in securities, and the sale of new issues of securities.
Securities Investor Protection
Corporation. Federal agency which insures brokerage accounts somewhat like the
FDIC insures bank accounts.
Self insurance. Risk management tool in which you retain the
financial burden of loss by pooling similar exposure
units to reduce uncertainty.
Service contract. An agreement by the manufacturer or
seller to provide repairs at no additional cost for a period
beyond the warranty.
Services approach. Method of compensation for an insured
loss in which the insurer directly pays the provider of
your needed services, thus itself providing you with those services rather than
reimbursing you after you have paid
for them.
Settlement options. Choices you have for using the
proceeds of a life insurance policy if it is payable to you.
Severity. Measure of the expected amount of loss which is likely to
occur if the loss event itself (e.g., fire, collision)
takes place.
SEC. See Securities and Exchange Commission.
Shared appreciation mortgage. One in which the
lender gets a portion of any increase in value of the property in
return for charging a lower interest rate on the loan.
Sharedraft account. An interest bearing account offered
by credit unions on which you can give written orders to
transfer amounts to someone else. Like a checking account in practice.
Short-term gain. A capital gain on an asset which you have
held for one year or less (six months in 1985-87).
Short-term goal. A goal which can be accomplished within the
near future.
Short-term instrument. An investment which promises to
pay you in a year or less, or one which you have the right
to be paid when you want to.
Simple interest. Interest which is not added to principal
for further interest calculations.
Simplified Employee Pension (SEP).
Retirement plan which small employers may use; an alternative to the Keogh
plan based on individual retirement accounts.
Sinking fund. Amounts set aside regularly by the issuer of
bonds to help provide for their repayment.
SIPC. See Securities Investor Protecfion Corp.
Social Security. Federal program which taxes you and your
employer and provides death, disability, medical, and
retirement benefits to covered workers and their eligible dependents.
Software. Packaged instructions given to a computer to make it
perform a desired task.
Special endorsement. Endorsing (signing over) a check by
specifying the person to whom it is payable and signing
your name.
Specialist (stock exchange). Member of the
exchange who makes a market in certain stocks and handles orders in
them, such as limit orders, which cannot be executed immediately.
Standard deduction. An amount depending on your age and
marital status which you can subtract from adjusted gross income in calculating taxable
income. Only itemized deductions in excess of this amount
reduce taxable income.
Stock exchange. A membership organization which provides
facilities for buying and selling securities.
Stock fund. Investment company which invests primarily in common
stocks.
Stock insurer. Insurer owned by stockholders which usually
sells nonparticipating policies to make a profit.
Stockholders equity. The amount of invested capital in a
company which belongs to shareholders; assets minus
liabilities and preferred stock.
Stop-Loss (Security) limit. Medical expense
insurance provision which sets an annual limit on the covered medical
expenses which you must pay under the deductible and coinsurance clauses, after which the
insurer pays 100
percent of covered expenses for the year.
Straight life. See Ordinary whole life.
Strategic metals. Metals which play a key role in defense
and other essential industries.
Strategy. The overall plan of battle; thus, your overall plan for
getting where you want to be financially.
Suicide clause. Life insurance policy provision which denies
payment of the policy face amount if you commit suicide
during the first two years (sometimes only one year) of the policy.
Supplementary tier. Segment of your reserve fund
consisting of non-flnancial assets-for example, food.
Supply-side economics. An economic theory which
emphasizes economic growth through encouragement of
investment, increasing productivity, and lower taxes.
Surrender options. Choices which you have as the owner of
a life insurance policy with cash value, if you do not want
to continue to pay premiums on the policy.
Syndicate. A pooling arrangement (often organized as a limited
partnership) to invest in a particular project or group
of projects.
Tactics. The specific means you use to carry out your overall
financial plan or strategy (from the military meaning
of using particular units to attain a specific objective).
Tangible asset. Something you own which you can see and
touch.
Tax audit. A review of vour tax return and supporting
documentation to check its accuracy.
Tax avoidance. Arranging your financial affairs so as to
legally reduce the amount of taxes you pay.
Tax bracket. The amount of taxable income which is subject to
the same tax rate.
Tax credit. A proportion of an expense which directly offsets the
amount of tax due.
Tax deferral. The postponement of the payment of taxes until a
future year. Not to be confused with tax savings.
Tax deferred annuity (TDA). Tax favored
retirement income plan primarilv available to employees of public school
Systems and nonprofit institutions.
Tax evasion. Reducing taxes paid by inaccurately reporting
income or expenses or by other illegal means.
Tax shelter. A device which keeps some current income from being
currently taxed.
Taxable income. The income left after subtracting deductions
and exemptions. The base on which income taxes are
calculated.
Technical analysis. An approach to investing or
speculating which seeks to forecast stock price movements.
Technology. Knowledge related to production and other useful
processes.
Term life insurance. Life insurance policy which pays
only if the insured dies during the policy period.
Testamentary trust. A trust created by a provision in the
grantor’s will.
Threshold. The limit of bodily injury and/or property damage in
no-fault laws, beyond which you can sue the
negligent party for damages.
Thrift plan. Employer-offered savings plan in which you can save
through payroll deductions, often with the
employer matching part or all of your contributions.
Tiers. Segments of your reserve fund, e.g., a very liquid base tier, a
higher yielding second tier, an upper tier of
borrowing power. See also Supplementary tier.
Tight money. A restriction in the supply of funds available for
lending and investing. Sometimes mistakenly applied
to any period of high interest rates.
Time tags or target dates. The planned date by
which an objective is to be accomplished.
Tort. Failure to properly fulfill a noncontractual duty, for which you
may be held liable to pay damages to the injured
party.
Tort of negligence. Tort brought about because you fail
to act as a reasonable or prudent person would have acted
in the same situation.
Total return. The rate of return on an investment measured by
its current income plus its change in value divided by
its cost or value at the beginning of the period.
Transfer (of risk). Risk management tool in which you
shift the financial consequences of your possible loss to
another person or entity.
Travelers check. An instrument designed to be widely
accepted as a means of payment without the risk of carrying
cash. You sign them when you buy them and again when you use them.
Treasury bills. Obligations of the U.S. Treasury sold at a
discount from face value and maturing in a year or less.
Treasury bonds. Long-term obligations of the U.S. Treasury
which are issued in $1,000 units, pay interest every six
months, and are usually marketable.
Treasury notes. Obligations like Treasury bonds which mature
in 1 to 7 years from issuance. See Treasury bonds.
Trough (of business cycle). The lowest point of
the business cycle-the time when the economy shifts from going
down to going up.
Trust. The transfer of legal title to assets to someone, called the
trustee, for the benefit of someone else, called the
beneficiary. An inter vivos trust is created while the grantor is alive, a testamentary
trust on his death.
Two-account budget plan. Providing a separate funds
budget and current spending budget and treating them as
though they were separate checking accounts.
Umbrella liability policy. See Personal umbrella
liability policy.
Unearned income. An unfortunate term for passive income such
as dividends and interest used in the tax laws to
distinguish it from income from sources such as wages and salaries, which are called
earned income.
Uninsured/Underinsured motorists
coverage. Auto insurance which protects you against uninsured/underinsured and
hit-and-run motorists by acting as though it were their liability insurance and paying you
if they are the cause of
your loss.
Universal life. Life insurance which combines a segregated
investment account held by the insurer with one year
term life insurance purchased to cover the policy’s net amount at risk each year.
Upper turning point. The part of the business cycle when
economy activity ceases to increase and starts declining.
Upswing phase. The portion of the business cycle during which
the economy is increasing.
Variable annuity. Life annuity in which the benefit
payments are linked to the performance of an investment
portfolio.
Variable life insurance. Life insurance which is
designed to deal with inflation by linking the face amount to an
economic index or to an insurer’s portfolio of investments.
Velocity. The number of times during a period (usually a year) that
monev changes hands on average.
Vesting. Extent to which benefits you have earned under a pension
plan will be paid to you if you leave employer.
W-2 form. A form provided by an employer to an employee showing how
much income and social security tax was
withheld from the employee’s pay during the year.
W-4 form. A form filed with an employer to indicate the number of
exemptions to which the employee is entitled.
Waiting period. Period of time from beginning of a disability
during which benefits are not paid under a disability
income policy. When this period ends, benefits are paid; thus it is a form of deductible.
Waiver of premium. Life and health insurance policy rider
or provision which continues your policy without your
paying premiums if you are totally disabled.
Warranty. A guarantee by the manufacturer or seller of a good that
it is suitable for its intended use and setting
forth the responsibility undertaken to repair or replace it in case of defects.
Whole life insurance. Life insurance policy which
promises to pay at the time of death, no matter when the insured
dies, if the policy has been kept in force.
Will. A written instrument which directs how your property is to be
disposed of when you die.
Withholding. The taking of part of an employee’s pay by the
employer to send to the treasury department to apply
on the employee’s income and social securitv taxes.
Yearly (annually) renewable term. Term life
insurance policy for one year which you have the option to renew
without evidence of insurability, until some specified age limit is reached; the premiums
go up each year at renewal.
Yield. A somewhat ambiguous term for return. Often the current return
on an asset in comparison to its value. See
current yield, dividend yield, total return, and yield to maturity.
Yield to maturity. The rate of return on a bond taking
into account both the interest that it pays and the difference
between its price and the face value it will pay when it comes due.