Annuity Joint and Survivor: In contrast to distribution of income for one annuitant, an annuity joint and survivor provides for
annuitized payments over two designated lives. Upon the death of the first annuitant, the surviving annuitant receives prearranged, continued payments for life, based on a percentage received by the
Annuity Joint Life: While two or more individuals may be named annuitants, payments cease at the death of the first annuitant in an annuity
joint life contract.
Annuity Modified Refund: In a contributory retirement plan, the annuity beneficiary of a deceased retiree receives the accumulated balance of
the pension fund.
Annuity Payout Option: An alternative an annuitant has for how he or she may receive annuity payments. Annuities may be received in a
variety of ways: as a fixed dollar amount, for a fixed period, or over the lifetime(s) of one or two annuitants.
Annuity: A life insurance contract guaranteeing the purchaser, or his or her beneficiary, payment in the future, usually during retirement.
Annuities may be structured in different ways with different payout options. Funds invested in an annuity grow on a tax-deferred basis.
Application Fee: A fee lenders may charge to process a loan application. Paying this fee does not guarantee loan approval. Some lenders apply
the cost of the application fee toward certain closing costs.
Appraisal: An assessment of a propertys value based on information from recent sales of similar properties.
Asset Allocation: The process of determining how investment funds will be apportioned among different classes of financial assets, such as
stocks and bonds. Many financial advisers believe that the investment mix has a greater impact on long-term portfolio performance than does any individual investment.
Asset Class: Securities with similar features. The three main asset classes are stocks, bonds, and cash reserves.
Asset: Property with a cash value, such as real estate, equipment, savings, and investments.
Assignment: The legal transfer of the entire or partial ownership of an asset, such as an insurance policy, to another person or
Automatic Reinvestment: A prearranged investment plan that automatically deposits mutual fund dividends or capital gains back into the fund to
purchase additional shares.
Backup Withholding: Unless a Social Security or Tax Identification number is filed with a financial institution, the Internal Revenue Service
requires 20% of all interest or dividend income be withheld. Backup withholding may be avoided by filing a W-9 form when opening an account with a financial institution.
Balance: The amount of money in a bank account after deposits, withdrawals, interest, and bank charges.
Balloon Mortgage: A mortgage with a final payment considerably larger than the preceding payments. Balloon mortgages are typically used when
borrowers anticipate receiving a large sum of extra cash to pay the balance, or when they expect to refinance before the balloon payment comes due.
Bankruptcy: An inability to pay outstanding debt, in full or in part, or declaring insolvency may lead to bankruptcy. There are three
parties to any bankruptcy proceeding: debits, creditors, and a trustee. Bankruptcy is an expensive process and may adversely affect future credit opportunities. Some more recognizable bankruptcy
Chapter 7: A debtor (individual) is declared bankrupt and a court appointed trustee initiates a liquidation process and a discharge
of all eligible debts. The debtor has no financial sources to attempt a reorganization. A separate taxable entity is created.
Chapter 11: A debtor (business, individual, or partnership) is declared bankrupt, but is allowed reorganization to attempt debt
repayment. Creditor approval is required. A separate taxable entity is created.
Chapter 13: A debtor (individual or sole proprietor) is declared bankrupt, but is allowed to retain estate-related assets and to restructure
debt obligations for eventual payment. No creditor approval is required.
Basis Point: One one-hundredth of one percent. For example, 40 basis points equal 0.40%.
Basis: The original cost and any additional outlays represent the cost basis in equity investments or property. The Internal Revenue Service
computes the taxable gain, profit, or appreciation on the difference between the basis and the actual amount of sale. Therefore, defining basis as original price, and not as total cost, may
incorrectly result in an inflated tax liability.
Bear Market: An extended period of declining security prices.
Beneficiary: A person or entity named in a life insurance policy, a qualified retirement plan, or an annuity, or one who is eligible by the
terms of such a policy or plan, to receive benefits upon the death of the insured or the plan participant.
Beta: A measure of a securitys price fluctuations (volatility) relative to an appropriate market index. For example, the Standard &
Poors 500 Stock Index (S&P 500) has a beta of 1. Stocks with betas greater than 1 are subject to more rapid and extreme price fluctuations than the market. Conversely, price fluctuations
for stocks with betas less than 1 are less frequent and smaller than the market. Conservative investors generally seek lower-beta securities, while aggressive investors seek
Blue Chip Stock: The common stock of a company with a reputation for quality products, services, and management, and a long history of
earnings growth and dividend payments. Examples of blue chip companies include General Electric, International Business Machines, and DuPont.
Bond: A debt security issued by a corporation, government, or government agency obligating the issuer to pay interest periodically and repay
the principal at maturity.
Broker: A financial professional who sells insurance or securities, and oversees a clients insurance or investment
Budget: Projected income and expenses for a given period.
Bull Market: An extended period of rising security prices.
Business Succession: A prearranged process that addresses the future orderly transfer of a business entity and plans for every
alternative contingency that would affect any transfer. Business succession broadly involves legal, financial, tax, and family concerns.
Buy-and-Hold: An investment strategy that advocates holding securities for the long-term, while ignoring short-term price
Buy-Sell Agreement: A written, legal buy-sell agreement provides for the purchase of all outstanding shares of an owner who wishes to
sell, terminate involvement, is permanently disabled, or dies. Such an agreement allows for different future ownership structure. The agreement is usually funded with life and disability
insurance, and contains specific purchase arrangements.
Cafeteria Employee Benefit Plan: An employee benefit plan offering a variety of benefit options from which individual employees may select.
Depending on personal needs and finances, employees may voluntarily elect benefits (e.g., life, health, disability, health coverage).
Canceled Check: A cashed check. The bank returns canceled checks, or a copy of them, in a monthly statement for the check writers
Capital Gains Distribution: Payments to mutual fund shareholders of profits from the sale of securities in the funds portfolio, usually
made on an annual basis.
Capital Gains Tax: Tax on profits from the sale of securities, or fixed assets, such as land, buildings, equipment, and
Capital Loss: A decrease in a securitys selling price from its purchase price.
Cash Advance: An instant loan obtained from a credit card account. Issuers charge interest from the date of the advance until it is repaid.
They may also charge a transaction fee based on the amount of the advance.
Cash Basis: An accountancy reporting method that recognizes cash inflows or outflows when actually expended or received.
Cash Budget: A budget used to quantify an immediate, short-term cash flow. Reviewing daily, weekly, and monthly expenditures is
essential for a resolution to establish credit lines or contemplate investing short-term idle cash.
Cash Flow: Cash income less cash payments for a given period. Individuals whose assets exceed their liabilities (claims against the assets)
may still get into financial difficulty if they dont have enough cash to meet their current obligations.
Cash Management: Channeling available cash into expenditures that enhance productivity, directly or indirectly.
Cash Surrender Value: The amount the policyowner receives when terminating a cash value insurance contract. Computation of the cash surrender
value is stated, by law, in the contract.
Cash Value: The accumulated cash build-up in a whole life policy that a policyholder receives if the policy is redeemed before its maturity or
the policyholders death.
Casualty Loss: Sudden and unexpected losses due to damage, destruction, fire, or theft. that are usually reimbursed either in full or
in part by insurance contracts. Amounts of compensation are listed for losses are not usually tax-deductible if full restitution is made by the insurance carrier. However, claims denied or not
covered are potentially tax-deductible.
Certificate of Deposit (CD): An insured, interest-bearing debt instrument issued by a bank. Individual CDs start as low as $100 and have
maturities ranging from a few weeks to several years.
Check: A written transfer of money from a bank account, used in place of cash.
Claim: A request for payment under the terms of an insurance policy.
Claims-Paying-Ability Rating: An assessment of an insurance companys ability to pay claims, relative to other insurance
Closing Costs: Also called settlement costs. The expenses involved in transferring real estate from a seller to a buyer. Typically includes
fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Does not include points and
the cost of private mortgage insurance (PMI).
Closing: The process of transferring real estate from a seller to a buyer.
Cloud on Title: An apparent or potential claim, lien, or right on real estate. The title is not clean and a quitclaim deed must be
filed to resolve the potential hindrance. For instance, a paid loan with property secured may not have been recorded or a deceased owner was never removed from the deed to a house or title of a
Combined Financial Statement: An individual or corporation may own more than one affiliated business enterprise. Each has a complete set of
financial documents. To provide a financial overview of all affiliates, a combined financial statement will present side-by-side accountings of balance and net worth
Commercial Loan: Short-term credit lines and commercial loans represent two important sources of short-term financing.
Businesses, for example, in need of additional inventory to complete existing orders will frequently bolster immediate cash flow with a commercial loan. The loan will be based on the credit
worthiness of the business and/or owner and the prime lending rate.
Commercial Paper: A short-term debt obligation frequently used as investments by money market accounts with a life cycle of less than six
months, but more than one day. Commercial paper is rated as a safe investment, backed by major institutions.
Commission: A brokers fee for executing a trade, based either on the dollar amount of the trade or the number of shares
Commitment: A written agreement specifying the terms and conditions under which a lender will loan and a borrower will borrow funds to finance
Common Stock: A security representing partial ownership, also called equity, in a corporation, and which entitles shareholders to participate
in stockholder meetings and to vote for the board of directors.
Compounding: The process of applying investment growth not only to the original investment, but also to income and gains reinvested in prior
Construction Loan: Short-term financing to fund the cost of real estate construction. The lender disburses funds as work progresses or
according to a prearranged schedule. The loan is repaid at project completion.
Contingent Beneficiary: Also called secondary beneficiary. The beneficiary who receives the proceeds of a life insurance policy if the primary
beneficiary predeceases the insured. For instance, a child might be the contingent beneficiary of a policy where the childs mother or father is the primary beneficiary.
Contingent Liabilities: An unplanned and unforeseen potential financial judgment. In practice, many individuals and corporations face
contingent liabilities. Therefore, contracts for sale and transfer of ownership should address all latent contingent liabilities.
Convertible Term Insurance: Term insurance that a policyholder may exchange for another type of coverage without providing evidence of
Corporate Bond: A debt security issued by a corporation obligating the issuer to pay interest periodically and repay the principal at
Correction: A short-term reversal, usually downward, in the prices of stocks, bonds, or commodities, bringing them more in line with their
underlying fundamental values.
Co-Signer: An individual who adds his or her signature to a loan or a credit card agreement along with the principal applicant, and who
thereby assumes responsibility for paying the outstanding balance if the applicant defaults.
Cost of Insurance: The total premium outlay paid for a potential death benefit from a life insurance policy. On an annual basis, the
policyowner may consult a government publication, P.S. 58 tables, or, if available, the annual renewable term rates from the carrier for the "pure" insurance cost at each attained
Covenant not to Compete: A contractual promise to refrain from performing professional or similar business activities. The legal enforcement
of a covenant not to compete depends on the wording, compensation, duration, and situation.
Credit History: The record of how an individual has paid his or her debts. A credit report discloses an individuals credit
Credit Line: A revolving credit agreement allowing a person to borrow any amount up to a preapproved limit for purchases or cash advances. As
the outstanding balance is paid off, the credit again becomes available to fund new purchases or cash advances.
Credit Rating: Formal evaluation of a companys ability to pay interest and repay principal on borrowed money, as published by a
credit rating agency or service. For example, Standard and Poors and Moodys Investor Service rate corporate bonds.
Death Benefits: Payments from an insurance policy or an individual retirement account (IRA) to a beneficiary.
Debit Card: A card that allows an individual to pay for purchases with funds that are immediately deducted from his or her checking or savings
Debt: A legal obligation, written or oral, to deliver a product, service, or cash.
Debt-to-Equity Ratio: The ratio of total debt to total shareholder equity indicates the level of capability for repayment of outstanding
creditors. In addition, long-term debt as a function of shareholder equity indicates the degree of leveraged money to improve shareholder rates of return.
Decreasing Term Insurance: A term insurance policy with a death benefit that decreases over time. Decreasing term insurance is often used in
conjunction with a mortgage or other amortized debt. For example, a holder of a 30-year mortgage may also hold a 30-year decreasing term insurance policy to cover the mortgage if he or she dies
before it is paid off.
Deed: A document identifying legal ownership of real estate, and used to transfer it from a seller to a buyer.
Deferred Annuity: An annuity that pays an income or lump sum at a future date.
Deferred Compensation: The deferral of constructive receipt of current earned income or compensation to a later date, usually retirement, so
future receipt might experience a potentially lower marginal tax rate.
Defined Benefit Plan: An employer-funded retirement plan designed to pay a predetermined benefit based on an employees salary and
Defined Contribution Plan: Employee-funded retirement plans, such as 401(k)s and 403(b)s, that pay benefits based on the amount the employee
has accumulated over his or her working life.
Deflation: Reduction in the price of goods and services. Deflation occurs when there is an outright decline in the
consumer price index (CPI) or producer price index (PPI). Raw materials, oil, base materials, copper, and the Commodity Research Bureaus nonfinancial futures price index will evidence
Dependent Student: An unmarried student under age 24 with no dependents, who still has access to parental support.
Deposit Slip: A form the bank provides to use when making a deposit.
Deposit: The money put into a bank account.
Depreciation: The decreasing value of a fixed asset during its projected life expectancy. The Internal Revenue Service permits several
processes to calculate annual depreciation amounts over asset life expectancy.
Derivative: A security whose value is based on a traditional security, an asset, or a market index.
Direct Rollover: A tax-free transfer of funds from one retirement plan to another. Distributions from a qualified retirement plan may be
transferred to another retirement plan or an individual retirement account (IRA), while funds from an IRA may be rolled over to another IRA.
Disability Benefit: Benefits received from an insurance policy that are payable if the insured becomes totally (and sometimes
Disability Insurance: A policy that pays a portion of the insureds income in the event of temporary or permanent total
Discount Broker: A brokerage firm that buys and sells securities at lower rates than a full service broker. Discount brokers generally do not
offer all the services of full service brokers.
Diversification: Strategy for reducing the risk of investing in a single industry/market sector or a small number of companies, by spreading
the risk over several industries/market sectors or a larger number of companies.
Dividend: Distribution of earnings to shareholders of corporations and mutual funds, or life insurance policyowners, generally paid in the
form of money or stock.
Dollar-Cost Averaging: A method of investing a fixed dollar amount in securities at set intervals, regardless of market prices. With this
approach, an investor buys more shares when prices are low, and fewer shares when prices are high. This generally results in a lower average cost per share than if the investor had purchased a
constant number of shares at the same periodic intervals. An investor should consider his or her financial ability to continue through all types of market conditions. Dollar cost averaging will not
assure a profit or protect against loss in a down market.
Double Taxation: Business profits and income of sole proprietors, partnerships, and S corporations receive taxation only at the individual
taxpayer level. However, C corporations experience taxation at the corporate level and the individual taxpayers pay taxes on dividends.
Dow Jones Industrial Average (DJIA): The price-weighted average of 30 actively traded blue chip stocks on the New York Stock Exchange (NYSE).
The DJIA represents approximately 15% to 20% of the market value of NYSE stocks.
Early Distribution: A distribution from an individual retirement account (IRA) taken before age 59 1/2. Early withdrawals are usually subject
to a 10% penalty.
Education IRA: A savings vehicle that allows parents to receive tax-free savings on money earmarked for a childs college education.
There are limits on income eligibility and on how much may be set aside per year in an education IRA.
Electronic Banking: Many banking institutions provide computerized network services that provide account holders access to their accounts by
personal computer. Customers may make payments directly to stores, credit card accounts, mortgage companies, utility companies, and other creditors. Individuals having two or more bank accounts may
also transfer cash between accounts.
Electronic Check: The use of a computerized network to draft checks for the payment of bills and the purchase of goods and
Electronic Commerce: Buying and selling of capital goods and services on a computerized network, such as the World Wide Web.
Electronic Funds Transfer System (EFTS): Funds may be electronically transferred between accounts of buyers, sellers, and other individuals.
This service allows for direct deposits or withdrawals without processing written checks.
Employee Benefit Plan: The total compensatory package of employee benefits offered by an employer beyond the salary or wage
Employee Pension Benefit Plan: An employer sponsored benefit plan for eligible employees to provide additional retirement accumulations
through pre-tax and tax-deferred contributions.
Employee Retirement Income Security Act (ERISA): Most pension and retirement plans became subject to government overview and the establishment
of several federal limitations and practices under ERISA in 1974.
Employee Stock Ownership Plan (ESOP): A popular employee plan that encourages employee ownership and allows employees to become
actually involved in their companys success.
Employee Welfare Benefit Plan: In contrast to pension plans, employees are offered fringe-benefit, or employee welfare benefit
plans, which may include health, disability, paid vacations, paid state and national holidays, or compensation to beneficiaries at death. In some plans, the health portion of coverage may
describe dollar or percentage coverages for medical, surgical, or hospital based on an itemized schedule.
Endorse: To sign the back of a check to receive payment.
Endowment: A life insurance policy paid to the policyholder on the maturity date, or to a beneficiary if the policyholder dies before that
Equity Loan: A loan a homeowner takes against the accumulated equity in his or her home using the property to secure the debt. Also, a
variation on a second mortgage. An equity loan may be structured as a line of credit the homeowner can access with a check or credit card.
Equity: The difference between a propertys current market value and the sum of all claims against it.
Escrow: Property, such as money or securities, held by a third party until a contracts conditions are met.
Estate Planning: The process of planning for the orderly administration and disposition of assets after the owner dies.
Estate Tax: Federal and/or state taxes levied on assets of a decedent (person who dies). Estate taxes are paid by the decedents estate
rather than his or her heirs.
Excess Compensation: In a benefit pension plan that is integrated with federal old-age, survivors, and disability insurance (OADSI), excess
compensation is above that specified amount upon which calculations for future benefits are based.
Excess Contribution: The amount of an individual retirement account (IRA) contribution above the allowable limits. If not corrected, a
6% Internal Revenue Service penalty applies.
Executor: A person named under a will to administer the distribution of the deceaseds assets as directed by the will. An executor is
often a family member, a trusted friend, or a bank trust officer.
Family Limited Partnership (FLP): A partnership of family members to arrange for generational transfers, maintain control in the general
partners, and reduce potential liability to the transferor and transferee. Family limited partnerships utilize the benefits in wealth preservation, taxation, credit protection, and estate
Federal Reserve System (The Fed): The central banking system that regulates the national money supply. The Fed Board establishes Federal
Reserve System policies and sets interest rates.
Fiduciary: An individual, commonly a trustee of a trust, who assumes legal responsibility to perform duties or manage affairs for the benefit
of another person or beneficiary. An attorney assumes a fiduciary role when representing clients.
Financial Aid: The financial support a student receives from federally and privately funded sources to attend college. Financial aid includes
loans, grants, scholarships, and work-study programs.
Financial Statement: Written records concerning the financial circumstances of a business organization. Such a statement generally includes
balance sheets, changes in retained earnings, profit and loss statements, cash flows, and other forms of financial analysis that are beneficial to management.
First-to-Die Life Insurance: A life insurance policy covering two or more people that pays the death benefit when the first person dies.
First-to-die life insurance is often used to cover mortgage payments, or to fund buy-sell agreements.
Fixed Annuity: An annuity that guarantees a fixed payment, either for life or for a specific period.
Fixed-Rate Mortgage: A mortgage with a set interest rate that will not vary for the life of the loan.
Floating Debt: Using government Treasury bills or short-term corporate bonds which, when continually renewed, pay off current liabilities or
finance cash flow.
Flood Insurance: Insurance that covers against losses that are a direct result of flood damage. Flood insurance is required by lenders if a
property is located in a flood zone.
For Sale By Owner (FSBO): The sale of a home directly by the owner, where the owner assumes all fiduciary responsibilities involved with the
execution of all legal contracts, documents, and transactions.
Foreclosure: The legal procedure by which a mortgage holder, whether a bank, savings and loan, or private individual, can seize the property
of a borrower who has not made timely payments on a mortgage. The lender must obtain a court order to seize the property, which it may then sell to satisfy the debt.
Forfeitures: Employees who terminate from an employers pension plan are forced to forfeit nonvested employer contributions. These
forfeitures may be applied as credits to remaining employee accounts or used to offset future employer contributions, depending on the pension plan.
401(k) Loan: Loan taken from a 401(k) plan account. Loans must follow Internal Revenue Service (IRS) guidelines, as well as the rules set
forth by the plan.
401(k): A defined contribution plan allowing employees to make pretax contributions up to a predefined annual limit. Many plans offer a
variety of investment choices, including mutual funds, stocks, bonds, short-term reserves, and company stock.
403(b): A tax-sheltered annuity for employees of government and nonprofit organizations, allowing them to make pretax contributions up to a
predefined annual limit.
Franchise: A license granted by a business or company allowing a designee to operate a franchise and market products or services in a
fixed geographic area. Usually consummated with an initial cash requirement, the agreement may offer consultation, financing, promotional, or other stated benefits on an arranged percentage of sales
Fringe Benefits: Opportunities and services offered beyond wages or salary. They are not generally taxable to the employee, but may have tax
benefits to the employer. The employer contribution may be full payment, partial, or merely providing the opportunity for employee involvement. Some common fringe benefits may include paid holidays,
sick days, paid vacation days, insurance coverage, retirement plans. Other less common benefits are company car, expense account, or stock options. Fringe benefits are important in attracting and
retaining key employees.
Front-End Load: A sales fee (load) investors pay up-front at the time they purchase an investment.
Futures: Agreements to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future
General Ledger: Lists all financial accounts, including debits, credits, and balances.
General Partner: The managing partner of a limited partnership who possesses
Gift Tax: A tax levied by the federal government, and some states, on assets transferred from one person to another. The tax rate increases
with the value of the gift. The donor pays the tax, not the recipient.
Gift: A voluntary transfer of property when no compensation involves either the transferor or the transferee. The transferor can not retain
any incidence of ownership (e.g., control, possession, enjoyment, right to income, or power to designate persons who will receive benefits of ownership) after relinquishing control in the transferred
Golden Boot: Offering lucrative financial incentives or extension of benefits usually to persuade an older employee to exercise the option for
"early retirement." This voluntary election by an employee help avoid any conflict with age discrimination codes.
Golden Handcuff: Providing additional benefits to a valued and productive employee to induce him or her to remain with the
Golden Parachute: A benefits package secured by top executives if a layoff occurs due to a corporate buyout or takeover. The benefits may
include out-placement, six months to
two years of severance pay, stock options, or a substantial bonus.
Government Bond: A bond issued by the US government.
Grace Period: A period of time after the due date of an insurance premium or loan payment during which the overdue payment may be made without
penalty, and the policy or loan remains in effect.
Grant: A financial aid award that does not require repayment. Federal grants include the Federal Supplemental Educational Opportunity Grant
(FSEOG) and the Pell Grant.
Gross Estate: The total value of a persons assets before taxes and other debts.
Gross Monthly Income: The total monthly income from all sources, before taxes and other expenses.
Group Life Insurance: A life insurance policy that insures a group of people. Group life insurance is often provided by employers as an
employee benefit, or by a professional association for its members.
Group Permanent Insurance: Some pension benefit plans seek to provide greater death benefits as well as a retirement income. The employer
contracts with an insurance carrier to provide group permanent insurance to participating employees. At retirement, an employees retirement accumulations may be augmented by the
cash surrender value of the policy. On the other hand, some insurance carriers offer employees a payroll-deducted permanent insurance plan not connected with the companys employee pension
benefit plan and usually offered with simplified underwriting.
Group Renewable Term Insurance: Many employee welfare benefit plans offer employees group renewable term life insurance based on
increments of salary or a minimum flat amount for all participating employees.
Guardian: The legal representative of a minor child, as appointed by a will, or of a legally incapacitated adult.
Guardianship: The legal responsibility for the care of a minor child.
Highly Compensated Employee (HCE): The Internal Revenue Code has determined that a highly compensated employee of an employee benefit
plan is one who receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels.
Home Equity: The difference between a propertys current market value and the sum of all claims against it. For example, a homeowner with
a house currently valued at $200,000, and carrying a $150,000 mortgage, has $50,000 in equity. Home equity is included in the calculation of financial aid eligibility.
Hope Credit: A federal tax credit that gives families a maximum tuition credit of $1,500 per student per year for the first two years of
post-secondary education. This is calculated as 100% of the first $1,000 of tuition and 50% of the second $1,000.
Household Income: The combined income of all household members from all sources, including wages, commissions, bonuses, Social Security and
other retirement benefits, unemployment compensation, disability, interest, and dividends.
Housing Ratio: Also called the front-end ratio or payment-to-income ratio. The ratio of the monthly housing payment to total monthly
Income: The amount received from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits,
unemployment compensation, disability, interest, and dividends.
Index: An indicator of the market prices of securities issued by companies included in the index. An index is used to measure the movements of
securities of similar companies. Some well-known indexes are the New York Stock Exchange Index (NYSE), the American Stock Exchange Index (AMEX), the Standard & Poors 500 Index (S&P
500), the Russell 2000 Index, and the Value Line Index.
Individual Retirement Account (IRA): A tax-deferred retirement savings account allowing individuals to contribute up to $3,000
annually, and single-income married couples up to $6,000 annually. The amount deductible for income tax purposes depends on income level. Individual Retirement Accounts and Individual Retirement
Annuities are types of Individual Retirement Arrangements.
Inflation: A general rise in the price level of goods and services. Occurs when demand increases relative to supply. In other words, too much
money chasing too few goods.
Initial Public Offering (IPO): A corporations first stock issue offered to the public.
Insufficient Funds: When a bank account does not contain enough money to cover a specific check.
Insurability: The ability of an insurance applicant to be accepted by an insurer, based on health, occupation, lifestyle, and
Insurable Interest: A potential beneficiary who has a vested financial interest in the life of another person and who might suffer loss upon
their disability or death. Side Note: Current laws have substantiated that charitable organizations have an insurable interest in their donors and, therefore, qualify as beneficiaries of donor
life insurance policies.
Insured: The individual whose life is covered by an insurance policy.
Intangible Asset: Nonphysical resources that provide gainful advantages in the marketplace. Copyrights, software, logos, patents, goodwill,
and other intangible factors afford name recognition for products and services. They are all examples of intangible assets and may provide significant value to a business
Integrated Plan: An employee pension benefit plan may be included for benefit calculations with Federal Insurance Contribution Act
(FICA) benefits, also known as Social Security, or with Old-Age, Survivorship, and Disability Insurance (OASDI) contributions.
Intellectual Capital: Representation of the financial value that human innovations, inventions, and intelligence bring to a business
Inter Vivos Trust (living trust): A trust created during a grantors lifetime in which the grantor has the authority to revoke or change
the trust until death. At the death of the grantor the trust becomes irrevocable. In contrast, a will may contain a testamentary trust which comes into existence only when the probate court
authenticates a deceased grantors will and the provisions become irrevocable.
Interest Rate: The cost of borrowed money, expressed as a percentage for a given period of time.
Interest: The cost of borrowed money.
Internal Rate of Return (IRR): The theorem of internal rate of return is, in effect, compounding interest in reverse, or discounting.
In contemplating a current investment with a proposed investment, IRR is a most efficient evaluation. The rate of return on a proposed investment should be equal to the present value of all future
benefits, including revenues, as well as the gross costs associated with the (current) property investment. IRR is important in planning capital outlays, as well as evaluating rental real estate
Investment Objective: An individuals investment goal based on his or her time horizon and risk tolerance.
IRA Rollover: A tax-free transfer of funds from one individual retirement account (IRA) to another.
Irrevocable Trust: A trust that cannot be altered, stopped, or canceled. During circumstances where the trustee cannot interpret or carry out
their specific duties, the court is then asked to make legal determinations.
Joint Tenancy: Also called joint tenancy with right of survivorship. A form of property ownership in which two or more people own an undivided
interest in a property. Upon the death of one joint owner, ownership automatically passes to the surviving joint owner(s) without a court proceeding. Joint tenancy applies to property with a title or
other certificate of ownership, such as mortgages, securities, and bank and brokerage accounts.
Keogh Plan: A tax-deferred qualified retirement account for employees of unincorporated businesses or for self-employed individuals. Section
415 of the Internal Revenue Code limits annual contributions to 25% of earned income up to a limit of $30,000. Withdrawals commence at age 59½, while contributions must cease at
Key Employee: An employee who possesses valued skills, craft knowledge, intellectual or organization abilities, and is crucial to the ongoing
operation of the business or company and is difficult to replace.
Key Person Insurance: Small companies often have employees who possess craft or scientific knowledge, leadership, and valued skills. Hiring a
replacement might alter business planning, profit, stability, and management. To address the financial aspect of replacing a key employee, the corporation becomes owner and beneficiary on an
insurance policy that reimburses the company for untimely loss of a key person employee.
Lapsed Policy: A policy canceled for nonpayment of premiums. Also refers to a policy canceled before it has cash or surrender
Layoff: For other than performance or wrongdoing, an employee is no longer on the payroll of a business. A layoff is usually the result
of a downturn in the economy, lower profit margins, or a paring down of business operations.
Lease: A contract granting the use of real estate or a fixed asset, such as a vehicle or equipment, for a specific period in exchange for
Leaseback (sale and leaseback): Example: A business owner sells all or part of the property from which the business operates to raise cash for
business operations. The business owner agrees to lease the sold property for a term of years from the new owner. The leaseback offers security to the new owner because the seller becomes the
tenant with business operations remaining at its present location on a potentially long-term basis.
Lease-Purchase Agreement: An agreement that states: 1) a portion of each lease payment applies to a future purchase of the leased property, or
2) the leaseholder possesses a right to buy the property during or at the conclusion of the lease term.
Lender: One who parts with something of value for specific compensation and for a stated or open duration of time.
Letters of Credit by a Bank: The bank, as issuer, substitutes its creditworthiness for a recipient customer and buyer in a single or series of
sales transactions. The seller has little risk in default of payment by the buyer because of the letter of credit. A significant variation on a letter of credit is a letter guaranteeing
performance for completion of a contract.
Level Premium Term Insurance: A life insurance policy for which premiums remain the same from year to year for a specified
Liability: Debt obligations are liabilities and creditors, in most cases, have a claim on the assets of the debtor. A balance
sheet will usually list the creditor, amount of outstanding liability, and dates of maturity.
Life Annuity: An annuity that provides income for life.
Life Cycle: A time period measure from beginning to conclusion of an individual, product, or business. A corporate business entity, however,
frequently has a life cycle beyond its founder or current owners. Therefore, small family businesses may compute life cycles in generational terms to plan an eventual transfer or
Life Expectancy: The average number of years people of a given age are expected to live, according to a mortality table based on factors such
as gender, age, heredity, and health characteristics.
Life Insurance: A type of insurance that pays a benefit upon the death of an insured person.
Lifetime Learning Credit: A 20% federal credit toward the first $5,000 ($10,000 after 2002) of qualified education expenses, including tuition
and/or other educational expenses incurred to learn or improve job skills. This credit is available to college juniors and seniors, graduate students, and working Americans.
Limited Liability Corporation (LLC): In contrast to the unlimited liability inherent in proprietorships as a form of business ownership, a
limited liability corporation provides limited liability to each shareholder to the extent of invested capital.
Limited Partnership: An organization managed by a general partner and financially backed by limited partners, offering limited liability to
the extent of the amount invested by each individual limited partner. A limited partner does not supervise the daily operations or directly manage the partnership.
Liquid Assets: Cash, or assets easily converted into cash, such as bank deposits, money market fund shares, or US Treasury
Liquidity Ratio: Ratios (cash asset ratio, current ratio, quick ratio) that quantify a companys ability to discharge debt obligations
maturing within one year.
Liquidity: The ability to quickly and easily convert assets into cash without incurring a significant loss.
Living Trust: Also called an inter vivos trust. A trust established by a living person that allows that person to control the assets he or she
contributes to the trust.
Living Will: Also called a health care proxy. A written document that allows you to designate a representative to make your medical decisions
if you become incapacitated due to accident or illness. Often, a living will identifies specific medical treatments a
Locking-In: Assuring an interest rate, such as on a mortgage, CD (certificate of deposit), or fixed-rate bond, has been set.
Long-Term Care Insurance: Insurance covering the cost of long-term nursing home care or in-home assistance.
Long-Term Debt: Liabilities that are due in a year or more and payable as the debt matures. In most instances, the debtor makes regular
interest and principal payments during the interim. In contrast, investors purchase long-term debt, such as Treasury bonds, which mature in excess of ten years, usually for income and safety
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