Glossary of Terms

Glossary of Terms

 

A

  • Accidental Death. Death resulting directly and solely from an accident injury visible on the surface of the body or disclosed by an autopsy; a disease or infection resulting directly from an accidental injury as described, beginning within 30 days after the date of the injury; or an accidental drowning.
  • Activities of Daily Living. Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
  • Actual Cash Value. Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
  • Actuary. A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.
  • Adjusted Gross Income (AGI). An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.
  • Adjuster. A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.
  • Administrator. A person appointed by the court to settle an estate when there is no will.
  • Admitted Assets. Assets permitted by state law to be included in an insurance company's annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.
  • Adverse Carrier. Term used to refer to the other party’s insurance company.
  • After-Tax Return. The return from an investment after the effects of taxes have been taken into account.
  • Aggregate Limit. Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
  • Aggressive Growth Fund. A mutual fund whose primary investment objective is substantial capital gains. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve higher returns also involve a higher degree of risk.
  • Alcohol Bond. A general term describing a bond given in compliance with either federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol. The bond frequently is referred to as a liquor bond, when the alcohol is intended for beverage purposes.
  • Alternative Minimum Tax. A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.
  • A.M. Best Rating. A measure of the financial stability of an insurance company, including its ability to pay claims, provided by the A. M. Best Company, an industry accounting provider. A+ is the best; F is the worst (bankrupt).
  • Annuity.  Property & Casualty An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period or Family Wealth Management An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Annuity contracts are usually purchased from banks, credit unions, brokerage firms, or insurance companies. Any guarantees are contingent on the claims-paying ability of the issuing company.
  • Appeal Bond. One filed in court by a defendant against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, with the hope of reversing the judgement.
  • Application. A questionnaire that provides required information concerning anyone who requests a bond written on his behalf. It describes the nature of the bond requested, includes the applicant’s promise to pay the bond premium, and also indemnifies the surety in the event of default.
  • Appraisal. Process that determines the value of property, or the extent of damage, usually performed by an impartial expert.
  • Approved for Reinsurance. Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in all states.
  • Approved or Not Disapproved for Surplus Lines. Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state.
  • Asset. Anything owned that has monetary value.
  • Assets. Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to non-income producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equal total admitted assets. By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "non-admissible."
  • Asset Allocation. The process of repositioning assets in a portfolio to maximize potential return for a particular level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models. Asset allocation does not guarantee against loss; it is a method used to help manage investment risk.
  • Asset Class. A category of investments with similar characteristics.
  • Attorney-in-Fact. One who holds a power of attorney by a surety company empowering the execution of a surety bond (see “Power of Attorney”).
  • Audit. The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records' accuracy, consistency, and conformity to legal and accounting principles.
  • Automobile Liability Insurance. Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.

B

  • Balanced Mutual Fund. A mutual fund whose objective is a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.
  • Bear Market. A mutual fund whose objective is a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.
  • Beneficiary. A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, and so on.
  • Benefit Period. In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
  • Bid Bond. A guarantee that a contractor will enter into a contract if awarded to him and will furnish such contract bonds as are required by the terms of the contract.
  • Blanket Fidelity Bonds. These cover losses of money, merchandise or other property (real or personal) belonging to the employer or in which he has a pecuniary interest or which he may be holding in any capacity, when such loss is due to dishonesty of employees.
  • Blue Chip Stock. The common stock of a company with a long history of profitability and consistent dividend payments.
  • Bond. Surety An instrument designed chiefly to guarantee the integrity and honesty of the principal, his ability, financial responsibility, and his compliance with the law or contract; a guarantee of performance. It is an agreement whereby one party (the surety) obligates itself to a second party (the oblige) to answer for the default of a third party (the principal).  or Family Wealth Management A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000.
  • Book Value. The net value of a company's assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock's market value.
  • Broker. Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
  • Bull Market. When the stock market appears to be advancing overall, it is said to be a bull market.
  • Buy-Sell Agreement. A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.

C

  • Capital Gain or Loss. The difference between the sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.
  • Cash Alternatives. Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares, that can be readily converted into cash.
  • Cash Surrender Value. The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Policy loans that are not repaid will reduce the policy's death benefit and cash value by the amount of any outstanding loan balance plus interest.
  • Casualty. Liability or loss resulting from an accident.
  • Casualty Insurance. That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability to third parties imposed upon the insured for such injury or for damage to property of others.
  • CERTIFIED FINANCIAL PLANNER® Practitioner. A credential granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. CFP®, CERTIFIED FINANCIAL PLANNER® and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification.
  • Certified Public Accountant (CPA). A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination (administered by the American Institute of Certified Public Accountants) and has fulfilled that state's educational and professional experience requirements for certification.
  • Charitable Lead Trust. A trust designed to reduce beneficiaries' taxable income by first donating a portion of the trust's income to charities and then, after a specified period of time, transferring the remainder of the trust to the beneficiaries.
  • Charitable Remainder Trust. A trust established for the benefit of a charitable organization. A grantor who places money, securities, property, and other assets in a charitable remainder trust can designate an income beneficiary, even if it is the grantor herself, to receive payment of a specified amount (at least annually) from the trust. The Grantor may also qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.
  • Chartered Financial Consultant (ChFC). A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.
  • Chartered Life Underwriter (CLU). A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners and professionals.
  • Chartered Property and Casualty Underwriter (CPCU). Professional designation earned after the successful completion of five national examinations given by the American Institute for Property and Liability Underwriters. Covers areas such as expertise in insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.
  • Claim. A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.
  • Cliff Vesting. No vesting occurs until an employee satisfies the service requirements for 100-percent vesting - for example, 5 years.
  • COBRA. The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their group health insurance coverage for 18 months at the employee's expense. Coverage may be extended to the employee's dependents for 36 months in the case of divorce or death of the employee.
  • COBRA Benefits. COBRA stands for “Consolidated Omnibus Budget Reconciliation Act of 1985,” which requires companies with 20 or more employees to offer separating employees the option to continue their group health-care coverage at their own expense.
  • Coinsurance or Copayment. In Property & Casualty, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. In Group Health, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.
  • Collateral. Anything of value pledged with the surety it against loss through default of the principal who supplies the collateral.
  • Collision Insurance. Covers physical damage to the insured's automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object. Typically this means striking an object or overturn.
  • Combined Ratio After Policyholder Dividends. The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company's overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.
  • Commercial Lines. Refers to insurance for businesses, professionals and commercial establishments.
  • Commodities. The generic term for goods such as grains, foodstuffs, livestock, oils, and metals which are traded on national exchanges. These exchanges deal in both "spot" trading (for current delivery) and "futures" trading (for delivery in future months).
  • Common Stock. A unit of ownership in a corporation. Common stockholders participate in the corporation's profits or losses by receiving dividends and by capital gains or losses in the stock's share price.
  • Community Property. State laws vary, but generally all property acquired during a marriage -- excluding property one spouse receives from a will, inheritance, or gift -- is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
  • Compound Interest. Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.
  • Comprehensive Insurance.  Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.
  • Construction Contract Bond. One that guarantees the faithful performance of a contract bond. It is a three-party agreement among the contractor as principal, the owner as obligee and the surety.
  • Consumer Price Index. The U.S. Department of Labor's main indicator of inflation. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.
  • Contract. An agreement between two or more parties to do or not to do a certain thing.
  • Contract Bond. One that guarantees the performance of a contract.
  • Contract Price. The entire sum of money that passes from owner to contractor when final settlement is made between the two under the contract entered into between them.
  • Contractor Defaults. Failures on the part of contractors resulting from one or more multiple causes which effect breach of the contract.
  • Copayment. A predetermined, flat fee an individual pays for healthcare services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.
  • Corporate Surety. A surety which is a corporation, licensed under various insurance laws, and which under its charter has legal power to act as surety for others.
  • Coverages. The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured and the limits of indemnification. In life insurance, living and death benefits are listed.

D

  • Damages. Money that one party becomes legally obligated to pay to another party.
  • Death Benefit. The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
  • Deductible. Amount of loss that the insured pays before the insurance kicks in.
  • Deduction. An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.
  • Defendants' Bonds. Bonds given by defendants in litigation enabling them to retain or regain possession of property, pending the outcome of a suit, or to suspend the execution of a judgment, order or decree of a court while the defendant seeks reversal of an unfavorable judgment in a higher court.
  • Defined Benefit Plan. A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments and based on benefit formulas. A participant's retirement age, length of service, and pre-retirement earnings may affect the benefits received. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed to inflation.
  • Defined Contribution Plan. A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.
  • Defined Network Plan. Any health benefit plan that requires or creates incentives for an enrollee to use providers that are owned, managed, or under contract with the insurer offering the plan.  This type of plan is sometimes referred to as a managed care plan under the terms of Preferred Provider Organization (PPO), Point of Service (POS), and Health Maintenance Organization (HMO).
  • Depository Liability. The liability of a public official, as an insurer of public funds, which is deposited in a bank and cannot be paid over because of failure or insolvency of the bank.
  • Disability Insurance. A type of health insurance that pays a monthly income to the policyholder when he or she is unable to work because of an illness or accident.
  • Dishonesty Bond. A generic term describing fidelity bond coverage guaranteeing against loss caused by dishonest officers or employees of a commercial firm or financial institution or by dishonest public officials or employees
  • Diversification. Investing in different companies, industries, or asset classes in an attempt to limit overall risk. Of course, diversification does not guarantee against loss; it is a method used to help manage investment risk. Diversification may also mean the participation of a large corporation in a wide range of business activities.
  • Dividend. The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A pro rata portion of earnings usually distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.
  • Dollar Cost Averaging. A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when the price rises, and the average cost per share is lower than the average price per share. Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals.

E

  • Earned Premium. The amount of the premium that has been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
  • Efficient Frontier. A statistical result from the analysis of the risk and return for a given set of assets that indicates the balance of assets that may, under certain assumptions, achieve the best return for a given level of risk.
  • Elimination Period. The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."
  • Employer-Sponsored Retirement Plan. A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.
  • Employment Practice Liability. Coverage against common law liability of an employer for non-injury claims made by employees due to discrimination, harassment, failure to promote and so forth, as distinguished from liability for injury to employees imposed by a workers' compensation law.
  • Encumbrance. A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
  • Equity. The value of a person's ownership in real property or securities; the market value of a property or business, less all claims and liens against it.
  • ERISA. The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately funded and provide for vesting, survivor's rights, and disclosures.
  • ESOP. The Employee Stock Ownership Plan is a defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.
  • Estate Conservation. Activities coordinated to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death. Estate conservation often includes the use of wills and trusts.
  • Estate Tax. Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to others (with limitations).
  • Exclusions. Items or conditions that are not covered by the general insurance contract.
  • Executive Bonus Plan. The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive.
  • Executor. A person named by the probate courts or a will to carry out the directions and requests of the decedent, manage or distribute the assets of an estate and pay all just claims and debts. Can also be known as the Administrator.
  • Exposure. Measure of vulnerability to loss, usually expressed in dollars or units.

F

  • 401(k) Plan. A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.
  • 402(b) Plan. A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.
  • Federal Income Tax Bracket. The range of taxable income that is taxable at a certain rate. Currently, there are six federal income tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.
  • Fidelity Bond. A bond which will reimburse an employer for loss up to the amount or penalty of the bond, sustained by the employer named in the bond by reason of any dishonest act of an employee covered by the bond.
  • Fiduciary. A person who occupies a position of special trust and confidence, particularly one who handles the affairs or funds of another.
  • Fiduciary Bonds. Bonds issued for persons either named in a will or appointed by the court to manage the affairs of others, such as wards, incompetents, etc., or to distribute a decedent’s estate assets in accordance with the provision of a will or order of the court.
  • Fixed Income. Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, that is the same every month.
  • Floater. A separate policy available to cover the value of goods beyond the coverage of a standard property insurance policy, including movable property ranging from jewelry to construction equipment.
  • Frozen Retirement Plans. Frozen retirement plans are benefit plans that typically are closed to new enrollees and that may limit future benefit accruals for some or all active plan participants. These plans may be of different types. Some may no longer allow participants to accrue additional benefits. Others may change the plan's prospective benefit formula in such a way as to limit future benefit accruals. Other may use a prospective benefit formula to limit or cease accruals of benefits for some of the active participants.
  • Fundamental Analysis. An approach to the stock market in which specific factors - such as the price-to-earnings ratio, yield, or return on equity - are used to determine what stock may be favorable for investment.
  • Future Purchase Option. Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "guaranteed insurability option."

G

  • Gap Coverage. Coverage specifically designed to fill a gap or gaps that may occur in industry-standard policies when measured against the custom needs of an insured.
  • General Liability Insurance. Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured and contractual liability.
  • Gift Taxes. A federal tax levied on the transfer of property as a gift. This tax is paid by the donor.Currently, the first $13,000 a year from a donor to each recipient is exempt from tax. Most states also impose a gift tax. The gift tax exemption is indexed for inflation.
  • Graded Vesting. An employee's nonforfeitable percentage of employer contributions increases over time, until reaching 100 percent.

H

  • Hazard. A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
  • Hazardous Activity. Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.
  • Health Insurance. A general term for insurance against loss by sickness or bodily injury.  This usually includes coverage for medical expenses such as doctor visits and hospital stays and can cover normal and preventive care such as check-ups, prenatal care, and well-baby care.
  • Health Maintenance Organization (HMO). Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers.
  • Health Reimbursement Arrangement (HRA). Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.
  • Health Savings Account (HSA). Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.
  • Holographic Will. A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.
  • Hurricane Deductible. Amount you must pay out-of-pocket before hurricane insurance will kick in. Many insurers in hurricane-prone states are selling homeowners insurance policies with percentage deductibles for storm damage, instead of the traditional dollar deductibles used for claims such as fire and theft. Percentage deductibles vary from one percent of a home's insured value to 15 percent, depending on many factors that differ by state and insurer.

I

  • Impaired Insurer. An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.
  • Indemnity. Restoration to the “status quo ante”, or condition before the loss occurred, to the victim of a loss by payment, repair or replacement.
  • Individual Retirement Account (IRA). Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.
  • Inflation. An increase in the price of products and services over time. The government's main measure of inflation is the Consumer Price Index.
  • Inflation Protection. An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.
  • Insurable Interest. Interest in property such that loss or destruction of the property could cause a financial loss.
  • Insurance Adjuster. A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best's Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.
  • Insurance Attorney. An attorney who practices the law as it relates to insurance matters. An attorney might be a solo practitioner or work as part of a law firm. Insurance companies who retain attorneys to defend them against lawsuits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best's Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers' compensation.
  • Intestate. A person who dies without leaving a valid will. State law then determines who inherits the property or serves as guardian for any minor children.
  • Investment Category. A broad class of assets with similar characteristics. The five investment categories include cash alternatives, fixed principal, equity, debt, and tangibles.
  • Investment Income. The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn't include the value of any stocks or bonds that the company currently owns.
  • Irrevocable Trust. A trust that may not be modified or terminated by the trustor after its creation.

J

  • Joint and Survivor Annuity. Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.
  • Joint Control. An agreement by written agreement between a fiduciary and a surety, and acknowledged by the bank in which funds are deposited and securities lodged for safekeeping, whereby both parties jointly supervise both funds and securities, and their withdrawal, entailing signature and counter signature
  • Joint Tenancy. Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.
  • Jointly Held Property. Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property
  • Judicial Bonds. A general term applied to all bonds filed in court – whether fiduciary or court bonds (see “Fiduciary Bond”).

L

  • Labor and Material Payment Bond. A bond given by a contractor guaranteeing payment for the labor and material used in prosecuting the work which the contractor is obligated to perform under the terms of the contract.
  • Labor Union Bonds. Bonds required under the U.S. Labor Management Reporting and Disclosure Act of 1959, which contains a provision requiring every officer, agent, shop steward or other labor organization representative to be bonded for the faithful discharge of duties, including the dishonesty hazard. Three separate labor organization bonds have been standardized by the Surety Association of America as a consequence of the passage if that act (see also item: “Welfare and Pension Plans”).
  • Laddering. Purchasing bond investments that mature at different time intervals.
  • Liability. Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense. Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.
  • Liability Insurance. Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.
  • License and Permit Bonds. These are bonds required by state law, municipal ordinance or local regulation as a condition precedent to the granting of a license to engage in a particular business or the granting of a permit to exercise a specific privilege. Certain serious obligations are entailed on those who seek such licenses or permits, and are thereupon bonded.
  • Limit of Liability. The maximum amount which an insurance or surety company agrees to pay in case of loss. Also, in corporate suretyship, termed the “bond penalty.”
  • Limited Partnership. Limited partnerships pool the money of investors to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it passes the income on to its investors as dividend payments. Limited Partnerships are subject to special risks such as illiquidity and those risks inherent in the underlying investments. There are no assurances that the stated investment objectives will be reached. At redemption, the investor may receive back less than the original investment.
  • Liquidity. How quickly and easily an asset or security can be converted into cash.
  • Living Trust. A trust created by a person during his or her lifetime
  • Long-Term Bond. A bond required of a fiduciary whose duties are normally expected to extend over a considerable period of time (see also: “Short-Term Bond”).
  • Loss Adjustment Expenses. Expenses incurred to investigate and settle losses.
  • Loss Control. All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and non-insurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring and other techniques that minimize the risks of a business, individual or organization.
  • Loss Ratio. The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underwriting profitability, or loss experience, on its total book of business.
  • Loss Reserve. The estimated liability, as it would appear in an insurer's financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
  • Lost Securities Bonds. Those given by the owners of valuable instruments, such as stocks, bonds, promissory notes, certified checks, etc., which are alleged to have been lost or destroyed, in order to protect the insurers against loss which may result from the issuance of duplicates of the instruments or, in some instances, payment of cash value thereof.
  • Lump-Sum Distribution. The disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may typically be rolled over into another tax-deferred account.

M

  • Maintenance Bond. A guarantee against loss because of defective workmanship or materials used in the performance of the construction or supply contract.
  • Marginal Tax Rate. The amount of tax paid on an additional dollar of income. As income rises, so does the tax rate.
  • Marital Deduction. A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the "unlimited marital deduction." The marital deduction may not apply in the case of non-citizens.
  • Medical Loss Ratio. Total health benefits divided by total premium.
  • Medical Payments Insurance. A form of coverage, optional in various liability policies such as auto insurance, that provides for the payment of medical and similar expenses regardless of liability.
  • Miller Act Bond. A performance and labor and material payment bond required by the Miller Act on Federal Work, as approved August 24, 1935 (for further reference: U.S. Code, Title 40, Section 270a).
  • Miscellaneous Contract Bonds. A number of contracts, other than construction contracts, require surety bonds, such as supply contract bonds, garbage and ash removal, for carrying United States mail, and for demolition and wrecking contracts. The bond manual lists a segment of such bonds.
  • Miscellaneous Indemnity Bonds. Bonds which do not fit any of the well-recognized divisions or subdivisions, and therefore are thus categorized. The bond manual will supply further data.
  • Money Market Fund. A mutual fund that specializes in investing in short-term securities and tries to maintain a constant net asset value of $1. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money when investing in a money market fund
  • Mortgage Insurance Policy. In life and health insurance, a policy covering a mortgage or with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability. The lender is usually the beneficiary
  • Municipal Bond. A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Some municipal bond interest could be subject to the federal alternative minimum tax. If you sell a municipal bond at a profit, you could incur capital gains taxes. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.
  • Municipal Bond Fund. A mutual fund that specializes in investing in municipal bonds. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance. The principal value of bond funds fluctuates with changes in market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost.
  • Mutual Fund. A collection of stocks, bonds, or other securities purchased and managed by an investment company with funds from a group of investors. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares when sold, or redeemed, may be worth more or less than their original cost.

N

  • Named Perils. Perils specifically covered on insured property.
  • Net Asset Value. The per-share value of a mutual fund's current holdings. The net asset value is calculated by dividing the net market value of the fund's assets by the number of outstanding shares.
  • Nonstandard Auto (High Risk Auto or Substandard Auto). Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.

O

  • Obligee. The party in whose favor the bond runs, or one who is protected against loss by the bond.
  • Obligor. Commonly termed the principal, or one bound by an obligation. Strictly speaking, under a surety bond, both principal and surety are obligors, since the surety must answer if the principal defaults
  • Occurrence. An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn't have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.
  • Open Penalty Bond. A surety bond without maximum limit on the liability of the principal or the surety.
  • Out-of-Pocket Limit. A predetermined amount of money that an individual must pay before insurance will pay 100 percent for an individual's health-care expenses.

P

  • Payment Bond. See “Labor and Material Payment Bond” and also “Miller Act Bond.”
  • Penalty of the Bond. In a surety bond, the amount guaranteed or the limit of the company’s liability.
  • Performance Bond. One which guarantees faithful performance of the terms of a contract for construction or for furnishing of supplies.
  • Peril. The cause of a possible loss.
  • Personal Injury Protection. Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
  • Personal Lines. Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
  • Personal Surety. An individual who acts as surety for another, who may or may not exact a price for services and usually is not regulated by any governmental agency, as is the corporate surety.
  • Plaintiffs' Bonds. Bonds given by plaintiffs in litigation, enabling them to exercise certain privileges with permission of the court, such as attachment, injunction or replevin.
  • Point-of-Service Plan. Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
  • Policy. A written contract of insurance, and sometimes of suretyship. Includes the written contract effecting insurance, or the certificate thereof, by whatever name called, and all clause, riders, endorsements, and papers attached thereto and made a part thereof.
  • Pooled Income Fund. A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes
  • Portability. Portability is a participant's ability to maintain and transfer accumulated pension benefits when changing jobs. Portability provisions in defined benefit plans generally cover portability of assets, portability of credited service, or both.
  • Portability of Assets. Participants can withdraw their accumulated pension benefits or transfer them to another retirement arrangement.
  • Portability of Credited Service. Participants are allowed to count the years of service with a previous employer when determining benefits from their current employer.
  • Portfolio. All the investments held by an individual or a mutual fund.
  • Power of Attorney. Authority given one person or corporation to act for and obligate another to the extent laid down in the instrument creating the power. In corporate suretyship, an instrument under seal which appoints an attorney in fact to act on behalf of a surety company in signing bonds.
  • Pre-Existing Condition. A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
  • Preferred Auto. Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.
  • Preferred Provider Organization. Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
  • Preferred Stock. A class of stock with claim to a company's earnings, before payment can be made on the common stock, and that is usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.
  • Premium. The price of insurance protection for a specified risk for a specified period of time.
  • Premium Unearned. That part of the premium applicable to the unexpired part of the policy period.
  • Prenuptial Agreement. A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.
  • Price/Earnings Ratio (P/E Ratio). The market price of a stock divided by the company's annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations
  • Principal. The suretyship; the party whose actions, honesty or responsibility is to be guaranteed. The principal in a fidelity bond, for example, is the bonded employee. In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.
  • Probate. The court-supervised process in which a decedent's estate is settled and distributed.
  • Probate Bond. One that guarantees an honest accounting and faithful performance of duties by administrators, executors, trustees, guardian, and other fiduciaries. So-called because such bonds are usually filed in a probate court.
  • Professional Liability. The exposure to loss incurred by professional people because of their peculiar expertise. If errors or omissions occur in the professional services provided by them, they may become liable for damages. Also called Errors & Omissions Liability.
  • Profit-Sharing Plan. An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees' accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.
  • Prospectus. A document provided by investment companies to prospective investors. The prospectus gives information needed by investors to make informed decisions prior to investing in a specific mutual fund, variable annuity, or variable universal life insurance. The prospectus includes information on the minimum investment amount, the investment company's objectives, past performance, risk level, sales charges, management fees, and any other expense information about the investment company, as well as a description of the services provided to investors in the investment company.
  • Public Official Bonds. These are afforded in four categories: Individual, Named Schedule, Position Schedule and Public Employees’ Blanket Bond and Public School System Employees’ Blanket Bond.

Q

  • Qualified Domestic Relations Order (QDRO). At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee's ERISA retirement plan accrued benefits be divided between the employee and the spouse.
  • Qualified Retirement Plan. A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.
  • Qualifying Event. An occurrence that triggers an insured's protection.

R

  • Reciprocal Insurance Exchange. An unincorporated group of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.
  • Re-Entry. Re-entry, which is the allowance for level-premium term policy owners to qualify for another level-premium period, generally with new evidence of insurability.
  • Regulatory Compliance. Insurance is a highly regulated industry. Any one of a number of agencies may require actions of insurance companies or agents. Those companies or agents are required by law to comply with these regulations. When they have done so, they are said to be in Regulatory Compliance.
  • Reinsurance. In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
  • Renewal. The automatic re-establishment of in-force status effected by the payment of another premium.
  • Replacement Cost. The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
  • Reserve. An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
  • Revocable Trust. A trust in which the creator reserves the right to modify or terminate the trust.
  • Riders. Another name for clauses or endorsements; more specifically, the printed forms of special provisions not contained in the bond or policy contract. In bonding, such clauses are called riders instead of endorsements.
  • Risk. Any chance of loss, including the chance that an investor will lose all or part of an investment. Also the insured or the property to which a bond or insurance policy relates.
  • Risk Management. Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
  • Risk-Averse. Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment
  • Rollover. A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.
  • Roth IRA. A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.

S

  • Safety Engineering. Efforts and resources expended by businesses and individuals to reduce the likelihood of losses by improving safety practices.
  • Security. Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).
  • Self-Employed Retirement Plans. In the past, the terms “Keogh plan” and “H.R. 10 plan” were used to distinguish a retirement plan established by a self-employed individual from a plan established by a corporation or other entity. However, self-employed retirement plans are now generally referred to by the name of the particular type of plan used, such as SEP IRA, SIMPLE 401(k), or self-employed 401(k). The contribution amount is indexed annually for inflation.
  • Short-Term Bond. Covers a fiduciary whose duties are to collect the assets of the decedent, pay the debts and distribute the remainder according to law. The terms of these fiduciaries are usually brief (see “Long-Term Bond”).
  • Simplified Employee Pension Plan (SEP). A type of plan under which the employer contributes to an employee's IRA. Contributions may be made up to a certain limit and are immediately vested.
  • Single-Life Annuity. An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.
  • Split-Dollar Plan. An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.
  • Spousal IRA. An IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that can be made each year to an IRA and a spousal IRA currently is $10,000 or 100 percent of earned income, whichever is less, for the 2011 tax year. The total may be split between the two IRAs as the couple wishes, provided that the contribution to either IRA does not exceed the maximum annual contribution limit ($5,000 for 2011).
  • Standard Auto. Auto insurance for average drivers with relatively few accidents during lifetime.
  • Statutory Bond. A term generally used to describe a bond given in compliance with a statue. Such a bond must carry whatever liability the statue imposes on the principal and the surety.
  • Subcontract Bond. One furnished by a subcontractor, and required by general contractors, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay bills for labor and material incurred in the prosecution of the subcontracted work.
  • Subdivision Bond. One guaranteeing that a developer of a subdivision will, within a specified period, construct improvements on the property, such as streets, sidewalks, curbs, gutters, sewers, etc.
  • Subrogation. The legal process by which an insurer who has paid a policyholder's loss can seek recovery of the amount paid to the policyholder from the third party who may have caused the loss.
  • Supply Bond.  One that guarantees faithful performance of a contract for furnishing supplies or materials, etc.
  • Surety. A person or corporation collaterally bound for payment of money or the performance of an act or duty by another.
  • Suretyship. The function of being a surety. Stated in its simplest terms, suretyship embraces all forms of obligation to pay the debt or answer for the default of another.

T

  • Tax Credit. Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.
  • Tax Deferred. Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.
  • Taxable Income. The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.
  • Tax-Exempt Bonds. Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes. If you sell a tax-exempt bond at a profit, you could incur capital gains taxes. Some tax-exempt bond interest could be subject to the federal alternative minimum tax. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.
  • Technical Analysis. An approach to investing in stocks in which a stock's past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock's future performance.
  • Tenancy in Common. A form of co-ownership. Upon the death of a co-owner, his or her interest passes to the designated beneficiaries and not to the surviving owner or owners.
  • Term. A period of time for which a bond or policy is issued.
  • Term Insurance. Term life insurance provides a death benefit if the insured dies. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age.
  • Testamentary Trust. A trust established by a will that takes effect upon death.
  • Testator. One who has made a will or who dies having left a will.
  • Theft. The unlawful taking of another’s property with the intent to permanently deprive the owner of its use or possession.
  • Third Party. Person or entity not party to an agreement but with an interest in the agreement.
  • Third Party Claim. Claims for injury or damage to the person or the property of a third party alleged to have been caused by the insured.
  • Tort. A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
  • Total Cost of Risk. A risk management concept which involves analysis of not only the cost of insurance coverages, but also lost opportunity costs, compliance costs, indirect loss costs (e.g. productivity, down time, effects on employees after a loss, etc.). Cost of insurance coverage is only one element of this analysis.
  • Total Loss. A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
  • Total Return. The total of all earnings from a given investment, including dividends, interest, and any capital gain.
  • Trust. A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include: Testamentary Trust – A trust established by a will that takes effect upon death; Living Trust – A trust created by a person during his or her lifetime; Revocable Trust – A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust – A trust that may not be modified or terminated by the trustor after its creation.
  • Trustee. An individual or institution appointed to administer a trust for its beneficiaries.
  • Trustee-to-Trustee Transfer. A method of transferring retirement plan assets from one employer's plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.

U

  • Umbrella Policy. Coverage for third party liability losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
  • Underwriter. An individual or employee of an insurance company who has the responsibility of evaluating and accepting risks and determining the rates and coverages of those risks.
  • Underwriting. The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
  • Uninsured Motorist Coverage. Endorsement to an automobile policy that covers an insured for injury sustained in a collision with a driver who does not have liability insurance.
  • Universal Life Insurance. A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred at current interest rates, subject to change, but with a guaranteed minimum. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy. Universal life is also referred to as "flexible premium" life insurance. Policy loans or withdrawals will reduce the policy's cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

V

  • Variable Universal Life Insurance. A type of life insurance that combines a death benefit with an investment element that accumulates tax deferred. The account value can be allocated into a variety of investment subaccounts. The investment return and principal value of the variable subaccounts will fluctuate; thus, the policy's account value, and possibly the death benefit, will be determined by the performance of the chosen subaccounts and is not guaranteed. Withdrawals may be subject to surrender charges and are taxable if the account owner withdraws more than his or her basis in the policy. Policy loans or withdrawals will reduce the policy's cash value and death benefit and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy. Any guarantees are contingent on the claims-paying ability of the issuing company.
  • Vesting. Vesting refers to the amount of time a participant must work before earning a non-forfeitable right to a retirement benefit. Once the participant is vested, the accrued benefit is retained even if the worker leaves the employer before reaching retirement age.
  • Volatility. The range of price swings of a security or market over time.

W

  • Welfare and Pension Plans. The Welfare and Pension Plans Disclosure Act, effective since September 16, 1962, calls for individual, schedule or blanket bonds written by corporate surety companies which are acceptable sureties on federal bonds. In the main, these bonding requirements are similar to those established under the Labor-Management Act 1959 (see item: “Labor Union Bonds”). The Welfare and Pension Plans Disclosure Act requires disclosure and reporting of financial and other information concerning the operation of employee benefit plans subject to the act. Bonding is required to protect benefit funds against loss by acts of fraud or dishonesty. The Employee Retirement Income Security Act (ERISA) of 1974 requires that fiduciaries of private employee benefit plans be bonded.
  • Welfare Benefit Plan. An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits.
  • Whole Life Insurance. A type of life insurance that offers a death benefit and also accumulates cash value tax deferred at fixed interest rates. Whole life insurance policies generally have a fixed annual premium that does not rise over the duration of the policy. Whole life insurance is also referred to as "ordinary" or "straight" life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy's cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy's cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.
  • Will. A legal document that declares a person's wishes concerning the disposition of property, the guardianship of his or her children, and the administration of the estate after his or her death.
  • Worker's Compensation. A policy conforming to state law which pays benefits to an employee (or an employee’s family) if the employee suffers a job-related injury (including death) or occupational injury.

Y

  • Yield. Generally, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.

Z

  • Zero-Couponing Bond. This type of bond makes no periodic interest payments but instead is sold at a steep discount from its face value. Because these bonds do not pay interest until maturity, their prices tend to be more volatile than bonds that pay interest regularly. Interest income is subject to ordinary income tax each year, even though the investor does not receive any income payments. Bonds sold prior to maturity may be worth more or less than their original cost.