Corporate Communications — Financial Glossary
A financial glossary is one of the handiest tools available. Such a glossary allows website visitors to quickly define terms which may be used throughout the content of a website.
Some financial professionals may assume that very basic information is common knowledge to the general public. While more sophisticated individuals have a better working vocabulary of financial terms, the average person, from time to time, may need further clarification of many items. Glossaries can be quickly referred to when the need arises.
Sample Glossary Terms
AB Trust
A trust structure designed to ensure that each spouse maximizes the use of his or her unified credit upon his or her death.
Annuity
A contract sold by a life insurance company that guarantees fixed payments, either immediately or at some future time.
Basis
An owner's initial investment plus any out-of-pocket expenses which are used to determine taxable gain or loss upon the disposition of an asset.
Beneficiary
The person, persons, or entities designated to receive proceeds or distributions of a life insurance policy, trust, annuity, or will.
Capital Gain
The positive difference of an asset's selling price less the purchase price and any out-of-pocket expenses.
Certificate of Deposit (CD)
A savings institution debt mechanism that requires the placement of a certain amount of money into an account, for a specific period of time, in order to obtain a predetermined interest rate.
Dollar-Cost Averaging
An investment strategy that allows you to buy more shares when the market decreases and less shares when the market increases by investing a set amount systematically, thus, in theory, reducing overall exposure to risk.
Disability Buy-Out
An agreement between business owners and/or a company to buy-out a disabled owner's interest at a pre-determined price.
Estate Tax
A tax imposed upon the disposition of assets at one's death. There are federal, and in some cases, state credits which exempt a portion of a decedent's assets from estate taxes. Federal estate taxes are a graduated tax that range from 37% to 55%.
Executor
A person designated to carry out a decedent's wishes for the administration and distribution of assets as documented under a will.
Family of Funds
A group of mutual funds managed by the same investment company.
Future Purchase Option
An additional life insurance policy benefit option that guarantees the policyowner the right to purchase additional insurance at a specific time in the future without any proof of insurability.
Gross Estate
An individual's total assets before liabilities such as mortgage debts and loans. Assets that comprise a gross estate include, but are not limited to, investments, savings, retirement plans, life insurance, residence, vacation property, personal property, home furnishings, and collectibles.
Gross National Product (GNP)
The total value of all goods and services produced within the United States over a specific period of time.
Health Insurance Portability Act of 1996
One of several tax acts enacted during the summer of 1996 that contains a variety of provisions affecting medical expenses. Some of the more prominent measures allow greater access to health insurance for employees changing or leaving jobs, the establishment of Medical Savings Accounts, the deductibility of premiums for certain long-term care insurance, and favorable tax treatment for accelerated life insurance benefits in cases of terminal illness.
Home Equity
Property value that exceeds the amount of the debt on the property.
Irrevocable Life Insurance Trust (ILIT)
A trust designed to purchase and own a life insurance policy on the life of a donor for the benefit of the trust's beneficiary(ies), typically for the purpose of keeping life insurance policy proceeds out of the donor's estate. Like all irrevocable trusts, changes cannot be made to the ILIT after its execution.
Incomplete Gift
For the purposes of gift taxes, a gift is incomplete if a donor maintains some interest in or control over the gifted property.
Joint Income Tax Return
A tax return filed by a husband and wife that combines the income tax liability for both individuals.
Joint Tenancy
A form of asset ownership by which two or more individuals hold equal interest.
Keogh Plan
A tax-deferred retirement plan for unincorporated companies and self-employed individuals that can be set up as a defined contribution or defined benefit plan.
Key-Employee Insurance
A life insurance policy insuring the life of a key employee. The policy is owned and made payable to the employer, thus providing the financial capital to help minimize the effects of a key employee's unexpected death.
Limited Partnership
A business entity that consists of a general partner(s) who controls and manages the partnership with unlimited liability and a limited partner(s) who contributes capital and has no control of partnership management, yet whose liability does not exceed the amount of capital contributed.
Long-Term Care Insurance
An insurance policy that pays for nursing home and/or home health care costs associated with a debilitating illness or accident. The amount and length of benefits are specified in the contract.
Market Timing
Decisions of when to buy and sell a security or asset based on the anticipated trends of the economy or a specific industry.
Mutual Fund
An investment company fund that pools investor contributions together to buy and sell stocks, bonds, and other marketable securities that are consistent with the overall objective of the fund.
No-Load Fund
A open-ended mutual fund that does not have a sales charge (otherwise known as "load").
Nonqualified Plans
Supplemental benefit arrangements that are not tax-deductible to the employer, but allow selectivity in rewarding owners and key employees. Properly structured plans avoid discrimination rules and top-heavy testing that accompanies qualified plans.
Options
A right to buy and sell a particular security at a predetermined amount within a specified time. If the option-holder does not exercise the option by the expiration date, the option-holder relinquishes his or her original investment.
Ordinary Income
Income from normal business activities of an individual or business not including capital gains.
Power of Attorney
A legal document signed by a principal which empowers another person (attorney in fact) to act on the principal's behalf.
Probate Court
A judicial process that determines a will's validity and administers the estate, thereby ensuring the faithful execution of all instructions found under the will.
Qualified Replacement Property (QRP)
Generally defined as securities of a U.S. domestic operating corporation. For example, when a business owner sells appreciated shares of his company back to an Employee Stock Ownership Plan (ESOP), the owner can defer capital gains taxes by reinvesting the proceeds of the stock sale into QRP.
Qualified Terminable Interest Property (QTIP)
A trust that enables the first spouse to die to dictate whom the trust proceeds will be distributed to upon the death of the surviving spouse.
Real Estate Investment Trust (REIT)
Similar in concept to a mutual fund, a REIT is publicly traded and uses shareholder contributions to buy and sell real estate for profit.
Rule of 72
A simple mathematical formula that quickly calculates the amount of time it takes an investment to double. Dividing 72 by the interest rate provides the approximate number of years it takes for an investment to double (e.g., a CD earning 5% will take 14.4 years to double: 72/5 = 14.4).
Sector Fund
A mutual fund that specializes in investing in one industry.
Split Dollar Arrangement
A method that allows a company or individual to provide a selected person with a life insurance benefit in which the company or individual and the insured "split" the insurance premium cost.
Tax Credit
A dollar-for-dollar reduction in tax liability.
Term Life Insurance
A life insurance contract that is written for a specified period of time and that provides only a death benefit. Premiums increase or the death benefit decreases as a direct result of the insured's increase in age (mortality).
Unearned Income
Income that is received from sources other than wages, salaries, tips, bonuses, or other employee compensation.
Uniform Gifts to Minors Act (UGMA)
A law, adopted by most states, that allows adults to make "present interest" gifts to minors, thus qualifying such gifts for the annual gift tax exclusion.
Vesting
A right acquired by an employee, usually based on length of service, to the entire amount of employer contributions made on his or her behalf.
Viatical Settlement
The sale of a life insurance policy by a terminally ill individual to a third party at a discounted rate in order to raise funds to help ease the financial burden often associated with large medical expenses.
Waiver of Premium
A rider attached to a life insurance policy stipulating that the insurer will make premium payments on the insured's behalf if the insured becomes totally disabled (as defined under the contract).
Will
A written document outlining an individual's intentions for the distribution of his or her property at death.
Yield-to-Maturity
Return on a capital investment which takes into account the present value of future interest payments.
Zero Coupon Bond
A bond that is purchased at a deep discount and can be redeemed at face value on a specified maturity date.