Glossary

401(k) PLANS: Named after the tax code amendment that created it, 401(k) plans are a type of savings vehicle offered through one's employer. The employer transfers a percentage of the employee's gross salary into an investment fund. The contributions are made with pretax dollars and grows tax-free until funds are withdrawn (at which time taxes must be paid). p 84

ACCUMULATION ANNUITY: See Annuity, Accumulation.

ADMINISTRATRIX: The female form of administrator, it is the person who is appointed by the probate court (rather than named in the will) to take over and manage the estate during the probate proceedings. page 16

ANNUAL RENEWABLE TERM (ART): A term policy that is renewable each year. The face amount remains the same and the rate per thousand of protection increases each year. p 152

ANNUITIZING or ANNUITIZATION: The shift in an annuity from accumulation to payout. Payout is usually on a monthly basis, but may be quarterly or yearly as well. Once annuitization has begun, payments are "set" and do not allow additional withdrawals. p 92

ANNUITY: Although marketed by insurance companies, annuities are the opposite of life insurance because they are designed to pay in life rather than at death. An annuity is a periodic fixed payment made to an individual by the insurance company (if annuitized) for life or a specific time period. The word "annuity" means a "payment of money." Annuities are considered a long-term investment because surrender penalties by both the insurance company and the Internal Revenue Service apply. p 84, 85, 86, 91

ANNUITY, ACCUMULATION: Deposits are made on a systematic basis over a period of years. At some later date, it provides income for retirement. The shift from accumulation to monthly payout is called annuitization or annuitizing. p 92

ANNUITY, CD-LIKE: Also called CD Annuities, these are a hybrid of the Single Premium Deferred Annuities (SPDA). They give the annuitant the liquidity and rate of return most often seen with the bank Certificates of Deposit (CD). However, because they are annuities rather than CDs, they retain the annuity advantages. Surrender penalties (or periods) are usually only one year. p 95

ANNUITY: DEFERRED: In this type of annuity, one large deposit is made with payments postponed for some future date. Originally designed with income features in mind, today they are used more for their ability to accumulate and less for their ability to distribute income. p 85, 92

ANNUITY, FIXED: In this type of annuity, the principal is guaranteed. p 85

ANNUITY, IMMEDIATE: A lump sum of money is deposited into an annuity with payments beginning back to the annuitant or annuity owner immediately (thus the name). p 92

ANNUITY, VARIABLE: These are actually mutual funds which are managed by the insurance company. Periodic distributions are made to the investor. p 85

ANTENUPTIAL AGREEMENT: Usually called premarital agreements, these are legal agreements regarding premarital assets and their distribution should divorce occur. p 39, 40

ANTI-DUPLICATION CLAUSE: A clause in an insurance policy which prohibits the insured from making a profit on a medical claim by having more than one policy. This clause states that payment will not be made if the claim was already paid by another company. p 176

ATTORNEY-IN-FACT: The person that is named to act on behalf of another in a Durable Power of Attorney document. Also see Durable Power of Attorney. p 42

ASSET DISTRIBUTION AGREEMENT: Another name for Antenuptial Agreements. p 41

AUTOMATIC PREMIUM LOANS: In cash value life insurance policies, there may be provisions to pay the premium due out of the policy's cash value, if the policyholder neglects to do so. This provision does so to prevent the policy from lapsing for nonpayment. p 160

BASIC HOSPITAL EXPENSE: As it relates to health insurance, it is a type of coverage which pays benefits for confinement, treatment and care in a hospital. Also see Major Medical, Excess Major Medical and Comprehensive Coverage. p 172

BENEFICIARY-DESIGNATED MONEY: An annuity often has this label. Under such a definition, it can be much more difficult to attach the asset if litigation should occur. p 91

BENEFIT PERIOD: The length of time that benefits will be received under the terms of the contract. There may be more than one benefit period in some types of policies. p 141

BUDGET: A written record of bills and income. page 22

CASH-BACK POLICIES: A slang term often attached to Indemnity Policies because they pay in addition to other health care benefits. p 174

CASH-REFUND ANNUITY PAYOUT OPTION: If the annuitant dies before the amount she invested has been paid out by the insurance company, then the remainder of the invested money, plus interest earned, will be paid monthly or lump sum to the named beneficiaries. p 94

CASH VALUE INSURANCE POLICIES: These provide permanent insurance for the duration of a consumer's life in exchange for a specified annual or lump sum premium. Part of the premium goes for the purchase of insurance protection and part of it creates a cash value. Loans may be taken against the cash value. p 76

CD-LIKE ANNUITIES: See Annuity, CD-Like.

CERTIFIED FINANCIAL PLANNER (CFP): A person who has chosen to acquire additional education in financial planning. Many CFPs do not sell insurance products, but rather charge a flat fee or an hourly rate for their services. p 100

COMMUNITY PROPERTY: Property which is equally owned by two parties, typically a married couple. This means that assets acquired during marriage are owned jointly and equally regardless of whose name appears on it. p 133

COMPREHENSIVE COVERAGE: As it applies to health insurance, these types of policies often wrap the benefits of Basic Hospital Expense policies, Major Medical policies and Excess Major Medical policies into one, all-encompassing coverage. Comprehensive policies can be expensive, but the benefits received are extensive. p 173

CONVERTIBLE: As it applies to insurance policies, it means a life policy which may be converted into individual straight life coverage, without a medical exam, within 30 days. It is a definition that is expected to be found in employee insurance contracts. p 150

COST BASIS: Referring to annuities, it was the past ability to pass on all assets at death income tax free to the listed beneficiaries. p 88

COST-OF-LIVING ADJUSTMENT (COLA): Usually a rider in a disability contract (policy). It adjusts the monthly benefit payments on an annual basis to reflect the cost-of-living increases that occur. Exactly how increases are given can vary from policy to policy. p 141

CO-TRUSTEES: When two or more individuals or entities (such as a bank) have the joint responsibility of managing a trust. p 130

CURRENT RATE: One of the rates quoted in an annual renewable term (ART) policy. It is the lowest of the two rates quoted. p 152

CUSTODIAL ACCOUNT: Another name sometimes used for IRAs because IRAs are a form of trust. A trust is a legal relationship between the depositor and the trustee (the insurance company or bank where it is deposited). p 80

DEBT AGING or DEBT AGING CHART: A way of listing bills in a manner which shows how old the debts are. It allows the individual to establish a responsible payment schedule. p 62

DECREASING TERM INSURANCE: A popular choice for insuring mortgages, this type of policy has premiums that remain the same each year. The amount of coverage decreases yearly (along with the amount owing on the mortgage). p 152

DEFERRED ANNUITY: See Annuity, Deferred.

DISABILITY INSURANCE: Insurance which pays benefits when the insured is disabled and cannot work. The actual definition the policy uses for "disabled" can vary widely from policy to policy. p 77, 172, 174

DISPOSABLE INCOME: Available money which is not needed to live on and could, therefore, be used for investing or other spending. p 78

DIVIDEND: Although it implies earned income, it actually is nothing more than a return of part of the premium that was paid to the insurance company. For this reason, dividends are not generally taxable. p 150

DOUBLE INDEMNITY RIDERS: Another name for accidental death riders. Such riders often pay twice or three times the face value if death is due to an accident that fits the terms of the policy. p 163

DREAD DISEASE POLICIES: This type of health policy has lost its momentum in recent years, but there was a time when they were very popular. Usually they cover only one condition, such as cancer. P 174

DUPLICATE BENEFITS: When two or more policies pay benefits for the same medical expense. How the claim will actually be paid depends upon the terms of the contracts. p 175

DURABLE POWER OF ATTORNEY: The word "durable" should be noted in this term. It is a legal instrument which names another person to act on behalf of the grantor. This document is created while the grantor is fully competent and not under any undue stress. It activates only when the grantor becomes incompetent; not before. p 42

ECONOMIC RECOVERY TAX ACT OF 1981: Legislation passed under President Ronald Regan which, among other things, made substantial changes in the tax laws governing IRAs. These changes were designed to make IRAs an attractive savings vehicle for the average working person in the United States. p 80

ELIMINATION PERIOD: The period of time that is not covered in an insurance policy. p 140

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA): A comprehensive pension reform law established in 1974 which established the use of, among other things, the Individual Retirement Account (IRA). p 80

ENDOWMENT POLICY: A form of whole life policy, the face amount is paid to the policyholder (endowed), if still living on a specified date, or to the beneficiaries if the insured has died. p 161

EQUAL CREDIT OPPORTUNITY ACT (ECOA): Passed in 1975, it is credited with giving women an equal ability to benefit from the use of credit. This legislation does not allow lenders to discriminate on the basis of gender or marital status. p 63, 66

EVIDENCE OF INSURABILITY: Proving to an insurance company that an applicant is medically insurable. This may be done by a physical examination or simply by filling out a medical questionnaire, depending upon the desires of the insurance company and their underwriters. Sometimes it depends upon the type of policy being applied for which avenue is desired. p 153

EXCESS MAJOR MEDICAL: This type of health care policy picks up where the standard major medical policy stops. It is often coupled with a group health plan that is deemed by the insured to be insufficient. p 173

EXECUTRIX: The female form of executor, it is the person named in the will to take over and manage the estate during probate proceedings. p 16

FACE VALUE: The amount of insurance coverage contained in the policy. p 155

FIDUCIARY DUTIES: A trustee has fiduciary duties, whether they are a trustee for an IRA or a living trust. Some of the duties are formalized in written contracts; others are implied by law. p 81

FINANCIAL PLANNING: The process of setting future goals and acting in a manner that accomplishes them. Financial planning is never the products sold. It is the act of mapping out a financial plan. p 138

FIRST-IN-FIRST-OUT BASIS (FIFO): No longer available in annuities, it was the past ability to state withdrawals from annuities were actually principal, which had already been taxed, rather than the interest, which had not been taxed. Of course, pulling out principal rather than interest saved taxation for the consumer. p 88

FIXED ANNUITY: See Annuity, Fixed.

FLEXIBLE PREMIUM ADJUSTABLE LIFE: The true name of Universal Life policies. Universal Life is a generic name generated by insurance companies. p 162

FRAUDULENT CONVEYANCE: A transfer of an asset in an attempt to avoid legal seizure or consequences. p 45

GRACE PERIOD: A time period, often 31 days, during which the insured may still pay premiums without having to show proof of insurability. Claims, less premiums due, would still be paid. p 163

GUARANTEED RATE: One of the rates that is generally quoted in an annual renewable term (ART) policy. The insurance company will have the right, after a stated time period, to charge this higher rate if they have had adverse mortality experience or if their investment yield worsens. p 152

IMMEDIATE ANNUITY: See Annuity, Immediate.

INDEMNITY POLICIES: Often referred to as Cash-Back policies, it refers to a method of claim payment based upon a "set" amount per day, per injury or per schedule within the policy. P 174, 182

INDIVIDUAL RETIREMENT ACCOUNT (IRA): An IRA is a form of trust using custodial accounts. It is a method of saving for retirement on an individual basis. The legislation was passed by Congress to encourage citizens to save for their retirement and has largely been successful. A working person may contribute up to $2,000 per year; a non-working spouse may contribute up to $250 annually. Unless earnings are in excess of $50,000 per year, the contribution may be deducted from one's gross taxable income. p 72, 79, 80

INFLATION:

IN-LAW AVOIDANCE CLAUSE: Another name for Per Stirpes because adding those two words to a beneficiary designation keeps the assets within one's own bloodline. p 91

INSURABLE INTEREST: Generally refers to the issuance of life insurance policies. Many insurance companies require that there be a reasonable insurable interest between the person being insured and the person paying for the premiums before they will issue the policy. p 28

INTERMEDIATE GOALS: Generally a financial goal which takes at least three years to complete. p 48

INTER VIVOS TRUST: The legal name for a living trust (private will). p 124

INTESTATE: When a person dies without a valid will being found. When this happens, the state of domicile applies their own laws to distribute the property of the deceased. p 119

JOINT-AND-SURVIVOR ANNUITY PAYOUT OPTION: The insurance company will make monthly payments for as long as either of two named people survive. Most often utilized by married couples, both person's ages are considered by the insurance company when determining the exact size of the monthly payments. p 93, 94

JOINT TENANTS: When two or more people share ownership, the surviving joint tenants automatically inherit the deceased person's share. p 44

JOINT WILL: One legal document leaving everything to each other or to specified, agreed upon, beneficiaries. p 118, 123

LEGAL GUARDIAN: This is usually decided by the courts. Although parents may be named as such, they may still be required to furnish reports regarding financial expenditures on behalf of their children. p 120

LEVEL TERM INSURANCE: The coverage remains the same or "level" for a specified time period. The term "level" applies equally to the death benefit and to the premium payment. p 154

LIFE GOALS: A goal which lasts a lifetime. Life goals always include retirement planning. It may also include actions which affect how one is remembered after they have died, such as gifts to colleges. p 48

LIFE-AND-INSTALLMENTS-CERTAIN ANNUITY PAYOUT OPTION: There are two elements to this type of annuity payout: a "certain" period of time (usually ten to twenty years) or for her lifetime. If she dies prior to the "certain" time period, her stated beneficiaries would finish out the payments, but would not receive anything beyond the stated period of time. p 94

LIFE INSURANCE: Insures against premature death. In the process, life insurance may also give other benefits, but the protection of dependents is the first goal. p 143

LIVING TRUST: Also called a "Private Will," it is a legal entity to which an individual (called testator or grantor) transfers assets, in part or whole, during their lifetime. Despite the term Private Will it does not take away the need to also have a will. p 124

LONG-TERM GOALS: A financial goal which requires at least five years to complete. Ten years is more common. p 48, 74

MAJOR ILLNESS OR INJURY: Often referred to as catastrophic illness and injury, it is the type that consumes great financial resources because the condition is severe. p 172

MAJOR MEDICAL: As it applies to health insurance, this is a term that consumers are most familiar with. This type of health insurance contains more benefits than a basic hospital expense policy because it tends to offer benefits for catastrophic illness or injury and also usually covers minor doctor costs as well. p 173

MARRIAGE AGREEMENT: A type of antenuptial agreement that is more informal than legal in nature. It often includes such things as the assignment of household chores and family responsibilities. p 41

MEDIGAP POLICIES: They consist of federally mandated policy forms, A through J. All policies must conform to one of these ten standards. Medigap policies are designed to supplement the payments made by Medicare. Medigap policies plug the "gaps" left by Medicare. p 175

MERGE: As it relates to separation agreements, once the separation agreement is approved, it can either merge or survive. When it merges, it becomes part of the divorce decree. A merged agreement can be modified by an appropriate court. Therefore, the person who must pay money to the divorced spouse usually prefers that the document merge rather than survive. p 33

MORAL OBLIGATIONS: Although no legal obligation may exist in a given situation, a person often has a moral obligation to act responsibly towards another person. p 43

MORTGAGE INSURANCE: While any type of insurance can be used, decreasing term insurance is generally the desired policy. The premiums usually remain the same, but the amount of insurance coverage decreases along with the balance on the mortgage. p 152

MUTUAL WILL: Separate legal documents executed by two people as their respective wills. The wills are similar or reciprocal. p 123

NATURAL GUARDIAN: A parent's natural position with their children. Legally, being a "natural" guardian does not guarantee the right to be the "legal" guardian. p 120

NET WORTH: The amount of money one either owes or has. Net worth tells an individual how much is coming in and how much is going out. The equation is generally written in this manner: Assets Minus Liabilities Equals Net Worth. p 61

NON-PROBATE ASSET: An asset that lists a beneficiary which allows it to bypass probate proceedings (although the asset may still need to be listed in the probate papers). page 15

OASDI: Stands for Old-Age, Survivors and Disability Insurance. It relates to the Social Security Act of 1935. p 105, 111

ORAL WILLS: Although generally valid only in military combat, a few states do recognize them under specific conditions. As the name implies, it is a will that is given orally; spoken. p 118

ORDINARY LIFE INSURANCE: Another name for ordinary or whole-life insurance, it has two things combined into one policy: life insurance coverage and cash accumulation. Each premium paid funds both aspects. Ordinary Life Insurance is actually an endowment policy. p 155, 161

OWN OCCUPATION: A definition used in disability policies, it means the occupation that one is qualified for by virtue of experience or education. p 140

PERMANENT INSURANCE: Another name often applied to Cash Value Insurance policies. Permanent Insurance is not actually a correct term because the insurance portion or net amount at risk is really decreasing due to a rising cash value in the policy. p 76, 154

PER STIRPES: Latin meaning "through the blood." By adding these two words to a beneficiary designation, the owner's investment will never be distributed outside of his or her own bloodline, even if the beneficiary has died before the owner. p 91

PHT DEGREE: A slang term meaning "Putting hubby through." It refers to a wife who works to put her husband through college or vocational school. p 35

POSSLQ: A Census Bureau term meaning Persons Of Opposite Sex Sharing Living Quarters. p 27

PREMIUM: The amount of money which must be paid for the insurance policy in order to keep it in force. p 156

PRIMARY INSURER: The insurance company which is deemed to be the first company responsible for payment of claims. p 176

PRIVACY: The ability to keep personal information from reaching others. Annuities are private legal contracts. p 91

PRIVATE WILL: Another name often given to Living Trusts. The legal name is Inter Vivos Trust. It is established while the individual (grantor) is living and keeps asset distribution private (thus the name). p 119, 125, 127

REAL INTEREST RATE: The current rate of interest being paid minus the rate of inflation (which robs the accumulation value). p 75

RENEWABLE: This means that every time the policy term runs out, the policy can be renewed without having to pass another physical exam or experience underwriting. p 154

RESIDUAL COVERAGE: In disability policies, this type of coverage does not penalize the policyholder for going back to work on a part-time basis. The policy pays on a prorated basis. p 141

RETURN-OF-CASH-VALUE BENEFIT: A term insurance policy that increases over the years at about the same rate that cash value builds up within the policy. It may also be called Return-Of-Premium benefit. p 158

RETURN-OF-PREMIUM BENEFIT: A term insurance policy that increases over the years at about the same rate that cash value builds up within the policy. It may also be called Return-Of-Cash-Value benefit. p 158

REVOCABLE: In reference to trusts, it means that the creator has the right to revoke the legal document, in part or whole, during his or her lifetime. An irrevocable trust eliminates this ability. p 126

SECURE DOLLARS: Dollars invested at minimal risk. This would include annuities, Single Premium Whole Life products and money market funds. p 96

SEPARATE PROPERTY: Another name for personal property. When divorce occurs, separate property is not divided. p 35

SEPARATION AGREEMENT: A legal contract between two married people which settles financial matters, such as property distribution, alimony, custody of children and child support payments. p 32

SET BACK: Found in some ART policies, it means the premium rate will be "set back" to a lower one if the policyholder takes a physical and is able to prove that she is still healthy. p 152

SHORT-TERM GOALS: Generally considered to be a one-year financial goal. p 48

SINGLE-LIFE ANNUITY PAYOUT OPTION: If annuitized, it states that for as long as the annuitant lives, she will receive a monthly check from the insurance company for a "set" sum of money. The amount received each month will never change once this annuitization option has been selected. No left over funds will go to any beneficiary (should she die), but if the annuitant lives long enough, she will collect more that she paid in. This option pays the maximum amount per month in comparison to other payout options offered. p 93, 94

SINGLE PREMIUM POLICY: One in which the total premium is made in a lump sum; a one-time payment. p 98

SINGLE PREMIUM VARIABLE LIFE POLICIES: Often used as an investment, it allows the policyholder to choose among a number of investment vehicles within a family of mutual funds under the tax protection and guarantees of a life insurance policy. It is a combination of a mutual fund family and a life insurance policy. Therefore, there are two components: life insurance and an investment. p 98

SINGLE PREMIUM WHOLE LIFE PRODUCTS (SPWL): A form of life insurance, they are designed to meet investment needs. The actual life insurance contained in this product is minimal, with the major aim being an investment. Because it is technically a life insurance product, advantages exist, such as tax-deferral and no interest loans. p 95

SOCIAL SECURITY ACT OF 1935: Initiated a program designed to help individuals who are entering retirement. In the years that followed, this program has broadened to include survivorship benefits, disability benefits, and health care benefits (Medicare and Medicaid). p 105

SPOUSAL IRA: Not everyone is allowed to deposit up to $2,000 in an IRA. If a person is not working and earning an income, the amount that they may deposit is up to $250 per year. To establish a Spousal IRA the person must be married by the end of the tax year. p 82

STRAIGHT LIFE INSURANCE: Another name for ordinary or whole-life insurance, it has two things combined into one policy: life insurance coverage and cash accumulation. Each premium paid funds both aspects. p 155

STRAIGHT REPORTABLE TAXABLE INCOME: Generally salaries or commissions that are earned from employers. It would include such things as income from dividends, interest earnings, capital gains, distributions from partnerships and withdrawals from retirement accounts. page 24

SURVIVE: As it relates to separation agreements, when a separation agreement survives, it maintains a separate existence versus one which merges and becomes part of the divorce decree. Since women are usually the one who receives payments from the divorced spouse, it is usually best for them to have the document survive (rather than merge). p 33

TAX-DEFERRED: Although taxes will be due on these investments when funds are withdrawn, as long as they remain in the investment vehicle, the interest earnings are not taxed. The taxes are "deferred." p 96

TAX-DEFERRED INCOME: Income which will eventually be taxed upon withdrawal, but remains untaxed while held in the investment vehicle. Annuities produce tax-deferred income. p 24

TAX-EXEMPT INCOME: Municipal bonds and other incomes that were already taxed before being invested. p 24

TAX-SHELTERED INCOME: Often generated from special provisions in the accounting procedures of the investment. p 25

TEMPORARY INSURANCE: This is another name often applied to term insurance. Also see Term Insurance. p 76

TENANTS BY THE ENTIRETY: This joint property ownership is limited to married couples. Tenants By The Entirety enjoy special protection against joint property being seized by creditors of one of the joint tenants. p 44

TENANTS-IN-COMMON: When two or more people share ownership in property, the persons involved are able to leave their share to beneficiaries through a will or other type of legal document. p 44

TERM INSURANCE: Often referred to as temporary insurance, it protects the insured for a specific time period and does not gain a cash value, although dividends may accrue. p 76, 149

TESTAMENTARY TRUST: Different from an Inter Vivos Trust in that a testamentary trust makes provisions to establish a trust after the will has gone through probate. p 124

TWISTING: A term applied to the selling process when one policy is being replaced by another. When an agent "twists" he or she has misrepresented the facts of either the existing policy or the replacement policy (for the benefit of the agent). p 164

UNBUNDLING: As applied to life insurance policies, it means that the policy is broken down into three parts: the protection element, the savings element and the expense element. p 163

VARIABLE ANNUITY: See Annuity, Variable.

WAITING PERIOD: The period of time that is not covered in an insurance policy. p 140