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1035 exchange
Section 1035 sets out provisions for the exchange of similar (insurance related) assets without any tax consequence upon the conversion. If the exchange qualifies for like-kind exchange consideration, income taxes are deferred until the new property or asset is sold. The 1035 exchange provisions are only available for a limited type of asset which includes cash value life insurance policies and annuity contracts.

10K
An annual report filed by corporations each year as required by the SEC. The 10K must be filed within 90 days after the end of the fiscal year and provides a comprehensive overview of a company's business practices and financial stability.

401(k) plan
A 401(k) plan is a tax-deferred defined contribution retirement plan that gives eligible employees the opportunity to defer a portion of their current compensation into the plan. Amounts that are deferred are excluded from the participant's gross income for the year of the deferral. The plan may provide for employer matching contributions and discretionary profit-sharing contributions.

403(b) plan
Tax deferred annuity retirement plan available to employees of public schools and colleges, and certain non-profit hospitals, charitable, religious, scientific and educational organizations.

457 plan
Non-qualified deferred compensation plans available to employees of state and local governments and tax-exempt organizations.

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A a

accelerated death benefits (adb's)
Some life insurance policies make a portion of the death benefit available prior to the death of the insured. Such benefits are usually available only due to terminal illness or for long-term care situations.

accidental death benefit
An accidental death benefit is a rider added to an insurance policy which provides that an additional death benefit will be paid in the event death is caused by and accident. This rider is often called "double indemnity."

accounts payable
A balance sheet item representing the amount of money a company owes to its creditors.

accounts receivable
A balance sheet item representing the amount of money a company is owed by its customers for goods and services it has provided.

accrual basis
One of several methods of accounting. Requires that all interest and income be included as it is earned and that all expenses are included as incurred.

adjustable rate mortgage (arm)
An adjustable Rate Mortgage offers an initial interest rate that is usually lower than a fixed rate, but that adjusts periodically according to market conditions and financial indices. The rate may go up and/or down, depending on economic conditions. To limit the borrower's risk, the ARM will almost always have a maximum interest rate allowed, called a "rate cap."

amortization
The amortization of a debt is its systematic repayment through installments of principal and interest. An amortization schedule is a periodic table illustrating payments, principal, interest, and outstanding balance.

annual percentage rate (apr)
The Annual Percentage Rate is the cost of credit expressed as a yearly rate. The APR is a means of comparing loans offered by various lenders on equal terms, taking into account interest rates, points, and other finance charges. The federal Truth-in-Lending Act requires disclosure of the APR.

annuitant
An individual who receives payments from an annuity. The person whose life the annuity payments are measured on or determined by.

annuity
A contract between an insurance company and an individual which generally guarantees lifetime income to the individual or whose life the contract is based in return for either a lump sum or periodic payment to the insurance company. Interest earned inside an annuity is income tax-deferred until it is paid out or withdrawn.

appraisal
An appraisal is an estimate of a property's value, usually real estate, at a specific point in time and as determined by a qualified professional appraiser.

appreciation
Appreciation is the increase in value of an asset. The term "appreciation" may be applied to real estate, stocks, bonds, etc.

arm's length
Acting at arm's length predicates that two parties negotiate with opposing economic interests.

ask price
The price that a seller is willing to sell a security or commodity for.

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balance sheet
A balance sheet is a financial statement that is divided into three major parts: assets, liabilities and shareholders' equity.

balloon mortgage
The terms on a balloon mortgage are insufficient to completely amortize the loan. A balloon, or lump sum, payment is required at the maturity of the loan to completely pay off the remaining principal. Balloon mortgages often contain a contractual opportunity to refinance when the balloon payment is due at prevailing rates.

bank reserves
The amounts that banks are required to keep on deposit at a Federal Reserve Bank, as determined by reserve ratios. Funds in excess of these reserves are loaned out or invested by the banks.

bankruptcy
A federal court proceeding in which a debtor who is unable to continue to meet his/her financial obligations may be relieved from the payment of certain debts. This action seriously affects the borrower's credit worthiness.

basis
An amount usually representing the actual cost of an investment to the buyer. The basis amount of an investment is important in calculating capital gains and losses, depreciation, and other income tax calculations.

basis points
Basis Points is a term used by investment professionals to describe yields of bonds. One basis point equals one 100th of 1%, or .01%. A bond yield increase from 10.0% to 10.1% represents an increase of 10 basis points.

bear market
A prolonged decline in overall stock prices occurring over a period of months or even years.

beneficiary
The person who is designated to receive the benefits of a contract.

beta
A statistically generated number that is used to measure the volatility of a security or mutual fund in comparison to the market as a whole.

bid price
The price that a buyer is willing to pay for a security or commodity.

blue-chip stocks
The equity issues of financially stable, well-established companies that usually have a history of being able to pay dividends in bear and bull markets.

bond
A certificate of indebtedness issued by a government entity or a corporation, which pays a fixed cash coupon at regular intervals. The coupon payment is normally a fixed percentage of the initial investment. The face value of the bond is repaid to the investor upon maturity.

bonding requirement
The individual(s) that are appointed to run the day-to-day operations of a qualified plan, as well as the trustee(s) and investment managers must be bonded. The bond is required to provide protection to the plan against loss due to fraud, theft, forgery or dishonesty.

book value
The value that belongs to a company's owners or shareholders after total liabilities have been subtracted from total assets. Also called shareholders equity.

bull market
A prolonged increase in overall stock prices?usually occurring over a period of months or even years.

buy-down
A buy-down refers to the payment of additional discount points in return for a below market interest rate (and therefore a lower monthly payment) on a home mortgage.

buy-sell agreement
An agreement between shareholders or business partners to purchase each others' shares in specified circumstances.

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C c

capital markets
A general term encompassing all markets for financial instruments with more than one year to maturity.

capital stock
All ownership shares of a company, both common and preferred listed at par value.

cash equivalents
Assets that can be quickly converted to cash. These include receivables, treasury bills, short-term commercial paper, short-term municipal and corporate bonds and notes.

cash value
Permanent life insurance policies provide both a death benefit and in an investment component called a cash value. The cash value earns interest and often appreciates. The policyholder may accumulate significant cash value over the years and, in some circumstances, "borrow" the appreciated funds without paying taxes on the borrowed gains. As long as the policy stays in force the borrowed funds do not need to be repaid, but interest may be charged to your cash value account.

certificate of deposit (cd)
A Certificate of Deposit is a low risk, often federally guaranteed investment offered by banks. A CD pays interest to investors for as long as five years. The interest rate on a CD is fixed for the duration of the CD term.

charitable remainder trust (crt)
The Charitable Remainder Trust is an irrevocable trust with both charitable and non-charitable beneficiaries. The donor transfers highly appreciated assets into the trust and retains an income interest. Upon expiration of the income interest, the remainder in the trust passes to a qualified charity of the donor's choice. If properly structured, the CRT permits the donor to receive income, estate, and/or gift tax advantages. These advantages often provide for a much greater income stream to the income beneficiary than would be available outside the trust.

closed-end fund
A fund whose value is held within a fixed number of shares. Until the fund is wound up, shares can be bought and sold on the stock exchange or the over-the-counter market.

co-borrower
A co-borrower is individually or jointly obligated to repay a loan entered into with a third party. The co-borrower may or may not share in ownership of loan collateral.

codicil
An instrument in writing executed by a testator for adding to, altering, explaining or confirming a will previously made by the testator; executed with the same formalities as a will; and having the effect of bringing the date of the will forward to the date of codicil.

collateral
Assets pledged as security for a loan. If the borrower defaults on payment, the lender may dispose of the property pledged as security to raise money to repay the loan.

commission
The fee a broker or insurance agent collects for administering a trade or policy.

commodity
A commodity is a physical substance such as a food or a metal which investors buy or sell on a commodities exchange, usually via futures contracts.

common stock
A security that represents ownership in a corporation.

compounding
The computation of interest paid using the principal plus the previously earned interest.

conduit IRA
An individual who rolled over a total distribution from a qualified plan into an IRA can later roll over those assets into a new employer's plan. In this case the IRA has been used as a holding account (a conduit).

conforming loan
A mortgage loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Currently, conforming first mortgages are under $275,000 ($413,000 in Alaska and Hawaii).

construction loan
A construction loan is a short term loan applied to the construction of a new home. The builder gradually withdraws the loan proceeds and the home serves as collateral on the loan.

consumer debt
Debt incurred for consumable or depreciating non-investment assets. Items include credit card debt, store-financed consumer purchases, car loans, and family loans that will be repaid.

contrarian
An individual whose opinion is the opposite of the majority.

conventional mortgage
A conventional mortgage is not insured, guaranteed or funded by the Veterans Administration, the Federal Housing Administration, or Rural Economic Community Development.

convertible mortgage
A convertible mortgage is an adjustable mortgage (ARM) that allows the borrower to convert to a fixed rate mortgage during a specified period of time.

convertible term insurance
Term life insurance that can be converted to a permanent or whole life policy without evidence of insurability, subject to time limitations.

corporation
A legal business entity created under state law. Because the corporation is a separate entity from its owners, shareholders have no legal liability for its debts.

correction
A sudden decline in stock or bond prices after a period of market strength.

co-signer
An individual or party who agrees to assume a debt obligation of a third party in the event the principal borrower defaults on the terms of the loan.

coupon rate
The rate of interest paid on a bond, expressed as a percentage of the bond's par value.

credit cards
Cards such as Visa and MasterCard allow the holder to charge purchases rather than pay cash.

credit bureau repositories
A credit bureau repository is an organization that compiles credit history information directly from lenders and creditors into credit summaries and reports. These reports are made available to lenders and creditors to assist them in gauging an individual's credit worthiness.

critical illness insurance
Insurance protection designed to provide a lump-sum payment equal to the full value of the policy or a percentage of the policy depending upon the product design, to the insured/policy owner upon the diagnosis of a covered critical illness. Typical illnesses covered include heart attack, stroke, cancer, paralysis, renal failure and Alzheimer's disease. Many policies offer a partial payment for certain medical procedures such as coronary bypass surgery or angioplasty. Some policies offer a return of all premiums in the event of death of the insured, others pay the full benefit upon the insured's death.

currency risk
The level of risk when investing in international markets, due to the fluctuations in exchange rates of the various world currencies. Investing in any foreign country should be preceded by a careful estimation of how well its currency is likely to do against the dollar.

custodian
A financial institution, usually a bank or trust company, that holds a person or company's cash and or securities in safekeeping.

cyclical companies
Companies that report strong earnings when the overall economy is doing well and weaker earnings when the economy is in recession.

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Glossary content provided by Financial Visions.