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Glossary content provided by Financial
Visions.
paper gain (loss)
Unrealized capital gain (loss) on securities held in portfolio,
based on a comparison of current market price to original
cost.
par bond
A bond selling at par.
payroll deduction
Payments made on your behalf by your employer. They are automatically
deducted from your pay check.
points
Points are charges added to a mortgage loan by the
lender and are based on the loan amount. One point is equal
to 1% of the original loan balance.
policy
A contractual arrangement between the insurer and the insured
describing the terms and conditions of the life insurance
contract.
policy loan
The policy owner can borrow from the cash value component
of many permanent insurance policies for virtually any purpose.
Any policy loans that are outstanding at the time of death
of the insured will be deducted from the benefit paid to the
beneficiary.
political risk
Political risk is the risk that stock prices may decline dramatically
during periods of political unrest or crisis.
power of attorney
A legal document authorizing one person to act on behalf of
another.
premium
The payment that the owner of a life insurance policy makes
to the insurer. In exchange for the premium payment, the insurer
assumes the financial risk (as defined by the insurance policy)
associated with the death of the insured.
present value
The current worth of a future payment, or stream of payments,
discounted at a given interest rate over a given period of
time.
principal
The principal amount of a loan or mortgage is the outstanding
balance, excluding interest.
private mortgage insurance
Private mortgage insurance protects the lender against the
default of higher risk loans. Most lenders require private
mortgage insurance on loans where the loan-to-value ratio
is higher than 80% (less than 20% equity).
probate
The process used to make an orderly distribution and transfer
of property from the deceased to a group of beneficiaries.
The probate process is characterized by court supervision
of property transfer, filing of claims against the estate
by creditors and publication of a last will and testament.
profit sharing plan
A Profit-Sharing Plan is the most flexible and simplest of
the defined contribution plans. It permits discretionary annual
contributions that are generally allocated on the basis of
compensation. The employer will determine the amount to be
contributed each year depending on the cash-flow of the company.
The deduction for contributions to a Profit-Sharing Plan cannot
be more than 15% of the compensation paid to the employees
participating in the plan. Annual employer contributions to
the account of a participant cannot exceed the smaller of
$30,000 or 25 percent of a participant's compensation.
prohibited ira transactions
Generally, a prohibited transaction is any improper (self-dealing)
use of the IRA by the account owner. Some examples include
borrowing money from an IRA, using an IRA to secure a loan
and selling property to an IRA.
prospectus
A detailed statement prepared by an issuer and filed with
the SEC prior to the sale of a new issue. The prospectus gives
detailed information on the issue and on the issuer's condition
and prospects.
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qualified retirement plan
A qualified retirement plan is a retirement plan that meets
certain specified tax rules contained primarily in section
401(a) of the Internal Revenue Code. These rules are called
"plan qualification rules". If the rules are satisfied
the plan's trust is exempt from taxes.
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refinance
To refinance one's mortgage is to retire the existing mortgage
using the proceeds of a new mortgage and using the same property
as collateral. This is usually done to secure a lower interest
rate mortgage or to access equity from the property.
registered representative
A registered representative is licensed with the NASD (National
Association of Securities Dealers), through association with
an NASD member broker / dealer, to act as an account representative
for clients and collect commission income.
revolving debt
A debt or liability that does not have a fixed principal balance
or payment. Examples include credit cards, home equity lines
of credit, etc.
rider
A life insurance rider is an amendment to the standard policy
that expands or restricts the policy's benefits. Common riders
include a disability waiver of premium rider and a children's
life coverage rider.
risk
Investment risk is the chance that the actual returns realized
on an investment will differ from the expected return.
rule of 72
A way to determine the effect of compound interest. Divide
72 by the expected return on your investment. If your expected
return is 8%, assuming that all interest is reinvested, you
will double your money in 9 years.
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