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Glossary Of Terms Scroll down to find the term you need, or use these text buttons below to go to a letter heading. # | A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z 12b-1 fee: The fees, usually less than 1%, are charged annually to shareholders to pay a fund's distribution, marketing and administration expenses. 401(k) Plan: A type of pension plan that allows employees to contribute a portion of their salaries to retirement investments on a tax-deferred basis. 403(b)Plan: A type of pension plan for employees of non-profit organizations that allows employees to contribute a portion of their salaries to retirement investments on a tax-deferred basis. 403(b) Plan: A college savings program through which you can receive all of the tax advantages available under Section 529 of the Internal Revenue Code. Your earnings on your assets grow tax-deferred and can be used to pay for education costs at any eligible college, university, or graduate school in the United States. 529 Plan: A national college savings program through which you can receive all of the tax advantages available under Section 529 of the Internal Revenue Code. Your earnings on your assets grow tax-deferred and can be used to pay for education costs at any eligible college, university, or graduate school in the United State accelerated death benefit: A feature of a life insurance policy in which the death benefit may be paid to the policyholder prior to death under clearly defined health-related circumstances. accidental death benefit: A benefit in addition to the face amount of a life insurance policy, payable if the insured dies as the result of an accident. Sometimes referred to as "double indemnity." adjustable life insurance: A type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium and lengthen or shorten the protection period. after-tax return: An investment's return after all income taxes have been deducted. agent: A sales and service representative of an insurance company. Life insurance agents may also be called life underwriters or field underwriters. annual report: The yearly record of a corporation or a mutual fund's condition and performance that is distributed to shareholders or investors. annuitant: The person during whose life an annuity is payable, usually the person to receive the annuity. annuity: A long-term investment that provides tax-free growth and income at regular intervals for as long as you specify, such as a number of years or for life. annuity certain: A contract that provides an income for a specified number of years, regardless of life or death. annuity consideration: The payment, or one of the regular periodic payments, an annuitant makes to an insurer for an annuity. application: A statement of information made by a person applying for life insurance. It helps the life insurance company assess the acceptability of risk. assets: Economic resources of an enterprise or person. A mutual fund's assets include cash and securities. asset allocation: Before purchasing a mutual fund or variable life insurance product or annuity, you must decide which products will best meet your investment objectives and which risk characteristics will best fit your financial situation. assignment: The legal transfer of one person's interest in an insurance policy or other asset to another person. balanced fund: A mutual fund that invests in both stocks and bonds whose objective is both growth and income. bear market: A prolonged period of declining stock prices. beneficiary: The person named in a life insurance policy to receive the insurance proceeds upon the death of the insured. bond: A loan which investors make to corporations and/or governments that pays a stated return over a fixed period of time. bond fund: A mutual fund, bank trust, insurer or separate account that invests exclusively in bonds. bond rating: A rating assigned to bonds by independent rating agencies. Ratings are based on the probability of a bond issuer's default. Bonds with the smallest default probability are rated AAA (or Aaa) and carry the lowest interest rates. bottom-up approach: An investment strategy that focuses on individual stocks, rather than general market trends. It assumes strong companies can perform well independent of the market environment. broker: A financial professional who oversees a client's investment and/or insurance portfolio. bull market: A prolonged period of rising stock prices. business life insurance: Life insurance purchased by a business enterprise on the life of a member of the firm. Capital: The amount of "extra" funds available after a company has allocated all of its obligations to its policyholders, employees, and creditors. capital gains distribution: A payment to mutual fund shareholders of profits realized from the sale of stocks and/or bonds. capital gains/losses: A profit or loss on the sale of an asset. capitalization: The market value of a company's securities, excluding its correct liabilities. Typically, companies with a capitalization under $250 million are called small-cap, companies between $250 million and $1 billion are mid-cap and companies over $1 billion are large-cap. capitalization ratio: An analysis of a company's capital structure organized by asset type (e.g. common stock, preferred stock, other equity and debt). cash position: Percentage of a mutual fund's portfolio held in cash and cash equivalents. cash surrender value: The amount available in cash upon voluntary termination of a life insurance policy by its owner before it becomes payable by death or maturity. cash value: The amount available in cash when a whole life policy is redeemed prior to becoming payable by death or maturity. certificate: A statement issued to individuals insured under a group policy, setting forth the essential provisions relating to their coverage. Certificate Of Deposit (COD): A debt instrument issued by a bank that usually pays interest. The date of the maturity names from a few weeks to several years. claim: Notification to an insurance company that payment of an amount is due under the terms of a policy. claims-paying-ability ratings: An evaluation of the relative ability of an insurance company to honor its insurance or contractual liabilities as distinct from its debt obligations. closed-end fund: An investment company with a limited number of shares outstanding whose price trades like an individual security. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis. compound interest: Interest computed on the principal plus the interest accumulated previously to the date of compounding. contingent deferred sales charge (CDSC): A sales charge imposed when shares are redeemed from a fund where no initial sales charge was paid. This fee usually declines over time. convertible term insurance: Term insurance which can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance. cost basis: The purchase price of an investment, used to calculate capital gains when the investment is sold. covered participant: A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan. credit rating: An individual or company's credit history and ability to pay debts. custodian: A bank that holds a mutual fund's assets, settles all portfolio trades and collects most of the valuation data required to calculate a fund's net asset value (NAV). deferred annuity: An annuity providing for income payments to begin at some future date. deferred compensation plan (401(k)): A plan under which the participant is permitted to defer a portion of his gross income to a retirement plan. Such a deferral is tax exempt for federal income tax purposes until the proceeds are distributed. deferred premium: Premium not yet due but which will become due after the end of the calendar year and prior to the next policy anniversary. defined benefit plan: A pension plan that promises to pay a specified amount upon retirement. The plan states either: (1) the benefits to be received by employees after retirement or (2) the method of determining such benefits. defined contribution plan: A plan under which the contribution rate is fixed and benefits to be received by employees after retirement depend to some extent upon the contributions and their earnings. Examples are 401(k) and 403(b) plans. deposit administration group annuity: A type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the individual members of the group retire. deposit term insurance: A form of term insurance in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. disability benefit: A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policyholder becomes totally and permanently disabled. discount: The difference between a security's current market price and its estimated value. distribution: See capital gains distribution. diversification: Blending a variety of investments to reduce investment risk. dividend:
1. A company's payment of profits to its stockholders. dividend addition: An amount of paid-up insurance purchased with a policy dividend and added to the face amount of the policy. dollar-cost averaging: An investment strategy which involves regular investments over time into the same security or mutual fund. Dow Jones Industrial Average (DJIA): A popular index used to measure and report value changes in representative stock groupings. "The Dow" is a price weighted average of 30 actively traded blue chip stocks primarily of industrial companies. duration: A measure, expressed in years, of a bond's sensitivity to interest-rate changes. Typically the shorter the duration, the more stable the bond. Educational Individual Retirement Account (Educational IRA): An account to invest in a child's future. A maximum of $500 per year can be contributed. Funds grow tax-deferred and no taxes will be due upon withdrawal if earnings are used to pay for Qualified Higher Education expenses. The money must be distributed by the time the child reaches age 30. employee stock ownership plan (ESOP): A defined contribution pension plan designed to invest primarily in employer securities. endowment: Life insurance payable to the policyholder, if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date. equity: The net worth of a business, consisting of capital stocks, capital surplus, earned surplus, and, occasionally, certain net worth reserves. equity fund: A mutual fund that invests primarily in stocks. Also known as a stock fund. equity security: See stock. estate protection: A term used to refer to insurance covering the assets owned by an insured at death. exchange privilege: In mutual funds, the ability to transfer money from one fund to another within the same fund family.duration: A measure, expressed in years, of a bond's sensitivity to interest-rate changes. Typically the shorter the duration, the more stable the bond. Educational Individual Retirement Account (Educational IRA): An account to invest in a child's future. A maximum of $500 per year can be contributed. Funds grow tax-deferred and no taxes will be due upon withdrawal if earnings are used to pay for Qualified Higher Education expenses. The money must be distributed by the time the child reaches age 30. employee stock ownership plan (ESOP): A defined contribution pension plan designed to invest primarily in employer securities. endowment: Life insurance payable to the policyholder, if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date. equity: The net worth of a business, consisting of capital stocks, capital surplus, earned surplus, and, occasionally, certain net worth reserves. equity fund: A mutual fund that invests primarily in stocks. Also known as a stock fund. equity security: See stock. estate protection: A term used to refer to insurance covering the assets owned by an insured at death. exchange privilege: In mutual funds, the ability to transfer money from one fund to another within the same fund family.duration: A measure, expressed in years, of a bond's sensitivity to interest-rate changes. Typically the shorter the duration, the more stable the bond. Educational Individual Retirement Account (Educational IRA): An account to invest in a child's future. A maximum of $500 per year can be contributed. Funds grow tax-deferred and no taxes will be due upon withdrawal if earnings are used to pay for Qualified Higher Education expenses. The money must be distributed by the time the child reaches age 30. employee stock ownership plan (ESOP): A defined contribution pension plan designed to invest primarily in employer securities. endowment: Life insurance payable to the policyholder, if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date. equity: The net worth of a business, consisting of capital stocks, capital surplus, earned surplus, and, occasionally, certain net worth reserves. equity fund: A mutual fund that invests primarily in stocks. Also known as a stock fund. equity security: See stock. estate protection: A term used to refer to insurance covering the assets owned by an insured at death. exchange privilege: In mutual funds, the ability to transfer money from one fund to another within the same fund family. extended term insurance: A nonforfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the initial policy. face value: The total value of an investment or insurance policy, usually stated on the "face" of the document. family policy: A life insurance policy providing insurance on all or several family members in one contract. Federal Reserve System: "The Fed" is a network of banks established to regulate the national money supply, whose Board sets prevailing national interest rates. financial quality: A measure of the financial soundness of an institution indicating its ability to honor financial obligations. fiscal year: A 365-day accounting period for which a company or mutual fund prepares financial statements. fixed-income security: See bond. flexible premium policy or annuity: A life insurance policy or annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments. flexible premium variable life insurance: A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance. flexible variable life insurance: A life insurance product which is designed to reduce the impact of both taxes and inflation. fraternal life insurance: Life insurance provided by fraternal orders or societies to their members. fundamental analysis: A review of a company's balance sheet and income statement from which a company's future earnings are projected. grace period: A period (usually 30 or 31 days) following the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period. group annuity: A pension plan providing annuities at retirement to a group of people under a master contract. It is usually issued to an employer for the benefit of employees. group life insurance: Life insurance, issued to a policyholder which insures a group of people. It is typically issued to an employer for the benefit of employees, or to members of an association, for example, a professional membership group. growth fund: A mutual fund that invests primarily in companies with the potential for accelerating earnings. guaranteed interest contract: A vehicle for benefit plan sponsors to invest funds at a fixed interest rate for a fixed duration. immediate annuity: A financial vehicle designed to help you manage your money by providing an income stream that begins immediately after (usually six months) you have purchased the annuity. index: A benchmark against which investment performance is judged. individual policy pension trust: A type of pension plan, frequently used for small groups, administered by trustees who are authorized to purchase individual life insurance policies or annuity contracts for each member of the plan. The policies usually provide both life insurance and retirement benefits. individual retirement account (IRA): A tax-deferred account to which an eligible individual can make annual contributions of 100% of earnings up to $2,000 ($4,000 for a single-income married couple filing a joint income tax return). industrial life insurance: Life insurance issued in small amounts, usually less than $1,000, with premiums payable on a weekly or monthly basis. The premiums are generally collected at the home of the insured by an agent of the company. Sometimes referred to as debit insurance. inflation: A rise in the price of goods and services -- often described as "too much money chasing too few goods" -- often associated with a loss of purchasing power. insurability: Acceptability to an insurer of an applicant for insurance. insurance examiner: The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company. insured or insured life: The person on whose life an insurance policy is issued. investment company: See mutual fund. investment grade: High-quality bonds, often thought suitable for prudent bond investors. investment objective: The goal of a mutual fund and its shareholders, e.g. growth, growth and income, income, and tax-free income. junk bond: A low-rated bond, offering higher interest rates and higher risk, that is most appropriate for aggressive bond investors. Keough (HR 10) Plan: A retirement plan for self-employed individuals and their employees. lapsed policy: A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value. large cap: See capitalization. legal reserve life insurance company: A life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies. level premium life insurance: Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. liabilities: Amounts set aside to pay future obligations or guarantees; for example, life insurance claims. life annuity: A contract that provides an income for life. life expectancy: The average number of years of life remaining for a group of persons of a given age according to a particular mortality table. life insurance in force: The sum total of all life insurance coverage in force at a given time. Additional amounts payable under accidental death or other special provisions are not included. limited payment life insurance: Whole life insurance on which premiums are payable for a specified number of years or until death if death occurs before the end of the specified period. liquidity: A measure of the ease in which an asset may be sold at a reasonable price on short notice. loads (back-end, front-end, and no-load): Sales charges on mutual funds. A back-end load is assessed at redemption (see contingent deferred sales charge), while a front-end load is paid at the time of purchase. No-load funds are free of sales charges. long term care insurance: Insurance which covers the cost of being confined to a nursing home or the cost of at-home assistance for an extended period of time. lump sum distribution: A simple payment to a beneficiary and/or investor of an account's entire current value. management surplus: Surplus plus the asset valuation reserve. market timing: An investment strategy seeking profits by buying and selling securities in anticipation of market conditions. market value: The price at which a security or mutual fund is trading and could presumably be purchased or sold. master policy: A life insurance policy that insures a number of people under a single contract. maturity date: Date on which the principal amount of a note, bond, certificate of deposit, or other debt security becomes due and payable. money market fund: A mutual fund seeking income and principal security. mortality table: A statistical table showing the death rate at each age, usually expressed as "so many per thousand." mutual fund: A mutual fund is a portfolio of stocks, bonds, or money market securities that is owned by many investors and managed by a professional investment company. mutual life insurance company: A life insurance company without stockholders whose management is directed by a board elected by the policyholders. Mutual companies, in general, issue participating insurance. National Association of Insurance Commissioners: The NAIC is an association of the 50 state insurance commissioners that acts in an advisory capacity to maintain regulatory consistency. It has no authority but recommends model laws and regulations. National Association of Securities Dealers: The NASD is a self-regulatory body which oversees its members, including mutual fund companies. National Brokerage: A firm with offices located throughout the United States. net asset value (NAV): The price at which mutual fund shareholders can sell their shares. Price may vary daily. net worth: GAAP Surplus or Management Surplus. nonforfeiture option: The choices available to a policyowner concerning the methods under which the owner can apply the policy's cash value when the policy lapses. non-medical limit: The maximum face value of a policy that a given company will issue without the applicant taking a medical examination. non-participating policy: A life insurance policy which does not grant the policy owner the right to policy owner dividends. ordinary life insurance: Life insurance usually issued in amounts of $1,000 or more with premiums payable on an annual, semiannual, quarterly, or monthly basis. paid-up insurance: Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a nonforfeiture option. participating policy: A life insurance policy under which the company agrees to distribute to policyholders the part of its surplus which its Board of Directors determines is not needed at the end of the business year. pension plan: An employee benefit plan which provides retirement income to participants by means of advance funding or deferral of income. permanent life insurance: A phrase used to cover any form of life insurance except term; generally, insurance that accrues cash value, such as whole life or endowment. policy: The printed legal document stating the terms of the insurance contract that is issued to the policyholder by the company. policy dividend: A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience. policy loan: Loans made by the life insurance company from its general funds, advanced to policyholders on the security of the cash values of their policies. policy reserves: The measure of the funds that a life insurance company holds specifically for the fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims. policyholder: The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation. policyholder dividends: Return of premium allotted to participating policyholders out of profits earned on such policies. premium: The payment, or one of the periodic payments, a policyholder agrees to make for an insurance policy. premiums: Consideration received from a contract holder in return for a future obligation by the Company. premium loan: A policy loan made for the purpose of paying premiums. price to earnings ratio (P/E ratio): A stock's price divided by its earnings per share, which indicates how much investors are paying for a company's earning power. pricing: The process of determining premium rates, dividend scales, interest crediting rates, and miscellaneous fees, charges, and credits on the Company's products. prospectus: A legal document detailing a fund's investment objective, financial highlights and fees. proxy: A shareholder vote on matters that require shareholders' approval. protection: Another term for insurance. public offering price (POP): A mutual fund share's purchase price, including sales charges. qualified plan: A plan which the Internal Revenue Service approves as meeting the requirements of Section 401(a) of the 1954 Internal Revenue Code. Such plans receive tax advantages. rating agency: A firm which thoroughly evaluates all aspects of a company's operations in order to determine its financial quality and issues debt and claims-paying-ability ratings (e.g. A.M. Best Company, Moody's Investors Service, Standard & Poor's Corporation and Fitch). rated policy: Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has impaired health or a hazardous occupation. redemption: Sale of mutual fund shares by a shareholder. reduced paid-up insurance: A form of insurance available as a nonforfeiture option. It provides for continuation of the original insurance plan, but for a reduced amount. renewable term insurance: Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured increases. reserve: The amount required to be carried as a liability in the financial statement of an insurer, to provide for future commitments under policies outstanding. reserve requirement: For insurance companies, the amounts which must be set aside to meet future benefit obligations as defined by the state insurance departments. For banks, the percentage of deposits which must be deposited with the Federal Reserve. rider: A special policy provision or group of provisions that may be added to a policy to expand or limit the benefits otherwise payable. risk classification: The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individual's insured (e.g. age, occupation, sex, state of health) and then applies the resulting rules to individual applications. Roth Individual Retirement Account (Roth IRA): An account to which an individual can make annual contributions of 100% of earnings up to $2,000 ($2,250 for a one-income married couple.) These contributions are not tax deductible but grow tax deferred distrubutions are tax free if certain conditions are met. sales charge: See loads. sector fund: A mutual fund that focuses on investments in one industry or economic sector. Securities and Exchange Commission (SEC): Federal agency that oversees the registration and distribution of company stock and mutual fund shares. self-administered (trusteed or directly invested) plan: A plan generally funded through a bank which directly invests in the accumulated funds. Retirement payments are made from the fund as they fall due. separate account: An asset account established by a life insurance company separate from other funds, used primarily for pension plans and variable life products. This arrangement permits wider latitude in the choice of investments, particularly in equities. settlement options: The several ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid. simplified employee pension plan (SEP): A retirement plan allowing small businesses to make contributions to each employee's Individual Retirement Account (IRA). small-cap: See capitalization. statutory accounting principals (SAP): A set of accounting practices used in the insurance industry to ensure a company's ability to meet obligations at any and all times. stepped-up death benefit: An equity-based investment that will protect your beneficiaries against any loss of principal in case you die before the pay-out phase begins. stock: Ownership of a corporation represented by shares that are a claim on the corporation's earnings and assets. When a company profits, its shareholders can profit if the share price rises and/or if the company pays a dividend per share. stock life insurance company: A life insurance company owned by stockholders who elect a board to direct the company's management. Stock companies, in general, issue nonparticipating insurance, but may also issue participating insurance. straight life insurance: Whole life insurance on which premiums are payable for life. supplementary contract: A contract between the insurer and the beneficiary which is formed when proceeds are applied under a settlement. systematic investment plan: A service option that allows investors to buy mutual fund shares on a regular schedule, usually through bank account deductions. tax-deferred: Term describing an investment whose accumulated earnings are free from taxation until the investor takes possession of them. term insurance: Life insurance payable to a beneficiary only when an insured dies within a specified period. No benefit is payable if the insured survives to the end of the term. top-down approach: An investment strategy that focuses on general market trends and selects specific stock sectors that can benefit from these broad trends. total return: A method of calculating an investment's return that takes share price changes and/or the reinvestment of dividends into account. transfer agent: An agent, usually a commercial bank, appointed to monitor records of stock, bond, and shareholders. treasury bill, bond, note: Short term securities guaranteed by the federal government with terms ranging from three months to thirty years. Triple A Rating: The highest rating issued by the rating agencies. Ratings are issued by Standard and Poor's, Fitch and Moody's for an insurance company's claims-paying-ability. AAA rating means an insurer has an EXTREMELY STRONG capacity to meet contractual obligations. An insurer with a VERY STRONG capacity to meet contractual obligations receives a double A rating (AA or Aa). Standard and Poor's and Fitchs' abbreviations are "AAA" and "AA", whereas Moody's are "Aaa" and "Aa." trustee: 1. An organization or individual who has responsibility for one or more accounts. 2. An individual who, as part of a fund's board of trustees, has ultimate responsibility for a fund's activities. unallocated contract: A contract whereby premiums and contributions are deposited rather than used immediately to purchase annuities for benefit plan participants. underwriting: The process by which a life insurance company determines whether or not it can accept an application for insurance and, if so, on what basis. universal life insurance: A life insurance policy under which the holder may change the death benefit and vary the amount or timing of premium payments. value investing: An investment strategy that seeks companies whose estimated value is not reflected in their market price. variable annuity: An annuity where the amount of each periodic income payment may fluctuate. The fluctuation is tied to variables such as a cost of living index, or securities market value. variable life insurance: A form of life insurance under which the face amount and the cash value of the policy vary according to the investment performance of a separate account fund. variable universal life insurance: A variable life insurance policy in which the policy owner may vary the amount of premium payment and/or amount of coverage. volatility: The tendency of a security's price to go up and down. For example, rapid, frequent share price changes indicate a high degree of volatility. waiver of premium: Under certain conditions an insurance policy will be kept in full force without further payment or premiums. It is used mostly in the event of a permanent disability. whole life insurance: Life insurance under which coverage remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy. yield:
In general, yield is the return on an investor's capital investment.
With respect to stocks and mutual funds, it is the percentage of
income that a security or mutual fund distributes in relation to
share price. For example, if a mutual fund distributes $1 per share
over a year and has a $10 share price, its yield is 10%. |
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