ABOUT THE PRESIDENT

Pedro A. Palicio, MBA, Ph.D.
Universal Wealth Managers
President & CEO

READ MORE...

VIDEO

More Videos

E-NEWSLETTER

4
• 401(k) Plan

A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.




• 403(b) Plan
A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.

A
• Acceleration Clause
The part of a contract that says when a loan may be declared due and payable.


• Accidental Death Benefit
In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.


• Active Participant
Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.


• Activities of Daily Living
Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.


• Actual Cash Value
Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.


• Actuary
A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.(Americanism: In most other countries the individual is known as "a mathematician").


• Adjustable Rate
An interest rate that changes based on changes in a published market-rate index.


• Adjusted Gross Income (AGI)
An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.


• Adjuster
A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.


• Administrator
A person appointed by the court to settle an estate when there is no will.


• Admitted Assets
Assets permitted by state law to be included in an insurance company's annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.


• After-Tax Return
The return from an investment after the effects of taxes have been taken into account.


• Agent
Individual who sells and services insurance policies in either of two classifications:
1. Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy.

2. Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.



• Aggregate Limit
Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.


• Aggressive Growth Fund
A mutual fund whose primary investment objective is substantial capital gains.


• Alternative Minimum Tax
A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.


• Annual Administrative Fee
Charge for expenses associated with administering a group employee benefit plan.


• Annual Crediting Cap
The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity.


• Annuitization
Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.


• Annuitization Options
Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.


• Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Annuity contracts are usually purchased from banks, credit unions, brokerage firms, or insurance companies. Any guarantees are contingent on the claims-paying ability of the issuing company.


• Approved for Reinsurance
Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in these states.


• Approved or Not Disapproved for Surplus Lines
Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state.


• Asset
Anything owned that has monetary value.


• Asset Allocation
The process of repositioning assets in a portfolio to maximize potential return for a particular level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models. Asset allocation does not eliminate or guarantee against the risk of investment loss; it is a method used to help manage investment risk.


• Asset Class
A category of investments with similar characteristics.


• Assets
Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to nonincome producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equal total admitted assets. By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "nonadmissiable."


• Attained Age
Insured's age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a Attained Age - Insured's age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured's then attained age. Upon conversion, the premium usually rises substantially to reflect the insured's age and diminished life expectancy.


• Audit
The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records' accuracy, consistency, and conformity to legal and accounting principles.


• Authorized Under Federal Products Liability Risk Retention Act ( Risk Retention Groups )
Indicates companies operating under the Federal Products Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986.

B
• Balance Sheet
An accounting term referring to a listing of a company's assets, liabilities and surplus as of a specific date.


• Balanced Mutual Fund
A mutual fund whose objective is a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds.


• Bear Market
When the stock market appears to be declining overall, it is said to be a bear market.


• Beneficiary
A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, and so on.


• Benefit Period
In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consists of the days beginning on Jan. 1 and ending on Dec. 31 of each year.


• Best's Capital Adequacy Relativity (BCAR)
This percentage measures a company's relative capital strength compared to its industry peer composite. A company's BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company's capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best's proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.


• Blue Chip Stock
The common stock of a company with a long history of profitability and consistent dividend payments.


• Bond
A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000.


• Book Value
The net value of a company's assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock's market value.


• Broker
Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.


• Broker-Agent
Independent insurance salesperson that represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.


• Bull Market
When the stock market appears to be advancing overall, it is said to be a bull market.


• Business Net Retention
This item represents the percentage of a company's gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings


• Buy-Sell Agreement
A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.

C
• Capital
Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company's policyowners in the event it develops financial problems; the policyowners' benefits are thus protected by the insurance company's capital. Shareholders' interest is second to that of policyowners.


• Capital Gain or Loss
The difference between the sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.


• Capitalization or Leverage
Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.


• Captive Agent
Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.


• Case Management
A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.


• Cash Equivalents
Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares that can be readily converted into cash.


• Cash Surrender Value
The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Policy loans that are not repaid will reduce the policy's death benefit and cash value by the amount of any outstanding loan balance plus interest.


• Casualty
Liability or loss resulting from an accident.


• CERTIFIED FINANCIAL PLANNER® Practitioner
A credential granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. CFP® CERTIFIED FINANCIAL PLANNER® and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification.


• Certified Public Accountant (CPA)
A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination (administered by the American Institute of Certified Public Accountants) and has fulfilled that state's educational and professional experience requirements for certification.


• Change in Net Premiums Written (IRIS)
The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.


• Change in Policyholder Surplus (IRIS)
The percentage change in policyholder surplus from the prior year-end derived from operating earnings, investment gains, net contributed capital and other miscellaneous sources. This ratio measures a company's ability to increase policyholders' security.


• Charitable Lead Trust
A trust established for the benefit of a charitable organization under which the charitable organization receives income from an asset for a set number of years or for the grantor's lifetime. Upon the termination of the trust, the asset reverts to the grantor or to his or her designated heirs. This type of trust can reduce estate taxes and allows the grantor's heirs to retain control of the assets.


• Charitable Remainder Trust
A trust established for the benefit of a charitable organization under which the grantor receives income from an asset for a set number of years or for the grantor's lifetime. Upon the termination of the trust, the asset reverts to the charitable organization. The grantor receives a charitable contribution deduction in the year in which the trust is established, and any gains on assets placed in the trust are exempt from capital gains tax.


• Chartered Financial Consultant (ChFC)
A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.


• Chartered Life Underwriter (CLU)
A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners and professionals.


• Claim
A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.


• Class 3-6 Bonds (% of PHS)
This test measures exposure to noninvestment grade bonds as a percentage of surplus. Generally, noninvestment grade bonds carry higher default and illiquidity risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies.


• COBRA
The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for 18 months at the employee's expense. Coverage may be extended to the employee's dependents for 36 months in the case of divorce or death of the employee.


• Coinsurance
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.


• Coinsurance or Copayment
The amount an insured person must pay for a covered medical and/or dental expense if his or her insurance doesn't provide 100 percent coverage.


• Combined Ratio After Policyholder Dividends
The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company's overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.


• Commercial Lines
Refers to insurance for businesses, professionals and commercial establishments.


• Commission
Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.


• Commodities
The generic term for goods such as grains, foodstuffs, livestock, oils, and metals which are traded on national exchanges. These exchanges deal in both "spot" trading (for current delivery) and "futures" trading (for delivery in future months).


• Common Carrier
A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.


• Common Stock
A unit of ownership in a corporation. Common stockholders participate in the corporation's profits or losses by receiving dividends and by capital gains or losses in the stock's share price.


• Community Property
State laws vary, but generally all property acquired during a marriage -- excluding property one spouse receives from a will, inheritance, or gift -- is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.


• Compound Interest
Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually


• Concurrent Periods
In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.


• Conditional Reserves
This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.


• Consumer Price Index
The U.S. Department of Labor's main indicator of inflation. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.


• Convertible
Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.


• Copayment
A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $20 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.


• Cost-of-Living Adjustment (COLA)
Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.


• Coverage
The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.


• Coverage Area
The geographic region covered by travel insurance.


• Creditable Coverage
Term means that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.

D
• Death Benefit
The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.


• Deductible
Amount of loss that the insured pays before the insurance kicks in.


• Deduction -
An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.


• Defined Benefit Plan
A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed to inflation.


• Defined Contribution Plan
A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.


• Direct Premiums Written
The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.


• Direct Writer
An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.


• Disease Management
A system of coordinated health-care interventions and communications for patients with certain illnesses.


• Diversification
Investing in different companies, industries, or asset classes in an attempt to limit overall risk. Of course, diversification cannot eliminate or guarantee against the risk of investment losses; it is a method used to help manage investment risk. Diversification may also mean the participation of a large corporation in a wide range of business activities.


• Dividend
A pro rata portion of earnings usually distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.


• Dollar Cost Averaging
A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when the price rises, and the average cost per share is lower than the average price per share. Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals.

E
• Earned Premium
The amount of the premium that has been paid for in advance or that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.


• Efficient Frontier
A statistical result from the analysis of the risk and return for a given set of assets that indicates the balance of assets that may, under certain assumptions, achieve the best return for a given level of risk.


• Elimination Period
The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."


• Employer- Sponsored Retirement Plan
A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.


• Employers Liability Insurance
Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.


• Encumbrance
A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.


• Equity
The value of a person's ownership in real property or securities; the market value of a property or business, less all claims and liens against it.


• ERISA
The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately funded and provide for vesting, survivor's rights, and disclosures.


• ESOP (employee stock ownership plan)
A defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.


• Estate Conservation
Activities coordinated to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death. Estate conservation often includes the use of wills and trusts.


• Estate Tax
Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to others (with limitations).


• Exclusions
Items or conditions that are not covered by the general insurance contract.


• Executive Bonus Plan
The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive


• Executor
A person named by the probate courts or the will to carry out the directions and requests of the decedent.


• Expense Ratio
The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company's operational efficiency in underwriting its book of business


• Exposure
Measure of vulnerability to loss, usually expressed in dollars or units.

F
• File-and-Use Rating Laws
State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.


• Financing Entity
Provides money for purchases.


• Fixed Income
Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, that is the same every month.


• Fundamental Analysis
An approach to the stock market in which specific factors - such as the price-to-earnings ratio, yield, or return on equity - are used to determine what stock may be favorable for investment.


• Future Purchase Option
Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "guaranteed insurability option."

G
• General Account
All premiums are paid into an insurer's general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.


• General Liability Insurance
Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.


• Gift Taxes
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. In 2009, the first $13,000 a year from a donor to each recipient was exempt from tax. Most states also impose a gift tax. The gift tax exemption is indexed for inflation.


• Grace Period
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.


• Gross Leverage
The sum of net leverage and ceded reinsurance leverage. This ratio measures a company's gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.


• Guaranteed Insurability Option
See "future purchase option."


• Guaranteed Issue Right
The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered.


• Guaranteed Renewable
A policy provision in many products which guarantees the policyowner the right to renew coverage at evry policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner. However the company raise rates if they choose.


• Guaranty Association
An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent.

H
• Hazard
A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.


• Hazardous Activity
Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.


• Health Maintenance Organization (HMO)
Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventive medicine, and members must use contracted health-care providers.


• Health Reimbursement Arrangement
Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.


• Health Savings Account
Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.


• Holographic Will
A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.

I
• Impaired Insurer
An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.


• Income Taxes
Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.


• Indemnity
Restoration to the victim of a loss by payment, repair or replacement.


• Independent Insurance Agents & Brokers of America ( IIABA )
Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.


• Individual Retirement Account (IRA)
Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.


• Inflation
An increase in the price of products and services over time. The government's main measure of inflation is the Consumer Price Index.


• Inflation Protection
An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.


• Insurable Interest
Interest in property such that loss or destruction of the property could cause a financial loss.


• Insurance Attorneys
An attorney who practices the law as it relates to insurance matters. Attorneys might be solo practitioners or work as part of a law firm. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best's Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers' compensation.


• Insurance Institute of America (IIA)
An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.


• Insurance Regulatory Information System (IRIS)
Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.


• Interest-Crediting Methods
There are at least 35 interest-crediting methods that insurers use. They usually involve some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.


• Intestate
A person who dies without leaving a valid will. State law then determines who inherits the property or serves as guardian for any minor children.


• Investment Category
A broad class of assets with similar characteristics. The five investment categories include cash equivalents, fixed principal, equity, debt, and tangibles.


• Investment Income
The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn't include the value of any stocks or bonds that the company currently owns.


• Investments in Affiliates
Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.


• Investor Risk
The chance that an investor will lose all or part of an investment.


• Irrevocable Trust
A trust that may not be modified or terminated by the grantor after its creation.

J
• Joint and Survivor Annuity
Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.


• Joint Tenancy
Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.


• Jointly Held Property
Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.

K
• Keogh Plan
This retirement plan, named for Eugene Keogh, is designed for self-employed individuals. The contribution amount is indexed annually for inflation.

L
• Laddering
Purchasing bond investments that mature at different time intervals.


• Lapse Ratio
The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.


• Least Expensive Alternative Treatment
The amount an insurance company will pay based on its determination of cost for a particular procedure.


• Leverage or Capitalization
Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.


• Liability
Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.


• Liability Insurance
Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence to other's imposed by law or assumed by contract.


• Licensed
Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.


• Licensed for Reinsurance Only
Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.


• Lifetime Reserve Days
Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.


• Limited Partnership
Limited partnerships pool the money of investors to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it passes the income on to its investors as dividend payments.


• Liquidity
Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds--cash, short-term investments, and government bonds--and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to quick liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. This reflects the financial stability of a company and thus their rating.


• Living Benefits
This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as "accelerated death benefits."


• Living Trust
A trust created by a person during his or her lifetime.


• Lloyd's
Generally refers to Lloyd's of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyd's Corp. provides the support facility for their activities.


• Lloyds Organizations
These organizations are voluntary unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy issued. The underwriters operate through a common attorney-in-fact appointed for this purpose by the underwriters. The laws of most states contain some provisions governing the formation and operation of such organizations, but these laws don't generally provide as strict supervision and control as the laws dealing with incorporated stock and mutual insurance companies.


• Loss Adjustment Expenses
Expenses incurred to investigate and settle losses.


• Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio
The higher the multiple of loss reserves to surplus, the more a company's solvency is dependent upon having and maintaining reserve adequacy.


• Loss Control
All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.


• Loss Ratio
The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underlying profitability, or loss experience, on its total book of business.


• Loss Reserve
The estimated liability, as it would appear in an insurer's financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.


• Losses and Loss-Adjustment Expenses
This represents the total reserves for unpaid losses and loss-adjustment expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.


• Losses Incurred (Pure Losses)
Net paid losses during the current year plus the change in loss reserves since the prior year end.


• Lump-Sum Distribution
The disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.

M
• Marginal Tax Bracket
The range of taxable income that is taxable at a certain rate. Currently, there are six marginal tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.


• Marital Deduction
A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the "unlimited marital deduction." The marital deduction may not apply in the case of noncitizens.


• Medical Loss Ratio
Total health benefits divided by total premium.


• Member Month
Total number of health plan participants who are members for each month.


• Money Market Fund
A mutual fund that specializes in investing in short-term securities and tries to maintain a constant net asset value of $1. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money when investing in a money market fund.


• Mortality and Expense Risk Fees
A charge that covers such annuity contract guarantees as death benefits.


• Mortgage Insurance Policy
In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability.


• Municipal Bond
A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Some municipal bond interest could be subject to the federal alternative minimum tax. If you sell a municipal bond at a profit, you could incur capital gains taxes. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance. The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost.


• Municipal Bond Fund
A mutual fund that specializes in investing in municipal bonds. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance.


• Mutual Fund
A collection of stocks, bonds, or other securities purchased and managed by an investment company with funds from a group of investors. Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


• Mutual Insurance Companies
Companies with no capital stock, and owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies. A nonassessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.

N
• Named Perils
Perils specifically covered on insured property.


• National Association of Insurance Commissioners ( NAIC )
Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.


• Net Asset Value
The per-share value of a mutual fund's current holdings. The net asset value is calculated by dividing the net market value of the fund's assets by the number of outstanding shares.


• Net Income
The total after-tax earnings generated from operations and realized capital gains.


• Net Investment Income
This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.


• Net Premium
The amount of premium minus the agent's commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.


• Net Premiums Earned
The adjustment of net premiums written for the increase or decrease of the company's liability for unearned premiums during the year. When an insurance company's business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true


• Net Premiums Written
Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.


• Net Premiums Written to Policyholder Surplus ( IRIS )
This ratio measures a company's net retained premiums written after reinsurance assumed and ceded, in relation to its surplus. This ratio measures the company's exposure to pricing errors in its current book of business.


• Net Underwriting Income
Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.


• Non-Recourse Mortgage
A home loan in which the borrower can never owe more than the home's value at the time the loan is repaid.


• Noncancellable
Contract terms, including costs that can never be changed.

O
• Operating Cash Flow
Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and federal income taxes. This measure excludes stockholder dividends, capital contributions, unrealized capital gains/losses and various noninsurance related transactions with affiliates. This test measures a company's ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances might indicate unprofitable underwriting results or low yielding assets.


• Operating Ratio (IRIS)
Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company's overall operational profitability from underwriting and investment activities. This ratio doesn't reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.


• Other Income/Expenses
This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for uncollectible premium and reinsurance business.


• Out-of-Pocket Limit
A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual's health-care expenses.


• Overall Liquidity Ratio
Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company's ability to cover net liabilities with total assets. This ratio doesn't address the quality and marketability of premium balances, affiliated investments and other noninvested assets.


• Own Occupation
Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

P
• Paid-Up Additional Insurance
An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured's attained age.


• Participation Rate
In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.


• Peril
The cause of a possible loss.


• Personal Lines
Insurance for individuals and families, such as private-passenger auto and homeowners insurance.


• Point-of-Service Plan
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.


• Policy
The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clauses, riders, endorsements, and papers attached thereto and made a part thereof.


• Policy or Sales Illustration
Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.


• Policyholder Dividend Ratio
The ratio of dividends to policyholders related to net premiums earned.


• Pooled Income Fund
A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes.


• Portfolio
All the investments held by an individual or a mutual fund.


• Preexisting Condition
A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.


• Preferred Provider Organization
Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.


• Preferred Stock
A class of stock with claim to a company's earnings, before payment can be made on the common stock and that is usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.


• Premium
The price of insurance protection for a specified risk for a specified period of time.


• Premium Balances
Premiums and agents' balances in course of collection; premiums, agents' balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.


• Premium Earned
The amount of the premium that has been paid for in advance or that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.


• Premium Unearned
That part of the premium applicable to the unexpired part of the policy period.


• Prenuptial Agreement
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.


• Pretax Operating Income
Pretax operating earnings before any capital gains generated from underwriting, investment and other miscellaneous operating sources.


• Pretax Return on Revenue
A measure of a company's operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.


• Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the company's annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.


• Principal
In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.


• Probate
The court-supervised process in which a decedent's estate is settled and distributed.


• Profit
The excess of returns over expenditure in a transaction or series of transactions.


• Profit-Sharing Plan
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees' accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.


• Prospectus
A document provided by investment companies to prospective investors. The prospectus gives information needed by investors to make informed decisions prior to investing in a specific mutual fund, variable annuity, or variable universal life insurance. The prospectus includes information on the minimum investment amount, the investment company's objectives, past performance, risk level, sales charges, management fees, and any other expense information about the investment company, as well as a description of the services provided to investors in the investment company.


• Protected Cell Company (PCC)
A PCC is a single legal entity that operates segregated accounts, or cells, each of which is legally protected from the liabilities of the company's other accounts. An individual client's account is insulated from the gains and losses of other accounts, such that the PCC sponsor and each client are protected against liquidation activities by creditors in the event of insolvency of another client.

Q
• Qualified Domestic Relations Order (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee's ERISA retirement plan accrued benefits be divided between the employee and the spouse.


• Qualified High-Deductible Health Plan
A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.


• Qualified Retirement Plan
A pension, profit-sharing or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.


• Qualified Versus Non-Qualified Policies
Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.


• Qualifying Event
An occurrence that triggers an insured's protection.


• Quick Assets
Assets that are quickly convertible into cash.

R
• Re-Entry
Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability


• Reciprocal Insurance Exchange
An unincorporated group of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.


• Reinsurance
In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.


• Reinsurance Ceded
The unit of insurance transferred to a reinsurer by a ceding company.


• Renewal
The automatic re-establishment of in-force status as a result of payment of another premium.


• Replacement Cost
The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.


• Reserve
An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.


• Residual Benefit
In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.


• Revocable Trust
A trust in which the creator reserves the right to modify or terminate the trust.


• Risk Class
Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.


• Risk Management
Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.


• Risk-Averse
Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.


• Rollover
A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.


• Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.

S
• Secondary Market
The secondary market is populated by buyers willing to pay what they determine to be fair market value.


• Section 1035 Exchange
This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.


• Section 7702
Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.


• Security
Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).


• Separate Account
A separate account is an investment option that is maintained separately from an insurer's general account. Investment risk associated with separate-account investments is born by the contract owner.


• Simplified Employee Pension Plan (SEP)
A type of plan under which the employer contributes to an employee's IRA. Contributions may be made up to a certain limit and are immediately vested.


• Single-Life Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.


• Solvency
Having sufficient assets--capital, surplus and reserves -- and being able to satisfy financial requirements -- investments, annual reports and examinations – to be eligible to transact insurance business and meet liabilities.


• Split-Dollar Plan
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.


• Spousal IRA
An IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that could be made each year to an IRA and a spousal IRA was $10,000 in 2010 or 100 percent of earned income, whichever is less. The total may be split between the two IRAs as the couple wishes, provided that the contribution to either IRA does not exceed the maximum annual contribution limit ($5,000 in 2010).


• State of Domicile
The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state's insurance statutes for those lines of business for which it qualifies.


• Statutory Reserve
A reserve, either specific or general, required by law


• Stock Insurance Company
An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.


• Stop Loss
Any provision in a policy designed to cut off an insurer's losses at a given point.


• Subaccount Charge
The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.


• Subrogation
The right of an insurer whon has taken over another's loss also to take over the other person's right to persue remedies against a third party.


• Successive Periods
In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.


• Surplus
The amount by which assets exceed liabilities.


• Surrender Charge
Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.


• Surrender Period
A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.

T
• Tax Bracket
The range of taxable income that is taxed at a certain rate. Brackets are expressed by their marginal rate.


• Tax Credit
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.


• Tax Deferred
Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.


• Tax-Exempt Bonds
Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes. If you sell a tax-exempt bond at a profit, you could incur capital gains taxes. Some tax-exempt bond interest could be subject to the federal alternative minimum tax. The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost.


• Taxable Income
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.


• Technical Analysis
An approach to investing in stocks in which a stock's past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock's future performance.


• Tenancy in Common
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to the designated beneficiaries and not to the surviving owner or owners.


• Term Insurance
Term life insurance provides a death benefit if the insured dies. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age.


• Term Life Insurance
Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years, and 20 years, or until the insured reaches age 65 or 70. The policy doesn't build up any of the nonforfeiture values associated with whole life policies.


• Testamentary Trust
A trust established by a will that takes effect upon death.


• Testator
One who has made a will or who dies having left a will.


• Tort
A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.


• Total Loss
A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.


• Total Return
The total of all earnings from a given investment, including dividends, interest, and any capital gain.


• Trust
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include: Testamentary Trust – A trust established by a will that takes effect upon death; Living Trust – A trust created by a person during his or her lifetime; Revocable Trust – A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust – A trust that may not be modified or terminated by the grantor after its creation.


• Trustee
An individual or institution appointed to administer a trust for its beneficiaries.


• Trustee-to-Trustee Transfer
A method of transferring retirement plan assets from one employer's plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.

U
• Underwriter
The individual trained in evaluating risks and determining rates and coverage for them. Also, an insurer.


• Underwriting
The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.


• Underwriting Expense Ratio
This represents the percentage of a company's net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense ratios. For example, boiler and machinery insurance, which requires a corps of skilled inspectors, is a high expense ratio line. On the other hand, expense ratios are usually low on group health insurance.


• Underwriting Expenses Incurred
Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.


• Underwriting Guide
Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.


• Unearned Premiums
That part of the premium applicable to the unexpired part of the policy period.


• Universal Life Insurance
A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred at current interest rates. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy.


• Usual, Customary and Reasonable Fees
An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.


• Utilization
How much a covered group uses a particular health plan or program.

V
• Valuation
A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.


• Valuation Reserve
A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.


• Variable Annuitization
The act of converting a variable annuity from the accumulation phase to the payout phase.


• Variable Life Insurance
A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.


• Variable Universal Life Insurance
A type of life insurance that combines a death benefit with an investment element that accumulates tax deferred. The account value can be allocated into a variety of investment subaccounts. The investment return and principal value of the variable subaccounts will fluctuate; thus, the policy's account value, and possibly the death benefit, will be determined by the performance of the chosen subaccounts and is not guaranteed. Withdrawals may be subject to surrender charges and are taxable if the account owner withdraws more than his or her basis in the policy. Policy loans or withdrawals will reduce the policy's cash value and death benefit and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy.


• Viatical Settlement Provider
Someone who serves as a sales agent, but does not actually purchase policies.


• Viator
The terminally ill person who sells his or her life insurance policy.


• Volatility
The range of price swings of a security or market over time.

W
• Waiting Period
See "elimination period."


• Waiver of Premium
A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the insured is disabled.


• Welfare Benefit Plan
An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits.


• Whole Life Insurance
A type of life insurance that offers a death benefit and also accumulates cash value tax deferred at fixed interest rates. Whole life insurance policies generally have a fixed annual premium that does not rise over the duration of the policy. Whole life insurance is also referred to as "ordinary" or "straight" life insurance. Policy loans will reduce the cash value by the amount of any outstanding loan balance plus interest.


• Will
A legal document that declares a person's wishes concerning the disposition of property, the guardianship of his or her children, and the administration of the estate after his or her death.

Y
• Yield
Generally, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.


• Yield on Invested Assets (IRIS)
Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average return on a company's invested assets. This ratio is before capital gains/losses and income taxes.

Z
• Zero-Coupon Bond
This type of bond makes no periodic interest payments but instead is sold at a steep discount from its face value. Bondholders receive the face value of their bonds when they mature.