Glossary

Adjusted Gross Income (AGI)

One figure used in the calculation of income tax liability. AGI is determined by subtracting allowable adjustments from gross income.

Beneficiary

The person or entity who will receive benefits from a life insurance policy, qualified retirement plan, annuity, trust, or will upon the death of an individual.

Buy-Sell Agreement

A legal contract that provides for the purchase of all outstanding shares from a business owner who wishes to sell, wants to terminate involvement, is permanently disabled, or has died. Buy-sell agreements are often funded with life insurance.

Claim

A request for payment under the terms of an insurance policy.

COBRA

A federal law that requires group health plans sponsored by employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for a specified period at the employees’ expense.

Coinsurance or Co-Payment

A policy provision under which an insurance company and the insured party share the total cost of covered medical services after the policy’s deductible has been met.

Convertible Term Insurance

A term life insurance policy under which the policyholder has the right to convert the policy to permanent life insurance, subject to limitations. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Credit Score

A statistical estimation of how likely a potential borrower is to pay his or her debts and, by extension, how much credit he or she should have.

Disability Income Insurance

An insurance policy that pays a portion of the insured’s income when a specified disability makes working uncomfortable, painful, or impossible.

First-to-Die Life Insurance

Joint life insurance taken out on the lives of two or more people that pays its death benefit when the first insured person dies.

Group Life Insurance

Life insurance that insures all the members of a specific group, most often the employees of a specific company or the members of a professional association.

Health Savings Account (HSA)

An account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes. Unlike Flexible Spending Accounts (FSAs), funds can be rolled over from year to year if not spent.

Key Person Insurance

Company-owned insurance designed to cover the cost of replacing a key employee if he or she were to die or become disabled.

Life Insurance

A contract under which an insurance company promises, in exchange for premiums, to pay a set benefit when the policyholder dies. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Long-Term-Care Insurance

Insurance that covers the cost of medical and non-medical services needed by those who have a chronic illness or disability—most commonly associated with aging. Long-term-care insurance can cover the cost of nursing home care, in-home assistance, assisted living, and adult day care.

Medicaid

The federal government’s health program for eligible individuals and families with low income and resources. It is means tested, meaning those who apply for benefits must demonstrate they have need.

Medicare

The federal government’s health program for individuals aged 65 and over and for individuals who have certain disabilities or end-stage renal disease.

Net Income

A company’s total revenues minus its costs, expenses, and taxes. Net income is the bottom line of a company’s income statement (which may also be called the profit and loss statement).

old-Age, Survivors, and Disability Insurance (OASDI)

The official name of the Social Security program. In addition to retirement benefits, it offers disability income, veterans’ pensions, public housing, and food stamps.

permanent Life Insurance

A class of life insurance policies that do not expire—as long as premiums are kept current—and which combine a death benefit with a savings component. This savings portion can accumulate a cash value against which the policy owner may be able to borrow funds. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

policy Loan

A loan made by an insurance company to a policyholder. Policy loans are secured by the cash value of a life insurance policy. Withdrawals of earnings are fully taxable at ordinary income tax rates. If you are under age 59½ when you make the withdrawal, you may also be subject to a 10% federal income tax penalty. Also, withdrawals may reduce the benefits and value of the contract.

Policy Rider

A provision to a life insurance policy that is purchased separately from the basic policy and that provides additional benefits at additional cost.

policyholder

The person or entity who holds an insurance policy; usually the client in whose name an insurance policy is written.

split-Dollar Plan

An arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.

Split-Dollar Life Insurance

An arrangement under which a life insurance policy’s premium, cash values, and death benefit are split between two parties—usually a corporation and a key employee or executive. Under such an arrangement an employer may own the policy and pay the premiums and give a key employee or executive the right to name the recipient of the death benefit. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

taxable Income

A taxpayer’s gross income, minus any adjustments, itemized deductions or the standard deduction, and personal exemptions. Taxable income is used to compute tax liability.

term Insurance

Life insurance that provides coverage for a specific period. If the policyholder dies during that time, his or her beneficiaries receive the benefit from the policy. If the policyholder outlives the term of the policy, it is no longer in effect. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

uniform Gift to Minors Act (UGMA)

An act available in some states that allows assets to be held in a custodian’s name for the benefit of a minor without the need to set up a trust. Once the child to whom the assets have been gifted reaches the age of maturity in his or her state, the assets become his or her property and can be used for any purpose.

universal Life Insurance

Permanent life insurance that allows the policyholder to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax deferred. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantee

variable Universal Life Insurance

Permanent life insurance that allows the policyholder to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax deferred. Within certain limits, policyholders can direct how this cash value will be allocated among subaccounts offered within the policy. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Whole Life Insurance

Permanent life insurance with fixed premiums and death benefit. Whole life insurance policies accumulate cash value which grows tax deferred. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.