Glossary Index

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Financial & Insurance Glossary, A to Z


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A

Accident An unpredictable event that is out of control, external and violent.

ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE (AD&D) A form of insurance where a benefit is paid upon the death of the insured when the cause of death is from accidental means or in the event of an accidental bodily injury (e.g., loss of an arm).

ACCIDENTAL DEATH BENEFIT Life insurance policies can contain a rider that pays an additional death benefit to the beneficiary in the event that the insured's death occurs as the result of an accident.

ACCOUNT VALUE The amount in a cash value life insurance policy that earns interest. When the surrender charge is deducted from the account value, the remainder is the cash surrender value.

Accumulation plan An arrangement which enables an investor to purchase mutual fund shares regularly in large or small amounts

Adjustable amount contracts Contracts that are linked to a separate fund . The coverage provided in this type of contract is expressed in percentage rather than figures because it follows the evolution of the fund assets

Adjusted Cost basis(Insurance Contract) The basic value of a contract from which the earned income will be computed

ADJUSTABLE LIFE INSURANCE See universal life insurance.

ADVANCED PREMIUMS Premiums paid by the policyowner prior to the premium due date. For paying the premiums in advance, the insurance company offers a discount.

ALPHA COEFFICIENT A measure of the contribution that a portfolio manager makes to the performance of an investment portfolio, i.e., performance over and above that which can be attributed to general market performance. If the alpha is positive, it points to evidence of superior performance. If the alpha is negative, there is evidence of inferior performance. If the alpha hovers around zero, it shows that the portfolio manager has matched the market.

Analysis of Financial Needs Specialized method that makes it possible to sum up a person's personal, family and professional financial situation at a given time and then to specify short, mid and long term objectives.

ANNUITANT The person who benefit payments for the annuity are based and who receives or will receive the income benefit from an annuity.

ANNUITIZED The change of a deferred annuity from the accumulation phase to the distribution phase in which the income benefit begins to be paid.

ANNUITY Series of equal payments made for a specified number of time periods(annual RRSP contribution of pension benefits). If payments occur at the end of each period, it is called an odinary annuity; if payments are made at the beggining of each period, it is called an annuity due.

ANNUITY DUE A series of payments of equal amounts paid at the beginning of each period. The periods may be monthly, quarterly or annually.

ANNUAL RENEWABLE TERM (ART) A form of term life insurance policy that provides a one year of coverage. At the end of the one-year period, the policy may be renewed at the desecration of the policy owner for another one-year period. The premiums on the new policy will be increased to reflect the fact that the age of the insured has also increased by one year. Also see Life Product Comparison, and Personal Finance 101: Term Insurance .

Anticipated Benefit Payment This disability option makes it possible to reduce the elimination or waiting period to one day if the insured sustains an accident or is hospitalized following a sickness that overtakes the insured quickly

APPLICATION FOR LIFE INSURANCE A written form that is completed about the proposed insured, policyowner, beneficiaries and contains information on the health of the proposed insured, reason for the insurance and other information needed for the underwriting process and to issue the policy. Note: Falsification or nondisclosure of information may give the insurance company grounds for rescinding a policy that has been issued.

APPLIED TO REDUCE PREMIUMS A dividend option that uses the policy dividends to reduce the premium payment.

ASK PRICE The last or closing price at which someone offered to sell a given security. Also see Bid Price.

Asset A property owned by a company or an individual

ASSET ALLOCATION The way investments are allocated (distributed and weighted) among different types of investment vehicles. The objective of asset allocation is to diversify risk while obtaining the greatest possible return consistent with the investor's risk tolerance.

Association des Intermediaries en Assurance de Personnes Du Quebec(AIAPQ) The main function is to ensure the protection of the public by upholding the discipline of its members.

ASSUMPTION REINSURANCE A form of reinsurance where a block of business is assumed in its entirety by another insurance company. The effect is to transfer the risk from one insurance company to another.

At Par Expression used when a security trades at its stated face Value(for example sold or bought "at par"

ATTENDING PHYSICIAN STATEMENT A statement prepared by the physician or other medical professional of the proposed insured. It contains information related to the treatment of the proposed insured. This statement is used in the underwriting process for life or health insurance policies.

Automatic premium loan This provision is especially useful when the premium remains unpaid at the end of the grace period. Automatic premium keeps the insurance in force under agreed condition thanks to the cash value.

B

Back-End Load A sales charge levied when mutual fund units are redeemed

Balanced funds A mutual fund which has an investment policy of "balancing" its portfolio, generally by including bonds and shares in varying proportions influenced by the fund's investment outlook.

Bank Rate The rate at which the bank of Canada makes short-term loans to chartered banks and other financial institutions, and the benchmark for prime rate set by financial institutions.

Bear Market A declining financial market.

BENEFICIARY The designation by the policyowner indicating who will receive the proceeds paid upon the insured's death or when an endowment matures. The beneficiary may be anyone with an insurable risk including a relative, non-relative, charity, corporation, partnership or a trust. Also see insurable interest. The main types of beneficiaries:

Irrevocable Beneficiary, Primary Beneficiary, and Secondary Beneficiary.

BENEFIT A monetary payment or series of payments from the insurance company in settlement of a loss for which the insurance company received a premium.

BETA COEFFICIENT A relative measure of risk to a market benchmark (e.g., S&P 500 average). A beta of 1.0 means that for every 1% change in the market, an individual security or investment will likely move 1%. The higher the beta, the greater the risk than that of the market benchmark. A beta, for example, of 1.5 indicates that an investment's returns will likely be 1.5 times as volatile as the general market's returns. A beta of .92, on the other hand, means that an investment would be expected to drop 8% less than that of the benchmark and rise 8% less than the benchmark. A negative beta indicates that an investment is likely to move in the opposite direction of the benchmark.

BID PRICE The last or closing price at which someone was willing to buy a given security. Also see Ask Price.

Blue Chip A descriptive term usually applied to high grade equity securities

Bond A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.

Bond Fund A mutual fund whose portfolio of consists primarily of bonds.

Book Value The Value of net assets that belong to a company's shareholders, as stated on the balance sheet.

Bull Market An advancing financial Market.

Business Interruption insurance This Disability coverage is intended to replace requisite expenses for maintaining the operations of a business or office when an accident or sickness disables the insured.

BUSINESS LIFE INSURANCE Life insurance coverage designed to meet the needs of business owners, small businesses and professional practices.

Buying on Margin Purchasing a security partly with borrowed money. Business Overhead Expense see Business Interruption Insurance

BROKER - See: DAVID PHILIP GLADSTONE

C

CAFETERIA PLAN An employee benefit structure where by the employee may choose their own combination of benefits that best meet their individual needs.

CALL PROVISION A bond provision that allows the bond issuer to redeem the bond prior to the bond's maturity date. If the bond states that this provision can be exercised after a given number of years, or at a price greater then the par value, or that the bond is not callable, the bond is said to have call protection.

CALL RISK A form of investment risk that a bond may be called, or redeemed prior to maturity, and that the investor will be unable to reinvest the principle for the same or a higher rate of return. This risk increases when interest rates are falling and it becomes more attractive for the bond issuer to call their bonds with the higher interest rates and issue new bonds with a lower interest rate. Most bonds that do have a call provision have some protection for a specified number of years.

Canadian Employment and immigration commision(CEIC) The CEIC provides for the payment of benefits following injury or sickness that prevent a wage-earner from carrying out his or her duties.

Canadian Life and Health Insurance Association(CLHIA) CLHIA has information centre where bother consumers and intermediaries can obtain information on insurance contracts and on the companies themselves.

Canadian Life And Health Insurance Compensation Corporation(COMCORP) Its role is to manage the compensation fund, should one of its member corporation become insolvent, and ensures protection for policyholders against the loss of the benefits provided for under their contracts, up to certain limits.

Canada Deposit Insurance Corporation(CDIC) This Federal organization is to protect the funds of depositors in member institutions.

Cancellable contract The insurer reserves the right to make future modifications to the premiums and coverage

Capital cost allowance A taxation term. Equivalent to depreciation, that makes allowance for the wearing way of a fixed asset.

Capital gain Profit that is gained from the sale of real estate, securities, or another capital asset.

CAPITAL RISK A form of investment risk that the investor may lose all of part of the capital invested.

CARRIER The insurance company that underwrites and issues the insurance policy. The insurance company is said to carry the risk for the policyowner.

CASH REFUND ANNUITY An annuity contract which pays the income benefit for the life of the annuitant and in the event that the annuitant dies prior to the income received equaling the premiums paid, the beneficiary will receive the difference in a lump sum payment. In this form of annuity the insurance guarantees to return at least the amount of the premiums to the annuitant or to his or her beneficiary.

CASH SURRENDER VALUE The amount that the policyowner is entitled to upon surrendering a cash value life insurance policy. The amount is determined by taking the account value of the policy and deducting any surrender charge or any outstanding policy loan and interest thereon. Also see nonforfeiture provision and Life Product Comparison.

CASH VALUE LIFE INSURANCE This is a class of life insurance that develops a cash value. Cash value policies have a premium that are generally higher then term insurance in early years and a lower in later years. This additional premium is accumulated inside the policy at an interest rate and is tax preferenced. It is also referred to as permanent insurance because it is designed to remain inforce for an individual's full life. This is compared to term insurance which becomes prohibitively expensive at older ages. These variations are as follows:

Interest Sensitive Whole Life, Universal Life Insurance, Universal Variable Life Insurance, Variable Whole Life Insurance and, Whole Life Insurance.

CERTIFICATE OF DEPOSIT (CD) A certificate issued by a bank, savings and loan association or other financial institution indicating that a specific dollar amount has been deposited with the institution for a fixed period of time at a predetermined rate of interest.

CERTIFIED FINANCIAL PLANNER (CFP) A professional designation of the College For Financial Planning that is earned by passing examinations. The examinations include insurance, investments, taxation, employee benefit plans and estate planning.

Chartered Life Underwriter A 36 Credit University program in insurance of persons and financial planning leading to the CLU designation

CHILD RIDER A rider on a life insurance policy that provides additional protection for the children of the insured under the original policy.

CLAIMANT The person who submits the claim to the insurance company. COBRA See Consolidated Omnibus Budget Reconciliation Act of 1985 CO-INSURANCE A reinsurance agreement where the reinsuring company essentially accepts an agreed-upon percentage of the liability of a policy. In return, the reinsure receives a proportionally equal share of the premium from that policy.

Commission de la Sante et de la securite du Travail(CSST) CSST protects wage-earners from workplace accidents and occupational diseases.

Commision des valeurs mobilieres du Quebec (CVMQ) It sets the rules for protecting investors in order to promote their confidence in the stock market for the province of Quebec.

Community of property A matrimonial regime used in Quebec before July 1st, 1970. Basically newly married couples could choose the community of property by referring to the articles of the code in their contract.

Compounding The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.

COMPOUND INTEREST The method of computing interest on a principle sum where the interest rate is applied to the original principle and any accumulated interest. Also see simple interest and Simple vs. Compound Interest.

Concealment this act is a voluntary or involuntary omission of a fact or piece of information that may influence the premium rates or the decision to accept the risk.

Coinsurance percentage Once the insured has incurred and assumed the expenses for an amount equal to the deductible, his or her contract may stipulate an entitlement to a refund at a stated percentage.

CONTINGENT BENEFICIARY See secondary beneficiary.

Conseil des assurances de Personnes Association to promote self-regulation in the insurance industry in the province of Quebec which is made up of Representatives of the AIAPQ and CLHIA.

Consumer Price Index A statistical device that measures the change in the cost of living for consumers. It is used to illustrate the extent that prices have risen or the amount of inflation that has taken place.

Conversion Privilege Policy owners may convert term insurance into permanent insurance without proof insurability.

CONVERTIBLE TERM LIFE INSURANCE Some term life policies have the option of converting the policy into a permanent insurance plan regardless of the current health of the insured. Often this option is available during a limited period of time. During this period, the insured does not need to show evidence of insurability to convert the policy. This option is attractive when there is a need for a permanent plan of insurance, but the policy owner can not currently afford the initially higher premiums of a permanent plan.

COORDINATION OF BENEFITS (COB) A provision in a health insurance policy that eliminates duplicate payments when there is coverage under more than one health plan.

COPAYMENT In health insurance, this is the percentage you pay toward the cost of covered services or a flat fee charged by an HMO or other managed care plan for certain services, such as doctors' office visits, hospital stays or prescription drugs.

Cost of Living Adjustment A Disability inflation protection option automatically increases the benefits paid to the insured starting on the first day on which he or she is entitled to it.

CREDITOR LIFE INSURANCE A life insurance policy on the life of a borrower that pays off the balance of the loan in the event the borrower dies. The face amount of the credit life insurance policy decreases as the loan is paid off and generally is a decreasing term policy. The policy can be issued on either an individual or group basis.

D

DAVID PHILIP GLADSTONE - is THE Montreal Consumers' Choice Broker and is highly recommended! David can be reached at The Office: (514) 484-7586, or by eMail, at: dpg@oath.com

DEATH BENEFIT The proceeds which the beneficiary receives upon the death of the insured.

DECREASING TERM LIFE INSURANCE A term life insurance contract where the face amount of the policy decreases over the length of the contract. The premiums on the contract may not decrease. This type of life insurance is often used for mortgage insurance. As the outstanding balance of the mortgage decreases, the protection need may also decreases. Also see Life Product Comparison.

Deductible A Contract guaranteeing the refunding of hospital or medical expenses may stipulate that the insured must have incurred eligible expenses up to stated amount, known as the Deductible.

DEFERRED ANNUITY An annuity contract where consideration is paid in either a single premium or a series of payments and the income benefit is not scheduled to begin until some predetermined date in the future. The scheduled date to begin income benefit payments is greater then one year in the future. Otherwise the annuity would be an immediate annuity.

Deferred Profit Sharing Plan(DPSP) This pension plan makes it possible for the employees to participate in business proceeds by attributing a part of the profits to them.

Defined Benefit Pension Plan This pension is a plan which the benefits provided at retirement time determine the amount of the contributions.

Defined Contribution Pension Plan In this pension plan, the contribution is fixed without regard as to eventual benefits at retirement time such that the annuity will be established according to the accrued funds.

DISABILITY INCOME A health insurance policy that provides payments in the event that insured is unable to work due to illness, sickness or accident.

Distribution Payments to investors by a mutual fund from income or from profit realized from sales of securities.

Diversification The investment in a number of different securities. This reduces the risks inherent in investing.

DIVIDENDS A distribution of the earnings of a corporation paid to the common and preferred stockholders. An amount that is returned to the policyowner by the insurance company on participating policies. The policy dividend from an insurance company is not considered a taxable distribution by the IRS, but as a refund of a portion of the premium paid.

Dividend Fund A mutual Fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates as well as preferred shares.

DIVIDEND OPTIONS Policy dividends on a participating life insurance policies may be used in any of the following ways: Applied to Reduce Premiums, Left on Deposit to Accumulate at Interest, Paid in Cash, Purchase Paid-Up Additions, and Purchase Extended Term Life Insurance.

Dollar Cost Averaging A Principle of investing which entails the use of equal amounts for investments at regular intervals in the hope of reducing average share cost by acquiring more shares in periods of lower securities prices and fewer shares in periods in periods of higher securities.

E

Earned Income see proof of income Wage earner Salary marked on the T4 income tax form Self-Employed Remuneration that an individual earns during a given period in exchange for a service rendered

EDUCATIONAL FUND A fund established to provide for a child's education expenses. Life insurance can be used to provide this fund in the event of the premature death of the wage earner. Also see Creative Uses For Life Insurance: Educational Funding Plans.

EFFECTIVE DATE The date that the insurance coverage begins. Also known as Issue Date.

ELIMINATION PERIOD In a disability income policy, this refers to the number of days before the insured becomes eligible for benefits.

ENDORSEMENT A written agreement that is attached to a policy to add or subtract specific insurance provisions.

ENDOWMENT POLICY A type of life insurance policy that provides a death benefit, of the face amount of the policy, to the beneficiary during the endowment period. If the insured survivors the endowment period, the insured receives the face amount of the policy.

Equity Fund A Mutual fund whose portfolio of which consists primarily of common stocks.

EVIDENCE OF INSURABILITY Proof to the company that the insured's life and or health meets the company's requirements of a reasonable risk and/or class rating. The proof may range from a questionnaire on the application to a complete medical examination. The size of the policy and age of the insured are primary factors in determining which form of proof will be required. Also see underwriting.

ESTATE PLANNING The process of developing a plan that will increase and maintain the financial security of an individual and family by arranging for the conservation and transfer of one's wealth. This process is often accomplished by a team of professionals which may include an attorney, an accountant, a life insurance agent, a trust officer and a financial planner.

Extended Term Insurance the policy is converted into term insurance policy with the same amount as the face amount in force, but for a limited period of time.

F

Face Value The principal amount, or value at maturity, of a debt obligation. Also known as the par value or domination.

Family Income Provides for the payment by the insurer of a monthly income staring from the death of the insured until a stipulated date.

Financial Need It is the difference between an individual's true financial situation and the desired situation for coping with any eventuality, once his or her basic needs have been satisfied.

Financial Objective Financial objectives are aimed to fulfill Financial Needs. Ie. Saving to purchase a property or putting money aside for a child's education.

Financial Planning the setting up and implementation of a financial program over a short, mid and long term period for allowing the investor to attain his or her financial objectives.

FIXED AMOUNT OPTION A type of death benefit settlement option in a life insurance policy that pays the death benefit in a series of fixed amounts. The death benefit is left on deposit with the insurance company and earns interest. The insurance company makes payments of the specified amount until the benefit and interest has been exhausted.

FIXED DOLLAR ANNUITY An annuity contract that guarantees to pay a specific monthly income benefit for a specific period of time or for the life of the annuitant. This amount is paid regardless of changes in the investment returns, mortality experience and expenses of the insurance company.

FREE LOOK PERIOD A right, in most provinces, that allows an insured to have 10 days to examine an insurance policy, and if not satisfied, to return it to the company for a full refund of the initial premium.

Front-End load A sale charge levied on the purchase of mutual funds units.

G

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Accounting principles established by the American Institute of CPAs in the Financial Accounting Standards Board and the Audit Guide for Stock Life Insurance Companies. Also see statutory accounting principles.

GOLDEN HANDSHAKE An executive compensation package that offers additional benefits designed to encourage early retirement.

GRACE PERIOD The period of time, usually 30 or 31, days after the premium due date, where the premiums may still be paid with out interest charges and the policy will remain in force. If the insured dies during the grace period, the beneficiary will receive the death benefit less any premiums that are due.

GRANTOR The person that generally is the person that funds a trust with his or her assets.

Group RRSPs Group RRSPs brings together individual RRSPs of various employees. These funds come from contributions made by the employees and sometimes by the employer.

Guaranteed Future Insurability A Disability option that guarantees the insured's right to increase his or her insurance coverage by units without taking his or her health or occupation into account.

Guaranteed Insurability This guarantee makes it possible to increase an insured's coverage at stated times without any evidence of Insurability.

Guaranteed Investment Certificates(GICs) See Term Deposits

Guaranteed renewable contract The insurer can never modify contract coverage nor refuse to renew the contract

H

HEALTH CARE REIMBURSEMENT ACCOUNT An employee benefit that is allowed under tax law where an account is established that allows you to use pre-tax money to pay for unreimbursed eligible health care expenses. These expenses may include deductibles, copayments and other medical, dental, vision and hearing expenses that aren't covered by a health plan.

Hospitalization Income This disability option allows the insured to receive for instance, $100 for each day of hospitalization up to 12 months and even longer.

I

IMMEDIATE ANNUITY An annuity for which the income benefit begins within a one year period after the payment of a single premium.

Income funds Mutual Funds that invest primarily in fixed-income securities such as bonds, mortgages and preferred shares.

INCONTESTABLE CLAUSE A section of a life insurance policy that states that after the policy has been in force for two years (in most states) the company cannot void it because of misrepresentation or concealment by the insured.

Index funds A mutual fund that matched its portfolio to that of a specific financial market index, with the objective of duplicating the general performance of the market in which it invests.

INFLATION The effect of generally rising prices. The rate of inflation is often measured by the Consumer Price Index or CPI. Inflation is an important factor to consider in evaluating investment alternatives. See Example of the effects of inflation on an investment.

INFLATIONARY RISK A form of investment risk that measures the effect of inflation on an investment. If the after-tax return on an investment is lower then the rate of inflation, the investor will have less purchasing power at the maturity of the investment. Also see inflation.

Inspector General of Financial Institutions(IGFI) An independent agency created by the Quebec Government to regulate and oversee, insurance companies, market intermediaries and deposit institutions.

INSTALLMENT REFUND ANNUITY An annuity contract where if the annuitant dies before receiving an income benefit equal to at least the premiums paid, the beneficiary will receive the difference in installments payments. If the annuitant lives beyond this point, the insurance company will make the income payments for the life of the annuitant and no payments will be made to the beneficiary.

INSURABLE INTEREST This is an important concept in life insurance. At the time a life insurance policy is purchased, there must be an expectation of a monetary loss by the person purchasing the insurance that would result from the death of person that is insured. The insurable interest need not necessarily exist at the time of the death of the insured. An individual has an unlimited insurable interest in his/her own life. An insurable interest may not only exist between family members, like husband and wife, parent and child, but also between business partners, creditor and debtor and employer and employees.

INSURED The person or persons that are covered by an insurance policy.

Intermediaries in insurance of persons Agents or Brokers licensed and qualified to sell life and Health Products in the Province of Quebec

INTEREST RATE RISK A form of investment risk that the investor in an interest bearing investment (e.g., bond or CD) is unable to re-invest the interest at a rate that is as high as the principle is invested in. This risk occurs when interest rates are falling.

International Fund A mutual fund that invests in securities of a number of countries.

Investment Fund A term generally interchangeable with "Mutual Fund."Investment Funds institute of Canada(IFIC) The Mutual Fund industry trade association set up to serve its members, co-operate with regulatory bodies, and protect the interests of the investing public that use mutual funds as a medium for their investments.

IRREVOCABLE BENEFICIARY A beneficiary that can only be changed by the policyowner with the written authorization of the irrevocable beneficiary.

J

JOINT LIFE ANNUITY An annuity contract that provides an income benefit payable until the death of the first of two or more persons. The income benefit is higher then it would be if the benefit was payable on a single life since the payments stop on the first death.

Joint Insurance Life insurance product that covers the life of at least one of two person up to death of one or the other with the option of the face amount being paid on the first death or second death.

JUVENILE LIFE INSURANCE A life insurance policy issued on the life of a minor.

K

KEY PERSON INSURANCE A type of business insurance where the company purchases life insurance on the life of key employees or owners that are important to the success of the business. The business is the owner and beneficiary of the policy. In the event of the premature death of the key employee, the death benefit can be used by the company to ease the transition until a replacement can be found.

L

Law of Large Numbers The analysis of the statistical results of a large number of events of the same nature in a typical population makes it possible to predict the occurrence of this event for an individual with a reasonable degree of certainty.

LEFT ON DEPOSIT TO ACCUMULATE WITH INTEREST A dividend option that leaves the policy dividends with the insurance company to accumulate with interest.

Level Premium decreasing term Face amount undergoes a straight-line decrease over the years but the premium remains level and guaranteed for the duration of the contacts

LIFE ANNUITY CERTAIN An annuity contract that pays an income benefit for the life of the annuitant with a guarantee that a given number of income payments will be made. If the annuitant dies during the guarantee period, the beneficiary will receive the remaining income payments during the guarantee period. If the annuitant dies after the guaranteed number of payments all benefits cease.

LIFE INCOME OPTION A type of death benefit settlement option in a life insurance policy that pays the benefit in the form of an annuity. Payments are made for the life of the beneficiary.

Lifetime Benefits Following an Accident This disability option, the insured will receive stated benefits for the duration of his or her disability caused by an accident even if this extends beyond the expiry date of the contract.

Lifetime Benefits following Sickness This Disability Option, the insured will receive stated benefits for the duration of his or her disability caused by sickness even if this extend beyond the expiry date of the contract.

Life Insurance Marketing And Research Association(LIMRA) It a American Association which most Canadian Insurance belong. It does research and studies on the marketing insurance of persons products.

Life Office Management Association(LOMA) An Association comparable to LIMRA, except that the services it offers relate to administrative aspects of insurers.

LIMITED PARTNERSHIPS A form of business organization where the limited partners are only liable to the extent of the amount of the money that they invested in the partnership. Limited partners are not involved in the management decisions of the business but are entitled to the flow-through of income and expenses for tax purposes.

Liquidity Refers to the ease with which an investment may be converted to cash at a reasonable price.

LIQUIDITY RISK A form of investment risk that an investment may not be able to be sold at a time when cash is needed. Treasury Bonds, for example are publicly traded and have liquidity. Limited partnerships, on the other hand are often not publicly traded and may not have liquidity.

LIVING BENEFITS The benefits of a life insurance policy that are available while the insured is still living. These include: Cash Surrender Value, Policy Loans, and Waiver of Premium.

LIVING TRUST (Inter Vivos) A trust that is created during the grantor's life time by revocablely (the grantor may make changes at any time prior death) transferring property to a trust but retains the power to alter the trust. The trust assets avoid probate and publicity upon the death of the grantor. All assets in the trust are treated as an incomplete gift and do not change the income, estate or gift tax status of the grantor.

LIVING WILL A will that sets forth the testator's desire not to be kept alive on life support machines, should the occasion arise.

Load Commission charged to holders of mutual fund units.

Load funds A mutual fun that charges a commission to purchase its shares.

Loan values Money the insurer advances to the insured in the form of a loan.

Lock-in Income Fund See RRIF

Locked-in Retirement Account When an employee leaves his or her employment and that person participated in a private pension fund, under certain conditions he and she is entitled to transfer the amounts of money accrued in his or he pension fund. This transfer is made into a locked-in retirement account. Same as a locked-in RRSP.

Locked-in RRSP See locked-in retirement account

Long Term Disability Coverage This Group Insurance benefits is payable in case of a illness or accident and covers the insured for "Long Term " Disabilities.

LRA See Lock-in Retirement account

LUMP SUM OPTION A type of death benefit settlement option in a life insurance policy that pays the entire benefit in one payment.

M

Management expense ratio(MER) a measure of the total costs of operating a fund as a percentage of the average total asset.

Marginal tax rate the rate of tax on the last dollar of taxable income.

Market Index A vehicle used to denote trends in securities markets. The most popular in Canada is the Toronto Stock Exchange 300 Composite Index(TSE 300).

MAXIMUM LIFETIME BENEFIT A provision in health insurance policies that sets the most that you are eligible to receive in benefits from the health plan during your lifetime.

MEDICAL EXAMINATION In the underwriting process for life and health insurance, an examination by a physician may be required. The physician is selected by the insurance company and performs the tests that are based on the size of the policy, and the age and health of the proposed insured.

Misrepresentation This act consists in giving, inaccurate information that may influence premium rates or the decision to accept the risk.

Money Market Fund A type of Mutual Fund that invests primarily in treasury bills and other low-risk short-term investments.

Money Purchase pension plan Another term for defined contribution pension plan.

MORBIDITY TABLES Tables constructed by insurance companies and others that provide the probability of illness at a certain age. These tables can have a high degree of accuracy when used for a large number of people. The tables are not very useful to determine if a given individual will become ill.

MORTALITY TABLES Tables constructed by insurance companies and others which provide the probability of death at a certain age. These tables can have a high degree of accuracy when used for a large number of people.

Mortgage Fund A mutual fund that invests in mortgages.

Mortgage Insurance Designed to suit the needs of the mortgage loan.

Mutual Assistance Society Form of voluntary participatory system whereby members of a group, upon payment of contribution, donations or subscriptions reciprocally protect themselves against sickness, accident, death etc.

Mutual Fund An investment entity that pools shareholder or unitholder funds and invests in various securities. The unit or shares are redeemable by the fund on demand by the investor. The value of the underlying assets of the fund influences the current price of units.

MUTUAL INSURANCE COMPANY An insurance company that is owned by its policyowners. Also see stock insurance company and mutualization.

MUTUALIZATION The process where a stock insurance company buys back or retires shares of the company and changes to a mutual insurance company.

N

NET AMOUNT AT RISK In a life insurance policy, this is the difference between the face amount of the policy and the cash value of the policy. It is also known as the pure amount of protection.

Non-Cancellable contract with guaranteed renewability Both premium and coverage are determined at the time of issue.

No-Load fund A mutual fund that does not charge a fee for buying or selling its shares.

NON-QUALIFIED PENSION PLAN A form of retirement plan that does not qualify for federal income tax deduction. These plans inclued: Defered Compensation Pans, and Executive Bonus Plan.

Nonforfeiture rights The Life insurance provision may be expressed in four different ways. Reduced paid-up insurance, extended term insurance, automatic premium loan and loan values.

O

Office of the Superintendent of Financial Institutions Mandate is to regulate and oversee chartered banks, insurance companies, trust companies, loan and investment societies, cooperative credit associations and employer's retirement plans.

OPEN-END INVESTMENT COMPANY See mutual fund. OPEN-ENDED HMO A type of managed care which covers care obtained both in and outside of a network of health care providers. Generally there is a higher level of benefits for in-network care and the care obtained in the network must be coordinated through a primary care physician. These plans are also called point-of-service plans.

OPTION TO PURCHASE ADDITIONAL INSURANCE A rider on a life insurance policy that allows the policyowner to purchase additional amounts of life insurance at stated intervals without providing additional evidence of insurability. Also known as guaranteed increase rider (GIR).

ORDINARY LIFE INSURANCE See whole life insurance.

OUT-OF-POCKET MAXIMUM A provision in health insurance policy that sets a limitation on the most the insured will have to pay toward share of covered medical expenses in a calendar year. This amount is in addition to the deductible, and is subject to the maximum lifetime benefit.

P

PAID IN CASH A dividend option where the policy dividend is paid to the policyowner in cash.

PAR VALUE For investment bonds, the par value of face amount is the amount due at maturity and is the amount on which interest is calculated. For common stocks the par value is an arbitrary dollar value assigned to each share.

PARAMEDICAL EXAMINATION A medical "check up" of a proposed insured for a life or health insurance policy done as part of the underwriting process. The examination is conducted by a medical professional, selected by the insurance company. The examiner is not a physician.

Partial Disability Generally, insured's ability is about 50% of his or her normally performed duties, benefits will be paid to that person for a short period of time(6,12 or 24 months)

PARTICIPATING POLICY (PAR POLICY) A policy that pays a dividend to the policyowner. Generally this type of policy is issued by a mutual insurance company.

Partnership of Acquests a matrimonial regime in which all property possessed by a spouse before the marriage and all other property acquired by him or her thereafter by means of inheritance or donation, are considered to be the personal property of the spouse.

Pension Adjustments An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from the employee's pension plan or deferred profit sharing plan.

Pension Plan A formal arrangement through which the employer, and in most cases the employee, contribute to a fund to provide the employee with a lifetime income after retirement.

Permanent Insurance Life Insurance coverage for which the policyholder pays an annual premium, generally for the life of the insured. This type of policy features a savings component, known as the cash surrender value.

POLICYHOLDER See policyowner.

POLICY LOAN A nonforfeiture provision in cash value life insurance policies where the policyowner may borrow from the cash value of the policy. The interest rate that is charged on such a loan is usually significantly lower then borrowing from a bank. Because this loan can not be turned down by the insurance company, it may be wise to use this type of loan for conditions where other sources of borrowing are no longer available. If the insured dies before the loan is repaid, the loan plus any interest will be deducted from the death benefit.

POLICYOWNER The person who has the right to make changes guaranteed by the policy. The policyowner may or may not be the person covered by the insurance policy.

POWER OF ATTORNEY A written instrument which empowers an individual to act on the behalf of another individual. The scope of the attorney's power may vary from being very specific ("only to execute a specific contract for me") to being virtually unlimited ("to do anything I am legally able to do").

PREAUTHORIZED CHECK (PAC) The process where an insurance company is authorized by the policyowner to automatically deduct from the policy owner's checking account for the amount of the insurance premiums. Generally the premiums are paid on a monthly basis.

Preexisting condition A medical condition which manifest before a policy is in force.

PREMIUM The amount of money paid to the insurance company in return for insurance protection. Typically, a premium is payable once a year for the next year's insurance coverage. Other modes of payment may include monthly, quarterly, semiannual or a single premium payment. Also see Life Product Comparison.

Premium Refunds This disability option allows the insured to have refunded to him or her the premiums paid at predetermined dates, if he or she has not files claims in excess of a given percentage of the premiums during the set period.

Prescribed Annuity An Annuity is said to be prescribed when it is subject to specific taxation rules: interest income is uniformly taxed throughout the annuity's entire effective period.

Presumptive Total Disability The total loss resulting from disease or injury of one of the following organs or limbs: speech, hearing in both ears; eyesight in both eyes; use of both eyes; the use of both hands or both feet; use of the two limbs

PRIMARY BENEFICIARY The first beneficiary named to receive the proceeds of the life insurance policy. The primary beneficiary must be alive at the death of the insured in order to collect. In the event that the primary beneficiary dies prior to the insured, the proceeds are paid to the secondary beneficiary.

PROBATE The process whereby the will of a deceased is tested for validity in a court. This can be a time consuming and expensive process. The process can be reduced or eliminated through proper estate planning.

PROFESSIONAL DESIGNATION The following are some of the more common professional designations in the financial service industry:

Prospectus The document by which a corporation or other legal entity offers a new issue of securities to the public.

PROVIDER In health insurance, it refers to an eligible doctor, specialist, hospital, laboratory or other health professional (such as a chiropractor) or facility which provides health care services.

PURCHASE PAID-UP ADDITIONS A dividend option that uses the policy dividend to purchase paid-up policies on the life of the insured. The amount of the policy will depend on the amount of the dividend and the age of the insured.

PURCHASING POWER RISK See inflationary risk .

Q

Quebec Stock Savings Plan(QSSP) This tax shelter's main purpose is to increase the capitalization of small and medium sized Quebec Businesses.

R

RATE BANDS A structure of life insurance premiums that provides for lower premium rates per dollar of coverage for larger policies. This structure reflects the additional economy of scale of writing a larger policy.

REAL ESTATE INVESTMENT TRUST (REIT) A publicly traded company that buys and manages a portfolio of properties or mortgages, or a combination of both.

Reduce Paid-up Insurance This involves the conversion of the policy into an insurance contract with reduced amount and freed from premium payments.

Regie de l'assurance-maladie du Quebec (RAMQ) RAMQ adminsters public health services provided in and outside Quebec.

Regie des rented du Quebec (RRQ) RRQ provides the payment of a disability pension for anyone it deems to be disabled.

Regie de l'assurance-depot du Quebec(RADQ) Quebec has its own deposit insurance plan which covers deposits made in Quebec in member institutions incorporated under provincial legislation.

Registered Educational Savings Plan(RESP) a plan that enables a contributor, on a tax deferral basis, to accumulate assets on behalf of a beneficiary to pay , for post secondary education.

Registered Life Underwriter(RLU) AIAPQ provides professional training courses that lead to the RLU Designation

REINSTATEMENT The restoration of a lapsed life or health insurance policy. The life insurance company may require evidence of insurability and the payment of past due premiums plus interest.

REINSURANCE A form of insurance that insurance companies purchase from other insurance companies. This is done to reduce the possible maximum loss on either an individual risk or a group of risks. There are several forms of reinsurance, including: 1.Coinsurance, 2.Modified Coinsurance, and 3.Yearly Renewable Term.

REINVESTMENT RISK See interest rate risk.

REIT See Real Estate Investment Trust.

RENEWABLE TERM LIFE INSURANCE A term insurance policy where the insured has the option to renew the coverage without taking a new medical examination. The insurance is renewed at a rate that does not reflect the current physical condition of the insured. The premiums do reflect the insured's current age at the time of each renewal. Also see Life Product Comparison.

Residual Disability Related to a decrease in income due to disability. Benefits will be paid for as long as the residual disability persists or until the limit provided in the contract.

Retirement Coverage This type of contract was designed to counteract the financial loss of retirement income that an insured may sustain if he or she becomes disabled and can no longer contribute to an RRSP.

Return It is the yield on funds invested for a given period. It represents income earned in one form or another : interest, dividends, tax credits or capital gains.

RIDERS Additions or modification to the coverage of an insurance policy. The more common life insurance policy riders are as follows: Accidental Death Benefit, Cost-of Living Adjustment, Other Insured: Child Rider, Spouse Rider, Option to Purchase Additional Insurance, Return of Cash Value, Transfer of Insured, and Waiver of Premium.

Risk It is the possibility of a variation in the return of a product.

RISK TOLERANCE A measurement of the amount of investment risk that an individual is willing to assume. This amount of risk may change for an individual as their personal and economic situation changes.

RRIF A registered retirement income fund is a contract for when the RRSP terminated and the funds are withdrawn.

RRSP An Investment contract made for savings purposes and is registered with both the federal and provincial governments. It is a tax shelter. Outstanding taxes are merely put off until later.

RULE OF 72 A very easy method of estimating the number of years it takes for an investment's value to double at a specific interest rate or rate of return. For a complete explanation see Rule of 72 in Personal Finance 101:

S

Sales Charge See Load

Savings bonds Nominal debt investments that are issued payable to the owner by the federal and provincial governments.

SECONDARY BENEFICIARY The beneficiary named to receive the proceeds of the policy in the event that the primary beneficiary does not survive the insured.

SELECTION RISK A form of investment risk that the investor may have selected the wrong company that is part of an industry that is expected to outperform.

Self-Administered RRSPs An investor puts his or her money into a personal plan administered by an authorized institution that can assist the investor in choosing his investment vehicles.

Separation of property A matrimonial regime in which each spouse maintains the administration, enjoyment and disposal of all his or her property.

SETTLEMENT OPTIONS FOR LIFE INSURANCE Life Insurance policies offer different options as to how the death benefit will be paid. The policy owner may specify an option or leave it to the discretion of the beneficiary. The beneficiary may also select an alternative option if the policy owner specified a lump sum payment. The most common settlement options in a life insurance policy are as follows: Fixed Amount Option, Fixed Period Option, Life Income Option, and Lump Sum Option.

Shares in Quebec Business Investment Companies (QBIC) This plan was also designed by the Quebec Government to promote capitalization in small and medium-sized Quebec Businesses that are not quoted on the Stock exchange.

Sharing of Risk Insurance is based on a system whereby all insured persons share a risk.

Short Term Weekly Indemnity Coverage This Group Insurance Benefit is payable in the event that an accident or sickness makes the employee unable to work. Usual the benefit is considered to be "Short Term".

Sickness An event that first manifests itself and causes disability.

SIMPLE INTEREST The method of computing interest on a principle sum where the interest rate is applied only to the original principal amount in computing the amount of interest. Also see compound interest and Simple vs. Compount Interest.

Simplified Prospectus An abbreviated and simplied prospectus distributed by Mutual Funds or purchasers and potential purchasers of units or shares.(see prospectus)

Societe de l'assurance automobile du Quebec(SAAQ) SAAQ is to indemnify victims of automobile accidents.

SPLIT DOLLAR A form of business insurance that allows an employer to help employees obtain insurance protection at a cost that is less than if purchased personally by employees with after tax dollars.

Spousal RRSP A Registered retirement savings contract that is made out in the name of the spouse, for the purpose of splitting income and allowing the spouse-taxpayer to take full advantage of authorized tax deductions.

SPOUSE RIDER A rider on a life insurance policy that provides additional protection on the life of the spouse of the insured on the same policy.

Stockbrokers A generic term "securities" encompasses a wide range of commercial papers that may or may not be listed on the Stock Exchanges. Stockbrokers purchase and sell securities for public administrations and companies either on their own behalf or for their clientele.

Stock Exchange A place where purchasers and vendors of financial products meet to negotiate prices and make transactions.

STOCK INSURANCE COMPANY An insurance company that is owned by its stockholders. The shareholders may be a small group of investors, another corporation or a large group of investors where the shares of the company are publicly traded on a stock exchange. Also see mutual insurance company and demutualization.

SUPERANNUATION A situation where a retired individual outlives his or her income and financial resources.

SURRENDER CHARGE A fee that is deducted from the account value of a life insurance policy or annuity contract when the policy or contract is surrendered. These charges generally decrease over time.

SURVIVORSHIP LIFE INSURANCE Also called Joint Life Insurance. This form of life insurance pays a benefit after both of the insureds have died. Survivorship policies are often used in estate planning in order to fund estate taxes after the death of a husband and wife (see marital diduction). It can also be used in business insurance to fund a buy-sell agreement. Also see Life Product Comparison.

T

TAX CREDIT A dollar-for-dollar reduction in the amount of tax that is due. A tax credit is more valuable then a tax deduction of the same amount.

TAX EVASION An illegal action designed to lower or avoid the taxes that one owes.

TAX FREE An investment whose earnings are free from federal income tax. An example of tax free investments are a Municipal Bond.

Term Deposits It is an interest-bearing note, issued by various financial institutions such as banks, caisses populaires, trust companies etc.

TERM LIFE INSURANCE A low-cost form of life insurance that stays in effect for a specific period of time. If the insured dies during the coverage period, the beneficiary will receives the death benefit. If the insured survives the specified time period, the policy expires and the obligations terminate. Term insurance works best when the coverage is needed for only a specific period of time or near-term cost is an overriding factor. In early years, term insurance costs are less then a Whole Life or other cash value policies. Term insurance becomes increasingly expensive as the insured grows older. There are a number of variations of term life insurance. These variations are as follows:

Term to "100" Level premium whole life type insurance providing coverage to 100 years of age. Premium rates on certain contracts can be adjusted to various intervals. Some products may even have cash value.

THIRD PARTY An individual other than the insured (First Party) or the insurer (Second Party) who has incurred a loss or is entitled to benefit payments that have resulted form the actions of the insured.

TIMING RISK A form of investment risk that the investor may buy or sell an investment at the wrong time.

Total Disability Unable to perform the duties of his or her occupation for a stated period of time and not being engaged in another gainful employment. Or The insured must be unable ,as a direct result of an injury or sickness, to perform the main duties of his or her usual occupation and not be engaged in another gainful employment

TREASURY BILL A marketable, short-term Government debt security issued at a discount from par value with maturates ranging form 90 days to one year.

U

UNDERWRITING The process by which an insurance company accepts or rejects and classifies a risk in order to charge the proper premium. This process is performed in an insurance company by an underwriter. In life and health insurance, the process may involve review of the application, and inspection report, attending physician statement, and depending on the size of the policy and the age of the proposed insured, a paramedical or medical examination. Underwriting may also take the form of financial underwriting. This is more important in business insurance, large face amount policies and disability income policies.

Unprescribed Annuity the annuitant is deemed to receive the interest first and the invested amount afterwards. See Prescribed Annuity.

Universal Life insurance A life insurance term policy that is renewed each year and which has both an insurance component and an investment component.

V

VANISHING PREMIUM On many forms of cash value life insurance the premiums can "vanish" or be discontinued. The premium can vanish when the cash accumulation account (less any policy loans) exceeds the projected net single premium for all the future benefits. It is very important to understand that this calculation is generally based upon current assumptions including interest rates and dividends on par policies. If the interest rates, policy expenses or mortality experience changes, additional premiums may become due in order to maintain the policy.

VARIABLE ANNUITY A type of annuity that allows the annuitant to select a number of different investment alternatives. The annuity proceeds are separated from the investments of the insurance company and are placed in a separate account. The insurance company accepts the mortality risk for the annuitant and guarantees payments for life once the contract is annuitized. Unlike a fixed annuity, the annuitant accepts the investment risk not the insurance company. These products can only be sold by registered representatives . Also see Personal Finance 101: Annuities.

VARIABLE WHOLE LIFE INSURANCE A form of cash value life insurance where the policy values are linked to a portfolio of securities. The portfolio is separated from the investments of the insurance company and held in a separate account. The portfolio is typically a group of mutual funds established by the insurance company that the policyowner may select from. The policyowner may change the mix of funds that his or her account values are invested in. These products can only be sold by registered representatives. Also see Personal Finance 101: Whole Life Insurance and Life Product Comparison.

Vesting(pension terms) the right of an employees to take all or part of the employer's contributions, whether in the form of cash or as a deferred pension.

W

WAITING PERIOD See elimination period.

WAIVER OF PREMIUM A life insurance policy rider that pays the premium on the policy in the event that the insured becomes disabled. Generally there is a waiting period (e.g., six months). The policy remains inforce and the values continue to grow as if the premiums were paid.

WHOLE LIFE INSURANCE A form of cash value life insurance that is designed to remain in force for the life of the insured. The policy generally has a level premium and level death benefit. Modified premium schedules are also available, e.g. '10-pay whole life' and '20-pay whole life'. Also see Personal Finance 101: Whole Life Insurance and Life Product Comparison.

WILL A legal document that outlines how a person wishes to have their property disposed of after their death. In the absence of a will, property will be disposed of in accordance with the intestate statues of the state.

WORKERS COMPENSATION INSURANCE Workers that are injured on the job are entitled to benefits as prescribed by state laws. These benefits may involve income, medical, rehabilitation, death and survivor payments.

Y

YEARLY RENEWABLE TERM (YRT) A type of reinsurance agreement. As the name indicates, it is a one-year agreement renewable annually.