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GLOSSARY OF HELPFUL TERMS

A quick, helpful reference to key financial terms

A Good Financial Life - Financial Organization, Planning, Budgeting

APR (Annual Percentage Rate): Total annual cost for a loan, credit card, or other type or credit. Expressed as an interest rate.

Amortization: The process of reducing a debt by making regular payments of principal and interest until the loan is eventually repaid. Home mortgages are amortized, for example.

Annual Fee: Yearly amount charged to a credit card owner by a creditor. Annual fees are charged regardless of whether or not the credit card is actually used.

Annuity: A contract, typically with an insurance company, where the company agrees to make regular payments to a person for a fixed period, or for life, in exchange for lump sum or monthly payments.

Asset: An item of value that increases net worth. A house is an asset.

Balance: The amount of money held in an account, or the outstanding amount on a loan or credit card.

Balance Sheet: Financial statement showing the financial position of a person or family in terms of assets and liabilities.

Bankruptcy: The process of petitioning a court to discharge a person's debts. Chapter 7 bankruptcy proceedings liquidate assets; Chapter 13 bankruptcy proceedings set up a debt repayment plan.

Beneficiary: Person or persons identified to inherit specific property. The beneficiary of a life insurance policy receives the proceeds when the owner of the policy passes away.

Budget: A plan for spending and saving money, balancing income with expenses.

Capital Gain: The increase in the value of an investment.

Cash Flow: Money flowing into and out of a household. A negative cash flow means more money is spent than is earned; a positive cash flow means more money is earned than is spent.

Cash Value: The savings piece of a whole life, variable life, or universal life insurance policy; the amount for which the policy can be "cashed in".

CD: Certificate of Deposit; a sum deposited with a financial institution for a specified amount of time.

Collateral: An item or assets of value, used to secure a loan. For example, a car may serve as collateral for an auto loan. If payments are not made the item can be seized by the lender in order to recover the debt.

Compound Interest: Interest earned on principal and previously credited interest.

Consolidation Loan: A loan that combines all credit card payments, housing payments, loans, and household bills into one monthly payment.

Consumer Price Index (CPI): A measure of inflation used by the Bureau of Labor Statistics to track changes in prices of goods and services.

Co-signer: A person who agrees to make payments on a loan if the primary borrower fails to do so. Co-signors can make qualifying for a loan easier.

Credit Counseling Agency: An organization (profit or non-profit) that creates and administers debt repayment plans for people having difficulty repaying creditors.

Credit Report: A report issued by a reporting agency showing how a person has used credit in the past.

Elimination Period: The number of days before benefits are paid on certain types of insurance policies, like long-term care or disability.

Estate Tax: Tax on the value of a decedent's taxable estate. The estate is usually defined as assets minus liabilities, including expenses like administration costs and funeral expenses.

Fair Market Value: The amount an item can be sold for on the open market.

Federal Deposit Insurance Corporation (FDIC): Federal agency that insures bank deposits.

Financial Adviser: An individual or company that assesses your financial needs and recommends strategies, investments, etc.

Inflation: The loss of purchasing power over time due to an increase in the cost of goods and services. Often expressed as a rate; if the inflation rate is 3%, purchasing power is reduced by 3%.

Installment Loan: A loan paid back over a specific period of time, typically used to buy items rather than to receive revolving credit. An auto loan is an example of an installment loan; a credit card is not.

Intestate: Dying without a valid will in place

Liability: Money owed by an individual that decreases net worth. A loan is a liability.

Liquidity: The ability to convert an asset to cash quickly without loss of value. A mutual fund is relatively liquid; a home is not.

Long-Term Care Insurance: Insurance that covers the cost of support services like home health care and nursing home care when a person is unable to perform basic activities of daily living such as bathing, eating, and dressing.

Maturity: The date when the principal amount of a bond or CD must be paid to the owner.

Mutual fund: An investment company that pools deposits from shareholders and invests in stocks, bonds, or cash assets.

Net Worth: A person's financial situation, calculated by subtracting debts from assets.

Pension: A retirement savings plan offered by an employer that pays benefits to workers when they retire.

Premium: Fees paid to an insurance company in exchange for protection against risk. Payments made on an insurance policy are considered premiums.

Principal: The original amount of money invested or borrowed.

Probate: Legal process of validating a Will, paying debts, and distributing proceeds to heirs and beneficiaries when someone dies.

Return: Investment gain or loss.

Rollover: Transfer of funds from one retirement savings plan to another while avoiding taxes or penalties.

Secured Debt: Debt backed by collateral. The collateral secures the debt. A car secures the car loan, for example.

Social Security: Government program that provides retirement and disability benefits to workers and dependents.

Taxable Income: Amount of income used to determine tax owed.

Tax-Deferred: Investments not taxed in the current year but taxed at a later date, typically upon withdrawal.

Term Life Insurance: Life insurance policy that pays benefits only if the holder of the policy dies within the period of time covered by that policy.

Trust: A legal instrument granting control of assets to a person or financial institution. Trusts can be revocable or irrevocable and can manage property while the creator is alive (living trust) or following the creator's death (testamentary trust).

Trustee: Person who manages a Trust.

Umbrella Coverage: Additional liability insurance that supplements the coverage of a homeowner or renter policy, or a car insurance policy. Designed to provide additional liability protection.

Unsecured Debt: Debt not secured by collateral. A credit card is an example of unsecured debt.

Vesting: The date when a person is entitled to receive money or benefits from an employer.

Whole Life Insurance: Life insurance policy that combines protection for the life of an insured person and a savings component; the savings component is considered the cash value of the policy.

Will: Legal document specifying what will happen after a person dies.

Withholding: Deduction of federal and state income taxes, Social Security taxes, and other items, from an individual's pay.

Buying a Home

Abstract of title: The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

Acceleration clause: The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.

Accrued items: On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Adjustable-rate mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Affidavit of title: A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title, on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).

Alienation: The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause: The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender's approval.

Amortized loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Annual percentage rate (APR): The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.

Anticipation: The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Appraisal: An estimate of the quantity, quality, or value of something. An appraisal is the process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

Appraiser: An independent person trained to provide an unbiased estimate of value.

Appreciation: An increase in the value of a property due to economic or related causes; may prove to be either temporary or permanent.

Assessment: The imposition of a tax, charge, or levy, usually according to established rates.

Assumption of mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Attorney's opinion of title: An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.

Balance: The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.

Balloon payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Basis: The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

Blanket loan: A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.

Breach of contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Broker: One who acts as an intermediary on behalf of others for a fee or commission.

Building code: Describes an ordinance that specifies minimum standards of construction for buildings in order to protect public safety and health.

Building permit: Written governmental permission for the construction, alteration, or demolition of an improvement; shows compliance with building codes and zoning ordinances.

Buy-down: A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Buyer-agency agreement: A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

Buyer's agent: A residential real estate broker or salesperson who represents the prospective purchaser in a transaction. The buyer's agent owes the buyer/principal the common-law or statutory agency duties.

Buyer's broker: A residential real estate broker who represents prospective buyers exclusively. As the buyer's agent, the broker owes the buyer/principal the common-law or statutory agency duties.

Capital gain: Profit earned from the sale of an asset.

Cash flow: The net income from an investment determined by deducting all operating and fixed expenses from the gross income. If expenses exceed income a negative cash flow results.

Caveat emptor: A Latin phrase that means, "Let the buyer beware."

Certificate of title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of title: The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

Closing: When promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.

Closing statement: Detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made, and all cash paid out in the transaction.

Cloud on title: Refers to any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful. A cloud on title is usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.

Consideration: (1) That received by the grantor in exchange for his or her deed. (2) Something of value that induces a person to enter into a contract.

Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before the/contract becomes binding.

Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Conventional loan: A loan that requires no insurance or guarantee.

Conveyance: A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.

Counteroffer: A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offering party.

Dedication: The voluntary transfer of private property by its owner to the public for some public use, such as for streets or schools.

Deed in lieu of foreclosure: A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.

Deed in trust: An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.

Discount point: A unit of measurement used to describe various loan charges; one point equals 1 percent of the amount of the loan.

Dual agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

Due-on-sale clause: A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

Earnest money: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Eminent domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

Equity: The interest or value that an owner has in property over and above any amount owed.

Escrow: The closing of a transaction through a third party called an escrow agent who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

Escrow account: The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction.

Eviction: A legal process to oust a person from possession of real estate.

Evidence of title: Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration.

External depreciation: Reduction in a property's value caused by outside factors (those that are off the property).

Fair Housing Act: The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin.

Fannie Mae: A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

FHA Loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.

Foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

Freddie Mac: A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

Functional obsolescence: A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Ginnie Mae: A government agency that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.

Graduated-payment mortgage (GPM): A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

Ground lease: A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.

Home equity loan: A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.

Homeowner's insurance policy: A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

Interest: A charge made by a lender for the use of money.

Interim financing: A short-term loan usually made during the construction phase of a building project (in this case often referred to as a construction loan).

Investment: Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits.

Joint and several liability: Each of the individual owners is personally responsible for the total damages.

Joint tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.

Judgment: The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

Judicial precedent: In law, the requirements established by prior court decisions.

Junior lien: An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same realty.

Lease: A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.

Lease option: A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

Lease purchase: The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically used for tax or financing purposes.

Legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Lien: A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

Life estate: An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

Life tenant: A person in possession of a life estate limited partnership. See partnership.

Listing agreement: A contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission.

Listing broker: The listing broker is the broker in a multiple-listing situation from whose office a listing agreement is initiated. The listing broker and the cooperating broker may be the same person.

Loan origination fee: A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Loan-to-value ratio: The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.

Mechanic's lien: A statutory lien created in favor of contractors, laborers, and craftsmen who have performed work or furnished materials in the erection or repair of a building.

Mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt.

Mortgage banker: Mortgage loan companies that originate, service, and sell loans to investors.

Mortgage broker: An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.

Mortgagee: A lender in a mortgage loan transaction.

Mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligations.

Mortgagor: A borrower in a mortgage loan transaction.

Multiple-listing clause: A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

Multiple-listing service (MLS): A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive-agency listings from their member brokers.

Net listing: A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.

Obsolescence: The loss of value due to factors causing a property to be out of date or less useful. Obsolescence can be functional or economic.

Offer and acceptance: Two essential components of a valid contract; a "meeting of the minds."

Open listing: A listing contract under which the broker's commission is contingent on the broker's producing a ready, willing, and able buyer before the property is sold by the seller or another broker.

Power of attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.

Prepaid items: On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer.

Prepayment penalty: A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

Principal: (1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction — the person for whom the agent works.

Private mortgage insurance (PMI): Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Promissory note: A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).

Proration: Expenses that are either prepaid or paid in arrears that are divided or distributed between buyer and seller at the closing.

Rate cap: The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.

REALTOR®: A registered trademark term reserved for the sole use of active members of local REALTOR® boards affiliated with the National Association of REALTORS®.

Recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees.

Rent: A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.

Replacement cost: The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

Straight (term) loan: A loan in which only interest is paid during the term of the loan with the entire principal amount due with the final interest payment.

Survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements.

Tax lien: A charge against property created by operation of law. Tax liens and assessments take priority over all other liens.

Tenancy by the entirety: The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse the survivor becomes the owner of the property.

Tenancy in common: A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.

Tenant: One who holds or possesses lands or tenements by any kind of right or title.

Time is of the essence: A phrase in a contract that requires the performance of a certain act within a stated period of time.

Title: The right to or ownership of land or real property.

Title insurance: A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matters specifically excluded by the policy.

Title search: The examination of public records relating to real estate to determine the current state of the ownership.

Uniform settlement statement: A special HUD form that itemizes all charges to be paid by a borrower and seller in connection with the settlement.

Valid contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

VA loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss.

Wraparound loan: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.

Zoning ordinance: An exercise of police power used by a municipality to regulate and control the character and use of property.

Refinancing a Home

Abstract of title: The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

Acceleration clause: The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.

Accrued items: On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Adjustable-rate mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Affidavit of title: A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title, on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).

Alienation: The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause: The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender's approval.

Amortized loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Annual percentage rate (APR): The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.

Anticipation: The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Appraisal: An estimate of the quantity, quality, or value of something. An appraisal is the process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

Appraiser: An independent person trained to provide an unbiased estimate of value.

Appreciation: An increase in the value of a property due to economic or related causes; may prove to be either temporary or permanent.

Assessment: The imposition of a tax, charge, or levy, usually according to established rates.

Assumption of mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Attorney's opinion of title: An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.

Balance: The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.

Balloon payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Basis: The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

Blanket loan: A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.

Breach of contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Broker: One who acts as an intermediary on behalf of others for a fee or commission.

Building code: Describes an ordinance that specifies minimum standards of construction for buildings in order to protect public safety and health.

Building permit: Written governmental permission for the construction, alteration, or demolition of an improvement; shows compliance with building codes and zoning ordinances.

Buy-down: A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Buyer-agency agreement: A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

Buyer's agent: A residential real estate broker or salesperson who represents the prospective purchaser in a transaction. The buyer's agent owes the buyer/principal the common-law or statutory agency duties.

Buyer's broker: A residential real estate broker who represents prospective buyers exclusively. As the buyer's agent, the broker owes the buyer/principal the common-law or statutory agency duties.

Capital gain: Profit earned from the sale of an asset.

Cash flow: The net income from an investment determined by deducting all operating and fixed expenses from the gross income. If expenses exceed income a negative cash flow results.

Caveat emptor: A Latin phrase that means, "Let the buyer beware."

Certificate of title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of title: The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

Closing: When promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.

Closing statement: Detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made, and all cash paid out in the transaction.

Cloud on title: Refers to any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful. A cloud on title is usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.

Consideration: (1) That received by the grantor in exchange for his or her deed. (2) Something of value that induces a person to enter into a contract.

Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before the/contract becomes binding.

Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Conventional loan: A loan that requires no insurance or guarantee.

Conveyance: A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.

Counteroffer: A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offering party.

Dedication: The voluntary transfer of private property by its owner to the public for some public use, such as for streets or schools.

Deed in lieu of foreclosure: A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.

Deed in trust: An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.

Discount point: A unit of measurement used to describe various loan charges; one point equals 1 percent of the amount of the loan.

Dual agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

Due-on-sale clause: A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

Earnest money: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Eminent domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

Equity: The interest or value that an owner has in property over and above any amount owed.

Escrow: The closing of a transaction through a third party called an escrow agent who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

Escrow account: The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction.

Eviction: A legal process to oust a person from possession of real estate.

Evidence of title: Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration.

External depreciation: Reduction in a property's value caused by outside factors (those that are off the property).

Fair Housing Act: The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin.

Fannie Mae: A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

FHA Loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.

Foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

Freddie Mac: A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

Functional obsolescence: A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Ginnie Mae: A government agency that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.

Graduated-payment mortgage (GPM): A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

Ground lease: A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.

Home equity loan: A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.

Homeowner's insurance policy: A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

Interest: A charge made by a lender for the use of money.

Interim financing: A short-term loan usually made during the construction phase of a building project (in this case often referred to as a construction loan).

Investment: Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits.

Joint and several liability: Each of the individual owners is personally responsible for the total damages.

Joint tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.

Judgment: The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

Judicial precedent: In law, the requirements established by prior court decisions.

Junior lien: An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same realty.

Lease: A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.

Lease option: A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

Lease purchase: The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically used for tax or financing purposes.

Legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Lien: A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

Life estate: An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

Life tenant: A person in possession of a life estate limited partnership. See partnership.

Listing agreement: A contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission.

Listing broker: The listing broker is the broker in a multiple-listing situation from whose office a listing agreement is initiated. The listing broker and the cooperating broker may be the same person.

Loan origination fee: A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Loan-to-value ratio: The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.

Mechanic's lien: A statutory lien created in favor of contractors, laborers, and craftsmen who have performed work or furnished materials in the erection or repair of a building.

Mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt.

Mortgage banker: Mortgage loan companies that originate, service, and sell loans to investors.

Mortgage broker: An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.

Mortgagee: A lender in a mortgage loan transaction.

Mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligations.

Mortgagor: A borrower in a mortgage loan transaction.

Multiple-listing clause: A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

Multiple-listing service (MLS): A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive-agency listings from their member brokers.

Net listing: A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.

Obsolescence: The loss of value due to factors causing a property to be out of date or less useful. Obsolescence can be functional or economic.

Offer and acceptance: Two essential components of a valid contract; a "meeting of the minds."

Open listing: A listing contract under which the broker's commission is contingent on the broker's producing a ready, willing, and able buyer before the property is sold by the seller or another broker.

Power of attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.

Prepaid items: On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer.

Prepayment penalty: A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

Principal: (1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction — the person for whom the agent works.

Private mortgage insurance (PMI): Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Promissory note: A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).

Proration: Expenses that are either prepaid or paid in arrears that are divided or distributed between buyer and seller at the closing.

Rate cap: The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.

REALTOR®: A registered trademark term reserved for the sole use of active members of local REALTOR® boards affiliated with the National Association of REALTORS®.

Recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees.

Rent: A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.

Replacement cost: The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

Straight (term) loan: A loan in which only interest is paid during the term of the loan with the entire principal amount due with the final interest payment.

Survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements.

Tax lien: A charge against property created by operation of law. Tax liens and assessments take priority over all other liens.

Tenancy by the entirety: The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse the survivor becomes the owner of the property.

Tenancy in common: A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.

Tenant: One who holds or possesses lands or tenements by any kind of right or title.

Time is of the essence: A phrase in a contract that requires the performance of a certain act within a stated period of time.

Title: The right to or ownership of land or real property.

Title insurance: A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matters specifically excluded by the policy.

Title search: The examination of public records relating to real estate to determine the current state of the ownership.

Uniform settlement statement: A special HUD form that itemizes all charges to be paid by a borrower and seller in connection with the settlement.

Valid contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

VA loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss.

Wraparound loan: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.

Zoning ordinance: An exercise of police power used by a municipality to regulate and control the character and use of property.

Saving for College

529 Plan: A tax-advantaged investment program designed to help students finance the cost of education. There are two types of 529 Plans: Prepaid tuition plans and college savings plans. All states offer at least one type of 529 Plan. Fees, investment options, restrictions, tax advantages, and other features vary depending on the state.

Administration Fee: The cost of administering a plan. Typically expressed as a percentage; a plan with an expense ratio of 2% charges that amount to your plan, reducing your total return by that amount.

Age-Based Fund Portfolios: College savings plan portfolios that shift or revise asset allocation according to the age of the beneficiary. Typically, age-based portfolios invest mostly in stock funds. As the beneficiary grows older investments are made in more conservative vehicles like bond funds.

American Opportunity Tax Credit: An educational tax credit designed to reduce education costs. This credit is an expanded version of the Hope Credit, is available for four years of college, and can be used to cover expenses for books as well as tuition and fees.

Annual Maintenance Fee: Cost of administering a college savings plan. An annual charge to the account of between $10 and $50 is common.

Annual Rate of Return: The rate of return on the investment, expressed as a percentage of the total amount invested.

Annual Report (Form 10-K): A report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. Public companies are required to file an annual report with the Securities and Exchange Commission (SEC) detailing the preceding year's financial results and plans for the upcoming year. The regulatory version is called Form 10-K.

Asset Allocation: A strategy for maximizing gains while minimizing risks in an investment portfolio. Asset allocation divides assets on a percentage basis among different categories of investments like stocks, bonds, and cash.

Beneficiary: The individual who receives or may become eligible to receive the benefits of a college savings plan.

Bond Fund: Mutual fund that invests in bonds. Some bond funds focus primarily on short-term, intermediate-term, or long-term maturities. Bond funds are sometimes also called fixed-investment funds.

College Savings Plans: A type of 529 Plan allowing investment in various mutual fund portfolios or other investments on a tax-deferred basis. Fund proceeds are used to pay college or graduate school expenses with tax-free withdrawals.

Compounding: The process through which the value of an investment increases over time as interest or dividends are reinvested; additional interest or dividends are paid based on the value of the initial investment plus the accumulated interest or dividends already received.

Coverdell Education Savings Accounts (ESA): College savings plan in which contributions grow on a tax-deferred basis and withdrawals are tax-free only when used to pay for a broad range of educational expenses, including private high school tuition. Unlike a 529 plan, an ESA plan has annual contribution limits and income restrictions.

Custodial Accounts: Accounts created for the benefit of a child. An adult controls the funds until the child reaches the age of majority, at which point ownership of the account transfers to the child.

Custodian: An adult who has control over a custodial account.

Enrollment Fee: A fee assessed at enrollment in a college savings plan. Enrollment fees typically range between $20 and $100, although some college savings plans do offer free enrollment.

Exchange-Traded Fund (ETF): A form of pooled investment. An ETF is a "basket" of securities that track a particular market index, like the Standard and Poor 500 Index.

Gift Tax: A tax assessed against a person who gives money or assets to another person without compensation in return.

Hope Credit: An education tax credit designed to reduce education costs. (Now called the American Opportunity Tax Credit.)

Lifetime Learning Credit: An education tax credit designed to reduce the cost of college education. This credit can only be claimed once per tax return regardless of the number of children a parent has enrolled in college at the same time.

Modified Adjusted Gross Income: Adjusted annual adjusted gross income; does not include any IRA deductions, student loan interest deductions, or and other specific deduction types.

Mutual Fund: Types of investment fund that invests in a group of assets like stocks, bonds, and money market funds.

Non-Age Based Investment Options: A college savings plan portfolio that does not adjust asset allocation based on the age of the beneficiary.

Non-Qualified Withdrawal: Withdrawals from a college savings account used for non-college related expenses. Non-qualified withdrawals are subject to income tax plus a 10% penalty on earnings (not on contributions).

Pre-Paid Tuition Plans: A type of 529 plan allowing parents, grandparents, and others to prepay educational expenses for a future student at eligible colleges or universities. Most pre-paid plans do not have residency requirements.

Qualified Education Expense: Expenses approved to be paid for by the proceeds of college savings plans. Withdrawals from a college savings account used to pay qualified expenses are tax-free. Qualified expenses include tuition, fees, books, supplies, and room and board.

Qualified Withdrawal: A withdrawal from a college savings account used at eligible schools for college-related expenses. Qualified withdrawals are made tax-free and cover expenses like tuition, room and board, book and supplies, and other items, like computers, used for educational purposes.

Sales Charge (Front-End Load): Fee charged when mutual fund shares are purchased.

Stock Fund: Mutual fund that invests primarily in stocks. Different stock funds may focus on small, mid-sized, or large corporations, others on specific market sectors. Stock funds are often also called equity funds.

Tax Deductible: An expense that can be deducted from reported income on tax returns, reducing the amount of tax paid.

Tax-Deferred: Taxes that can be paid at a future date, typically when shares of certain investments are sold. Tax-deferred mutual funds, for example, can enjoy increased interest and earnings because more money is compounded in the fund.

Uniform Gift to Minors Act (UGMA): A tax-advantaged custodial account for college savings. An adult acts as the custodian for the account, making all investment decisions until the beneficiary reaches the age of majority. At majority the beneficiary controls the account and any assets held in the account. UGMA accounts can only hold money and securities.

Uniform Transfer to Minors Act (UTMA): A tax-advantaged custodial account for college savings. An adult acts as the custodian for the account, making all investment decisions until the beneficiary reaches the age of majority. Similar to UGMA accounts, UTMA accounts can also hold real estate and other asset types.

U.S. Series EE and I Savings Bonds: Tax-advantaged provided by the government. Interest from these bonds is usually exempt from state and local taxes and can also be tax free if used to pay for qualified higher education expenses.

Saving for Retirement

401(k) - A defined contribution plan an employer offers to its employees to allow them to divert a portion of their income to retirement savings. Income taxes on the savings are deferred until withdrawal. A penalty tax is imposed for withdrawal of all or a portion of the funds before a specified age. Employers may match an employee's contribution dollar-for-dollar.

529 Savings Plan - An education savings program designed to help parents and guardians save for college. There are two types of 529 plans: prepaid and savings. Prepaid plans give a person the opportunity to buy tuition credits at current rates for use in the future. As such, tuition inflation affects performance. In savings plans, all growth is based upon market performance of principal investments, usually mutual funds. Prepaid plans can be administered either by state governments or academic institutions. Savings plans can only be administered by states. Plans are subject to contribution and investment restrictions. Withdrawals for college expenses can be made tax-free until 2011; at that date, the availability of that benefit and others may be conditional. Withdrawals for non-educational purposes will activate federal income taxes and receive a 10 percent tax penalty. Anyone is eligible to contribute to a Section 529 plan regardless of income.

Annual Percentage Rate (APR) - A term describing the true cost of a loan, taking into account the interest rate as well as loan discount points, miscellaneous fees and mortgage insurance. APR is an expression of the yearly percentage, rather than the monthly fees, a borrower will have to pay. The percentage could be higher than the interest rate stated on the note because it also includes all associated costs.

Assets - Items owned by a person or corporation that hold value and can be easily exchanged for cash. Common assets include securities, inventory, houses and cars. Financial statements show assets as the amount of a person's total liabilities and equity.

Asset Allocation - A term for the way in which a person distributes investments into asset classes.

Asset Class - A class of investments sharing similar characteristics, including risk factors and return rates. Stocks, bonds, real estate and cash are examples of types of asset classes.

Average Final Compensation (AFC) - The monthly average of the highest salary a person has made for 60 consecutive months.

Balanced Investment Strategy - An investment approach where the goal is to balance risk and return. These portfolios often are equally divided between equities and fixed-income securities.

Beneficiary - An individual, institution, trustee or estate that receives benefits upon a person's death as outlined in a will, insurance policy, retirement plan, annuity, trust or other contract.

Bonds - A financial asset issued for a period of more than a year by governments, companies, banks, public utilities and other larger entities. A bond is a promise to repay the principal borrowed with interest at a specified date. Bonds are divided into a different categories based on a number of criteria, including tax status, credit quality, issuer type, maturity and whether they are secured or unsecured. Compared to shareholders, bondholders can lay claim to a greater portion of the issuer's income in the event of financial distress.

Capital Appreciation - A profit made on an investment due to an increase in market value.

Capital Gain - The difference between the purchase price of an asset and the selling price of that same asset. The gain is realized when the asset is sold.

Certificate of Deposit (CD) - A FDIC-insured, interest-bearing debt instrument that offers low risk and low rates of return. CDs have a fixed term - usually of three months, six months or one to five years - that is typically locked in at a fixed rate. A CD is meant to hold until maturity; at that time, both the savings and accrued interest may be withdrawn. In exchange for the agreed-upon fixed term, lending institutions usually offer higher interest rates for CDs than for accounts that permit on-demand withdrawal of funds. Removal of funds before maturity could result in an early-withdrawal penalty.

Charitable Remainder Trust - An arrangement in which a person donates property or money to a charity but retains ownership of that property and continues to use it or profit from it while living. The donor, or grantor, is able to avoid any capital gains tax on the donated property and receives an income tax deduction for the fair market value of the interest earned on the trust. The asset also is removed from the grantor's estate, thereby reducing estate taxes. A contribution made in this manner is irrevocable, but a grantor often has some control over how the donated asset is invested.

Compound Interest - Interest calculated using both the accrued interest of prior periods and the initial principal.

Cost-of-Living Adjustment (COLA) - An adjustment of a salary or retirement annuity to help offset an increase in the cost of living.

Coverdell Education Savings Account - A federally sponsored, tax-advantaged investment plan aimed at saving for future education expenses. A Coverdell account is similar to a 529 plan in that money invested is tax-deferred and withdrawals for educational purposes are tax-free. However, 529 plans are for college savings only; Coverdell accounts can be used for primary, secondary and post-secondary expenses. The account typically can be transferred among family members but some restrictions apply. All savings must be expended by the beneficiary's 30th birthday; a tax penalty will be imposed for withdrawals made after that date, and for withdrawals for non-educational purposes.

Custodial Account - An account typically created at a bank, mutual fund company or brokerage firm in which an adult custodian makes investments to benefit a minor. The custodian manages the account until the minor reaches adulthood.

Debt Financing - A method of raising capital through the sale of bonds, bills or notes to individuals or institutions.

Deferred Annuity - A type of annuity that does not begin payments until a specified date. Money is accrued on a tax-deferred basis over time. A deferred annuity is often purchased with a series of periodic payments while a person is working in order to receive monthly or annual payments during retirement.

Defined Benefit Plan - A company retirement plan, such as a pension, that makes payments of a specified amount to a retired employee. Payment amounts are determined by salary history and years of employment. The company or employer bears investment risks.

Defined Contribution Plan - A company retirement plan, such as a 401(k) plan, in which the employee opts to divert a portion of his or her income to the savings account and bears any investment risks.

Direct Rollover - A tax-free transfer of assets from one retirement account or savings plan into another.

Distribution - Payment of dividends, capital gains or principal interest to beneficiaries of a security by the issuer of that security.

Diversification - A portfolio strategy to reduce risk by spreading assets over a wider selection of investments, such as stocks, bonds and real estate. Since different investment vehicles usually do not have the same volatility, diversification of a portfolio helps ensure, but does not guarantee, more consistent performance under a wide range of economic conditions.

Early Withdrawal - Removal of funds from a banking deposit or CD before its maturity date. Early withdrawal typically results in a penalty or forfeiture of interest.

Equity Financing - A method of raising capital by selling common or preferred stock to investors.

Estate - Everything a person owns, including all assets and liabilities.

Estate Planning - Preparation of a plan for managing and organizing a person's estate after death. This usually is done through a will, trusts, gifts or power of attorney.

Fixed Annuity - An investment contract offered by an insurance company that guarantees a series of fixed payments either for life or some other specified period of time.

Homeowners Insurance - Package insurance policy required by most mortgage lenders that provides coverage for loss or damage to a home and the policyholder's personal property. Homeowner's insurance policies also cover individuals for injury or property damage to another person.

Immediate Annuity - An annuity purchased with a single payment that begins to pay out right away for either a person's life or a certain number of years, whichever of the two is greater.

Inflation - A broad and progressive increase in the price of goods and services as measured by the Consumer Price Index and the Producer Price Index. As the price of goods and services continues to increase, the value of the dollar ultimately decreases because not as much can be purchased with the dollar.

Individual Retirement Account (IRA) - A tax-deferred custodial account or trust used to save for retirement. Up to $5,000 per year can be contributed to an IRA, although people 50 and older can contribute up to $6,000 annually. Earnings are tax-deferred until withdrawal of funds, beginning at age 59½. Withdrawals at retirement age are fully taxable. Early withdrawals are allowed but carry a 10-percent tax penalty. People who do not have a pension plan through a company or employer, or those who do participate in a pension plan but meet certain income guidelines, are allowed to make deductible contributions to a traditional IRA. Those contributions are deductible from income earned that year and interest accumulates tax-deferred until funds are withdrawn.

Liability - A legally binding financial obligation, debt, claim or potential loss. For companies, liabilities can include accounts payable, taxes, wages, accrued expenses and deferred revenues. There are two types of liabilities: current and long-term. Current liabilities are debts that must be settled within one year. Long-term liabilities are debts that are paid after more than a year.

Liquid - A description of an asset that can be bought and sold in a short time frame with little or no price changes, and one that can exchanged for cash without difficulty.

Life Insurance - An insurance policy that provides monetary benefits of a specified amount to designated beneficiaries when the insured dies.

Long-Term Care Insurance - An insurance policy that provides coverage for individuals who require care beyond a pre-determined period of time and outside of a hospital. Long-term care insurance is designed for individuals who are unable to perform basic daily activities on their own.

Medicaid - A state- and federally-funded program that provides medical care for low-income citizens.

Medicare - A federal program that pays for specific health care costs for people 65 years of age or older.

Money Market Account - A federally insured savings account that operates like a checking account but with more restrictions on transactions. Account holders also must maintain a minimum balance. A money market account often is used to save for upcoming investments or deposit money from the sale of recent investments. Money markets are safe and highly liquid investments. Still, they tend to offer lower interest rates as compared to bonds or other investments.

Mutual Fund - A collection of stocks or bonds operated by an investment company and comprised of money from many people. Each investor in the fund owns shares, which represent a portion of the holdings. Diversification is one of the benefits of mutual funds. Financial experts also tout the advantages of choice, liquidity and convenience. On the downside, there are fees and required minimum investments associated with mutual funds.

Net Worth - The total assets of an individual or corporation after subtracting total liabilities.

Pension - Periodic or lump-sum retirement benefits an employee receives from his or her employer's retirement plan.

Permanent Life Insurance - A type of life insurance, such as whole life or endowment, that provides continuing coverage for the life of the insured, rather than a specified period of time.

Portfolio - A collection of investments, including stocks, bonds and mutual funds, owned by one individual or organization.

Pre-Tax - The net profit before taxes have been deducted.

Principal (Amount) - The amount of money borrowed, or the portion of the borrowed money that remains unpaid. This does not include interest.

Private Mortgage Insurance (PMI) - Mortgage insurance provided by a non-government agency that protects the lender against a loss in the event of default by the borrower. The borrower pays the premium, which is included in the mortgage payment.

Prospectus - A document that is legally required of any firm offering securities for sale to the public. It is filed for approval with the Securities and Exchange Commission.

Rate of Return - The annual earning power of an investment measured by changes in current stock prices and dividends.

Renters Insurance - A type of property insurance that protects the personal property of an individual living in a rental residence. Renters insurance also provides coverage for personal liability due to injury or property damage to another person.

Required Minimum Distribution (RMD) - The annual payment of a dividend or capital gain required for an IRA holder who reaches 70 ½ years of age.

Social Security - Federal program that provides workers and their dependents with retirement and disability benefits.

Stock - An instrument that indicates equity in a corporation and signifies a claim on its proportional share in that corporation's dividends and net assets. Ownership in a corporation is calculated as the number of shares owned by an individual divided by the amount of outstanding stock.

Tax-Deferred - Income that can qualify for a postponement or deferment of taxes until a later date is considered tax-deferred. Examples include: IRA, 401(k), Keogh Plans, annuity, employee stock ownership plan, life insurance and savings bond.

Term Life Insurance - A simple and relatively inexpensive type of life insurance for a specified period of time. Term life insurance will pay the coverage amount if the insured dies within the term but does not pay anything if the insured outlives the term.

Treasury Note - A debt security issued by the federal government that has a fixed interest rate and maturity of two to 10 years.

Trust - A legal entity that allows one person - the trustee - to hold the right to control assets and property for the benefit of another person - the beneficiary.

Living Trust - A trust created during the lifetime of the grantor.

Testamentary Trust - A trust, created through a will, that takes effect after the grantor dies.

Uniform Transfers to Minors Act (UTMA) - A law that allows an adult custodian to own property or assets for the sole benefit of a minor. UTMA prohibits the minor from taking control of assets until he or she turns 21.

Variable Annuity - A life insurance annuity in which future payments are made to the holder, usually at retirement age. Payments can be in the form of a periodic payment where the amount varies with the market value of the portfolio. There also can be a fixed minimum payment with add-ons based on the rate of portfolio appreciation. The return to investors may be in the form of a periodic payment that varies with the market value of the portfolio or a fixed minimum payment with add-ons based on the rate of portfolio appreciation.

Vested - To become applicable. "Vested" is a term typically used in the context of employee stock ownership or an option program. An employee may be given equity in a corporation, for example, but full equity is not granted until that employee has worked with that corporation for a certain number of years.

Will - A legal written document directing the way in which a person's estate is to be distributed upon death.

Saving for Retirement

401(k) - A defined contribution plan an employer offers to its employees to allow them to divert a portion of their income to retirement savings. Income taxes on the savings are deferred until withdrawal. A penalty tax is imposed for withdrawal of all or a portion of the funds before a specified age. Employers may match an employee's contribution dollar-for-dollar.

529 Savings Plan - An education savings program designed to help parents and guardians save for college. There are two types of 529 plans: prepaid and savings. Prepaid plans give a person the opportunity to buy tuition credits at current rates for use in the future. As such, tuition inflation affects performance. In savings plans, all growth is based upon market performance of principal investments, usually mutual funds. Prepaid plans can be administered either by state governments or academic institutions. Savings plans can only be administered by states. Plans are subject to contribution and investment restrictions. Withdrawals for college expenses can be made tax-free until 2011; at that date, the availability of that benefit and others may be conditional. Withdrawals for non-educational purposes will activate federal income taxes and receive a 10 percent tax penalty. Anyone is eligible to contribute to a Section 529 plan regardless of income.

Annual Percentage Rate (APR) - A term describing the true cost of a loan, taking into account the interest rate as well as loan discount points, miscellaneous fees and mortgage insurance. APR is an expression of the yearly percentage, rather than the monthly fees, a borrower will have to pay. The percentage could be higher than the interest rate stated on the note because it also includes all associated costs.

Assets - Items owned by a person or corporation that hold value and can be easily exchanged for cash. Common assets include securities, inventory, houses and cars. Financial statements show assets as the amount of a person's total liabilities and equity.

Asset Allocation - A term for the way in which a person distributes investments into asset classes.

Asset Class - A class of investments sharing similar characteristics, including risk factors and return rates. Stocks, bonds, real estate and cash are examples of types of asset classes.

Average Final Compensation (AFC) - The monthly average of the highest salary a person has made for 60 consecutive months.

Balanced Investment Strategy - An investment approach where the goal is to balance risk and return. These portfolios often are equally divided between equities and fixed-income securities.

Beneficiary - An individual, institution, trustee or estate that receives benefits upon a person's death as outlined in a will, insurance policy, retirement plan, annuity, trust or other contract.

Bonds - A financial asset issued for a period of more than a year by governments, companies, banks, public utilities and other larger entities. A bond is a promise to repay the principal borrowed with interest at a specified date. Bonds are divided into a different categories based on a number of criteria, including tax status, credit quality, issuer type, maturity and whether they are secured or unsecured. Compared to shareholders, bondholders can lay claim to a greater portion of the issuer's income in the event of financial distress.

Capital Appreciation - A profit made on an investment due to an increase in market value.

Capital Gain - The difference between the purchase price of an asset and the selling price of that same asset. The gain is realized when the asset is sold.

Certificate of Deposit (CD) - A FDIC-insured, interest-bearing debt instrument that offers low risk and low rates of return. CDs have a fixed term - usually of three months, six months or one to five years - that is typically locked in at a fixed rate. A CD is meant to hold until maturity; at that time, both the savings and accrued interest may be withdrawn. In exchange for the agreed-upon fixed term, lending institutions usually offer higher interest rates for CDs than for accounts that permit on-demand withdrawal of funds. Removal of funds before maturity could result in an early-withdrawal penalty.

Charitable Remainder Trust - An arrangement in which a person donates property or money to a charity but retains ownership of that property and continues to use it or profit from it while living. The donor, or grantor, is able to avoid any capital gains tax on the donated property and receives an income tax deduction for the fair market value of the interest earned on the trust. The asset also is removed from the grantor's estate, thereby reducing estate taxes. A contribution made in this manner is irrevocable, but a grantor often has some control over how the donated asset is invested.

Compound Interest - Interest calculated using both the accrued interest of prior periods and the initial principal.

Cost-of-Living Adjustment (COLA) - An adjustment of a salary or retirement annuity to help offset an increase in the cost of living.

Coverdell Education Savings Account - A federally sponsored, tax-advantaged investment plan aimed at saving for future education expenses. A Coverdell account is similar to a 529 plan in that money invested is tax-deferred and withdrawals for educational purposes are tax-free. However, 529 plans are for college savings only; Coverdell accounts can be used for primary, secondary and post-secondary expenses. The account typically can be transferred among family members but some restrictions apply. All savings must be expended by the beneficiary's 30th birthday; a tax penalty will be imposed for withdrawals made after that date, and for withdrawals for non-educational purposes.

Custodial Account - An account typically created at a bank, mutual fund company or brokerage firm in which an adult custodian makes investments to benefit a minor. The custodian manages the account until the minor reaches adulthood.

Debt Financing - A method of raising capital through the sale of bonds, bills or notes to individuals or institutions.

Deferred Annuity - A type of annuity that does not begin payments until a specified date. Money is accrued on a tax-deferred basis over time. A deferred annuity is often purchased with a series of periodic payments while a person is working in order to receive monthly or annual payments during retirement.

Defined Benefit Plan - A company retirement plan, such as a pension, that makes payments of a specified amount to a retired employee. Payment amounts are determined by salary history and years of employment. The company or employer bears investment risks.

Defined Contribution Plan - A company retirement plan, such as a 401(k) plan, in which the employee opts to divert a portion of his or her income to the savings account and bears any investment risks.

Direct Rollover - A tax-free transfer of assets from one retirement account or savings plan into another.

Distribution - Payment of dividends, capital gains or principal interest to beneficiaries of a security by the issuer of that security.

Diversification - A portfolio strategy to reduce risk by spreading assets over a wider selection of investments, such as stocks, bonds and real estate. Since different investment vehicles usually do not have the same volatility, diversification of a portfolio helps ensure, but does not guarantee, more consistent performance under a wide range of economic conditions.

Early Withdrawal - Removal of funds from a banking deposit or CD before its maturity date. Early withdrawal typically results in a penalty or forfeiture of interest.

Equity Financing - A method of raising capital by selling common or preferred stock to investors.

Estate - Everything a person owns, including all assets and liabilities.

Estate Planning - Preparation of a plan for managing and organizing a person's estate after death. This usually is done through a will, trusts, gifts or power of attorney.

Fixed Annuity - An investment contract offered by an insurance company that guarantees a series of fixed payments either for life or some other specified period of time.

Homeowners Insurance - Package insurance policy required by most mortgage lenders that provides coverage for loss or damage to a home and the policyholder's personal property. Homeowner's insurance policies also cover individuals for injury or property damage to another person.

Immediate Annuity - An annuity purchased with a single payment that begins to pay out right away for either a person's life or a certain number of years, whichever of the two is greater.

Inflation - A broad and progressive increase in the price of goods and services as measured by the Consumer Price Index and the Producer Price Index. As the price of goods and services continues to increase, the value of the dollar ultimately decreases because not as much can be purchased with the dollar.

Individual Retirement Account (IRA) - A tax-deferred custodial account or trust used to save for retirement. Up to $5,000 per year can be contributed to an IRA, although people 50 and older can contribute up to $6,000 annually. Earnings are tax-deferred until withdrawal of funds, beginning at age 59½. Withdrawals at retirement age are fully taxable. Early withdrawals are allowed but carry a 10-percent tax penalty. People who do not have a pension plan through a company or employer, or those who do participate in a pension plan but meet certain income guidelines, are allowed to make deductible contributions to a traditional IRA. Those contributions are deductible from income earned that year and interest accumulates tax-deferred until funds are withdrawn.

Liability - A legally binding financial obligation, debt, claim or potential loss. For companies, liabilities can include accounts payable, taxes, wages, accrued expenses and deferred revenues. There are two types of liabilities: current and long-term. Current liabilities are debts that must be settled within one year. Long-term liabilities are debts that are paid after more than a year.

Liquid - A description of an asset that can be bought and sold in a short time frame with little or no price changes, and one that can exchanged for cash without difficulty.

Life Insurance - An insurance policy that provides monetary benefits of a specified amount to designated beneficiaries when the insured dies.

Long-Term Care Insurance - An insurance policy that provides coverage for individuals who require care beyond a pre-determined period of time and outside of a hospital. Long-term care insurance is designed for individuals who are unable to perform basic daily activities on their own.

Medicaid - A state- and federally-funded program that provides medical care for low-income citizens.

Medicare - A federal program that pays for specific health care costs for people 65 years of age or older.

Money Market Account - A federally insured savings account that operates like a checking account but with more restrictions on transactions. Account holders also must maintain a minimum balance. A money market account often is used to save for upcoming investments or deposit money from the sale of recent investments. Money markets are safe and highly liquid investments. Still, they tend to offer lower interest rates as compared to bonds or other investments.

Mutual Fund - A collection of stocks or bonds operated by an investment company and comprised of money from many people. Each investor in the fund owns shares, which represent a portion of the holdings. Diversification is one of the benefits of mutual funds. Financial experts also tout the advantages of choice, liquidity and convenience. On the downside, there are fees and required minimum investments associated with mutual funds.

Net Worth - The total assets of an individual or corporation after subtracting total liabilities.

Pension - Periodic or lump-sum retirement benefits an employee receives from his or her employer's retirement plan.

Permanent Life Insurance - A type of life insurance, such as whole life or endowment, that provides continuing coverage for the life of the insured, rather than a specified period of time.

Portfolio - A collection of investments, including stocks, bonds and mutual funds, owned by one individual or organization.

Pre-Tax - The net profit before taxes have been deducted.

Principal (Amount) - The amount of money borrowed, or the portion of the borrowed money that remains unpaid. This does not include interest.

Private Mortgage Insurance (PMI) - Mortgage insurance provided by a non-government agency that protects the lender against a loss in the event of default by the borrower. The borrower pays the premium, which is included in the mortgage payment.

Prospectus - A document that is legally required of any firm offering securities for sale to the public. It is filed for approval with the Securities and Exchange Commission.

Rate of Return - The annual earning power of an investment measured by changes in current stock prices and dividends.

Renters Insurance - A type of property insurance that protects the personal property of an individual living in a rental residence. Renters insurance also provides coverage for personal liability due to injury or property damage to another person.

Required Minimum Distribution (RMD) - The annual payment of a dividend or capital gain required for an IRA holder who reaches 70 ½ years of age.

Social Security - Federal program that provides workers and their dependents with retirement and disability benefits.

Stock - An instrument that indicates equity in a corporation and signifies a claim on its proportional share in that corporation's dividends and net assets. Ownership in a corporation is calculated as the number of shares owned by an individual divided by the amount of outstanding stock.

Tax-Deferred - Income that can qualify for a postponement or deferment of taxes until a later date is considered tax-deferred. Examples include: IRA, 401(k), Keogh Plans, annuity, employee stock ownership plan, life insurance and savings bond.

Term Life Insurance - A simple and relatively inexpensive type of life insurance for a specified period of time. Term life insurance will pay the coverage amount if the insured dies within the term but does not pay anything if the insured outlives the term.

Treasury Note - A debt security issued by the federal government that has a fixed interest rate and maturity of two to 10 years.

Trust - A legal entity that allows one person - the trustee - to hold the right to control assets and property for the benefit of another person - the beneficiary.

Living Trust - A trust created during the lifetime of the grantor.

Testamentary Trust - A trust, created through a will, that takes effect after the grantor dies.

Uniform Transfers to Minors Act (UTMA) - A law that allows an adult custodian to own property or assets for the sole benefit of a minor. UTMA prohibits the minor from taking control of assets until he or she turns 21.

Variable Annuity - A life insurance annuity in which future payments are made to the holder, usually at retirement age. Payments can be in the form of a periodic payment where the amount varies with the market value of the portfolio. There also can be a fixed minimum payment with add-ons based on the rate of portfolio appreciation. The return to investors may be in the form of a periodic payment that varies with the market value of the portfolio or a fixed minimum payment with add-ons based on the rate of portfolio appreciation.

Vested - To become applicable. "Vested" is a term typically used in the context of employee stock ownership or an option program. An employee may be given equity in a corporation, for example, but full equity is not granted until that employee has worked with that corporation for a certain number of years.

Will - A legal written document directing the way in which a person's estate is to be distributed upon death.

Preparing for Taxes

401(k) plan: An employer-sponsored retirement savings plan where employees contribute part of their salary to a tax-deferred investment account. Funds put in the plan are not taxed until withdrawn in retirement. Employers often match part or all of the employee's deposits. Penalties usually apply to any withdrawals before age 55, but most plans do allow employees to borrow limited amounts tax- and penalty-free from their accounts.

Acquisition indebtedness: A technical term used for home mortgage debt, on which the interest is deductible. To qualify, debt must be used to buy, build or improve a principal residence or second home and must be secured by the property. Interest paid on up to $1 million of acquisition indebtedness is deductible if deductions are itemized.

Active participation: The level of involvement real estate owners must meet to qualify to deduct up to $25,000 of passive losses from rental real estate.

Additional child tax credit: Taxpayers may qualify for this credit if the standard child credit eliminates tax liability. This additional credit can cause a refund from the IRS even if the taxpayer does not owe tax.

Adjusted basis: Starting point for determining whether a gain or loss is enjoyed when property or an asset is sold. (Sometimes referred to as cost basis or tax basis.) The basis can change over time; when an investor buys rental property, the basis is the initial amount paid, plus the cost of permanent improvements. Basis can also be reduced by depreciation.

Adjusted Gross Income (AGI): Income from all taxable sources, minus adjustments. Adjusted Gross Income is the amount from which deductions (standard deduction or itemized deductions) and personal and dependent exemptions are deducted to determine taxable income. Adjustments include deductible contributions to Individual Retirement Accounts (IRA), SIMPLE and Keogh plans, contributions to Health Savings Accounts (HSA), job-related moving expenses, etc.

Alimony: Qualifying payments to an ex-spouse deducted as adjustments to income. The recipient of alimony must include payments as taxable income.

Alternative Minimum Tax (AMT): Special tax designed primarily to prevent the use of loopholes or otherwise legal tax breaks.

Amended return: A revised tax return filed using Form 1040X to correct an error on a return filed during the previous three years. Depending on the mistake made, an amended return could result in owing more tax or receiving a refund.

Audit: Review of a tax return by the IRS. The filer of the return is required to prove income and deductions made.

Capital gain: The profit from the sale of property like stocks, mutual-fund shares and real estate. Gains from the sale of assets owned for twelve months or less are considered short-term capital gains and are taxed at the filer's normal income bracket. Profits made on assets owned more than twelve months are considered long-term capital gains and are taxed at a different rate.

Capital loss: The loss from the sale of assets like stocks, bonds, mutual funds and real estate. Losses can offset capital gains and then a portion can offset normal income.

Casualty loss: Damage that results from a sudden or unusual event.

Charitable contribution: A gift of cash or other assets to a qualified charity where a tax deduction is allowed.

Child credit: Credit for each child under age seventeen claimed as a dependent on a tax return return.

Child and dependent care credit: Credit that offsets some of the cost of paying for care for a child under the age of thirteen while parent is working.

Child support: Payments made under a divorce or separation agreement to help provide for the support of a child. Payments are not deductible by the person who pays them and are not considered taxable income to the person who receives the money.

Deductions: Amounts or expenses a taxpayer subtracts from gross income to calculate taxable income. Taxpayers can claim a standard deduction or report itemized deductions.

Dependent: A person supported by the taxpayer eligible to be claimed as a dependent on a tax return. Dependents can be children, spouses, the elderly, and people who are legally disabled.

Depreciation: A deduction reflecting the gradual loss of value of real property as it grows older or otherwise loses value.

Earned income: Compensation, like wages, salary, tips, and commission, received from providing personal services.

Elderly or disabled credit: Credit for lower income taxpayers 65 and older.

Estate tax: Federal tax on decedent's taxable estate. Limits, rates, and exclusions can change from year to year.

Estimated tax: Quarterly payments of an estimated amount required for expected tax liability. Estimated tax is typically paid made by taxpayers who are not subject to withholding or who enjoy significant returns on investments.

Exemptions: Self, spouse, and dependent "credit" for filers. Exemptions reduce total taxable income.

FICA: Federal Insurance Contribution Act (FICA) tax that pays for Social Security and Medicare.

Filing status: Filing status determines the amount of standard deduction and tax rate. Filers can be considered single, married filing jointly, married filing separately, head of household, or qualifying widow or widower.

Gift tax: Tax on gifts that exceed IRS guidelines. Money can be given, without tax consequences, to another person as long as the amount does not exceed annual or total limits. When gift tax is owed, the person making the gift owes the tax, not the person receiving the gift.

Gross income: All income from taxable sources, before subtracting any adjustments, deductions or exemptions.

Head of household: A filing status with lower tax rates for unmarried or some married persons considered unmarried (for purposes of this filing status) who pay more than half the cost of maintaining a home, generally, for themselves and a qualifying person, for more than half the tax year.

Health Savings Account (HSA): A HSA allows people under age 65 to make tax-deductible contributions to a special account tied to a high-deductible health insurance policy. Earnings inside the HSA are tax-deferred (just like in an IRA). Money from the HSA can be used tax and penalty free to pay insurance policy deductibles, co-payments, and any other qualifying expenses.

Home equity loan: Debt secured by a principal residence or second home that is not used to buy, build or substantially improve a property (although it can be). Under certain circumstances, interest paid can be tax deductible.

Investment interest: Interest paid on loans used for investment purposes.

Like-kind exchange: Tax-free exchange of similar assets, like one real estate property for another. Any tax on profits from the first property is deferred until the exchanged property is sold.

Lump-sum distribution: Payment within one year of the full amount of an interest in a pension or profit-sharing plan, instead of receiving payments on a recurring basis.

Marital deduction: A tax law allowing any amount of property to shift in ownership from one spouse to the other without paying gift or estate tax.

Mortgage interest: Deductible interest paid on home mortgage or home equity loans.

Non-cash contribution: The full fair-market value of an asset donated to charity.

Points: Money paid in connection with a home mortgage. A point equals 1% of the amount of the mortgage. Points are tax deductible.

Premature distribution: Withdrawal from retirement plans subject to a 10% penalty if the taxpayer is under age 55 (or if the withdrawal is from an IRA, if the taxpayer is under the age of 59 ½).

Real estate taxes: Tax paid on the value of real property. Real estate taxes are tax deductible.

Rollover: Transferring funds, tax free, from one retirement account to another. Money must be deposited in the new retirement account within sixty days.

Roth IRA: Retirement account where contributions are not tax deductible but all withdrawals are tax-free after the age of 59 ½.

SEP: Simplified Employee Pension is a retirement plan most used by self-employed taxpayers. Contributions to the plan are tax deductible.

SIMPLE: Savings Incentive Match Plan for Employees plan offered by companies with less than 100 employees. The employer generally must match employee contributions up to 3% or contribute 2% of pay for each employee, whether or not the employee contributes.

Standard deduction: Deduction from taxable income based on filing status. Deduction can be based on single, joint, and head of household. The standard deduction is used when the taxpayer chooses not to itemize deductions.

Taxable income: Income that is taxable, like wages, interest and dividends.

Tax bracket: Rate at which income is taxed; generally speaking, the rate increases as income increases.

Vested benefits: Benefits in a company retirement plan that the employee retains even if he or she quits or retires.

Withholding: The amount deducted from a paycheck to pay income and Social Security taxes. The amount withheld is based on income and deductions claimed on the employee's W-4 form.

Starting a Family

APR (Annual Percentage Rate): Total annual cost for a loan, credit card, or other type or credit. Expressed as an interest rate.

Amortization: The process of reducing a debt by making regular payments of principal and interest until the loan is eventually repaid. Home mortgages are amortized, for example.

Annual Fee: Yearly amount charged to a credit card owner by a creditor. Annual fees are charged regardless of whether or not the credit card is actually used.

Annuity: A contract, typically with an insurance company, where the company agrees to make regular payments to a person for a fixed period, or for life, in exchange for lump sum or monthly payments.

Asset: An item of value that increases net worth. A house is an asset.

Balance: The amount of money held in an account, or the outstanding amount on a loan or credit card.

Bankruptcy: The process of petitioning a court to discharge a person's debts. Chapter 7 bankruptcy proceedings liquidate assets; Chapter 13 bankruptcy proceedings set up a debt repayment plan.

Beneficiary: Person or persons identified to inherit specific property. The beneficiary of a life insurance policy receives the proceeds when the owner of the policy passes away.

Budget: A plan for spending and saving money, balancing income with expenses.

Capital Gain: The increase in the value of an investment.

Cash Flow: Money flowing into and out of a household. A negative cash flow means more money is spent than is earned; a positive cash flow means more money is earned than is spent.

Cash Value: The savings piece of a whole life, variable life, or universal life insurance policy; the amount for which the policy can be "cashed in".

CD: Certificate of Deposit; a sum deposited with a financial institution for a specified amount of time.

Collateral: An item or assets of value, used to secure a loan. For example, a car may serve as collateral for an auto loan. If payments are not made the item can be seized by the lender in order to recover the debt.

Compound Interest: Interest earned on principal and previously credited interest.

Consumer Price Index (CPI): A measure of inflation used by the Bureau of Labor Statistics to track changes in prices of goods and services.

Co-signer: A person who agrees to make payments on a loan if the primary borrower fails to do so. Co-signors can make qualifying for a loan easier.

Credit Counseling Agency: An organization (profit or non-profit) that creates and administers debt repayment plans for people having difficulty repaying creditors.

Credit Report: A report issued by a reporting agency showing how a person has used credit in the past.

Elimination Period: The number of days before benefits are paid on certain types of insurance policies, like long-term care or disability.

Fair Market Value: The amount for which an item can be sold on the open market.

Federal Deposit Insurance Corporation (FDIC): Federal agency that insures bank deposits.

Inflation: The loss of purchasing power over time due to an increase in the cost of goods and services. Often expressed as a rate; if the inflation rate is 3%, purchasing power is reduced by 3%.

Installment Loan: A loan paid back over a specific period of time, typically used to buy items rather than to receive revolving credit. An auto loan is an example of an installment loan; a credit card is not.

Intestate: Dying without a valid will in place

Liability: Money owed by an individual that decreases net worth. A loan is a liability.

Liquidity: The ability to convert an asset to cash quickly without loss of value. A mutual fund is relatively liquid; a home is not.

Long-Term Care Insurance: Insurance that covers the cost of support services like home health care and nursing home care when a person is unable to perform basic activities of daily living such as bathing, eating, and dressing.

Maturity: The date when the principal amount of a bond or CD must be paid to the owner.

Mutual fund: An investment company that pools deposits from shareholders and invests in stocks, bonds, or cash assets.

Net Worth: A person's financial situation, calculated by subtracting debts from assets.

Pension: A retirement savings plan offered by an employer that pays benefits to workers when they retire.

Premium: Fees paid to an insurance company in exchange for protection against risk. Payments made on an insurance policy are considered premiums.

Principal: The original amount of money invested or borrowed.

Probate: Legal process of validating a Will, paying debts, and distributing proceeds to heirs and beneficiaries when someone dies.

Return: Investment gain or loss.

Rollover: Transfer of funds from one retirement savings plan to another while avoiding taxes or penalties.

Secured Debt: Debt backed by collateral. The collateral secures the debt. A car secures the car loan, for example.

Social Security: Government program that provides retirement and disability benefits to workers and dependents.

Taxable Income: Amount of income used to determine tax owed.

Tax-Deferred: Investments not taxed in the current year but taxed at a later date, typically upon withdrawal.

Term Life Insurance: Life insurance policy that pays benefits only if the holder of the policy dies within the period of time covered by that policy.

Trust: A legal instrument granting control of assets to a person or financial institution. Trusts can be revocable or irrevocable and can manage property while the creator is alive (living trust) or following the creator's death (testamentary trust).

Trustee: Person who manages a Trust.

Umbrella Coverage: Additional liability insurance that supplements the coverage of a homeowner or renter policy, or a car insurance policy. Designed to provide additional liability protection.

Unsecured Debt: Debt not secured by collateral. A credit card is an example of unsecured debt.

Vesting: The date when a person is entitled to receive money or benefits from an employer.

Whole Life Insurance: Life insurance policy that combines protection for the life of an insured person and a savings component; the savings component is considered the cash value of the policy.

Will: Legal document specifying what will happen after a person dies.

Withholding: Deduction of federal and state income taxes, Social Security taxes, and other items, from an individual's pay.

Building Good Credit

Building Good Credit Glossaries

Account Condition: An assessment of current account condition. Condition does not show events that created the current state.

Accounts in Good Standing: Credit items that have a positive status and reflect favorably on creditworthiness.

Amortization: Monthly installments of principal and interest to repay a mortgage. At the end of the agreed upon time the borrower becomes the owner of the property.

Annual Fee: The fee a card issuer assesses for the use of a credit card. The fee is billed annually to the consumer.

Annual Percentage Rate (APR): The true cost of a loan. Determined by calculating the average compound interest rate over the length of the loan.

Asset: Any item owned that has value and can be sold.

Authorized User: Person allowed to use a credit card by the owner of the card. The owner of the card is still responsible for repayment.

Balance Transfer: Shifting an outstanding credit card balance from one company to another company.

Balloon Payment: Lump-sum payment made at the end of the loan term.

Bankruptcy: Legal means of debt relief where a person is released from debt. Chapter 7 proceedings liquidate assets to help repay creditors; Chapter 13 proceedings set up a debt repayment plan.

Billing Cycle: The interval between one billing statement and the next.

Cap: Limit on interest rate or payment amount.

Capacity: The ability of a borrower to repay a loan; calculated by measuring income and current debts.

Cash Advance: Cash received from a credit card, rather than using the card to purchase goods and services.

Cash Flow: Measure of money flowing into and out of a household. When more income is earned than spent, cash flow is positive.

Charge-off: Determining that an account or bad debt cannot be recovered.

Collection Account: An account owed to a creditor that has been transferred to a creditor's collections department or to a separate professional debt collection agency.

Collateral: Security pledged for the payment of a loan. A car may serve as collateral for an auto loan.

Consumer Credit Counseling Service: A non-profit organization that helps consumers deal with credit problems.

Credit Bureau: Organizations that collect personal financial information on consumers; lenders use those credit reports to determine whether or not to approve credit requests.

Co-Signor: A person who pledges to repay a debt if the borrower does not.

Credit Limit: Maximum amount allowed to be charged on a credit card or other revolving credit account.

Credit History: Record of individual debt payments.

Credit Report: Report detailing credit history. Used by lenders to determine whether a potential borrower will qualify for credit.

Creditor: The person or company owed a debt.

Credit Score: Numerical method of determining credit worthiness. The higher the score, the more credit worthy the consumer is considered to be.

Default: When mortgage or loan terms are not met; typically when payments are not made on time. Strictly speaking, default means the terms of the agreement were not met and the lender may take further action.

Delinquency: When payments are not made on time.

Delinquent: An account where payments are past due.

Down Payment: Cash payment for a portion of an asset's purchase price.

Equity: The difference in the value of an asset and the amount owed on that asset.

Fair Credit Billing Act: Federal legislation that provides a specific error resolution procedure to protect credit card customers from making payments on inaccurate billings.

Fair Credit Reporting Act (FCRA): Federal consumer legislation governing the actions of credit reporting agencies.

Fair Debt Collection Practices Act (FDCPA): Federal consumer legislation prohibiting abusive and unfair debt collection practices.

FHA Loan: Loans insured by the Federal Housing Administration.

Foreclosure: The forced sale of a property when the borrower has failed to meet repayment terms.

Fraudulent Transaction: Transaction made with a credit card without the authorization of the card owner.

Garnishment: Legal process where debt is repaid by withholding a portion of the borrower's income.

Installment loan: A loan where equal, consistent payments are made on a regular, pre-specified basis.

Interest Rate: The rate a lender charges to lend money.

Introductory Rate: Low interest rate offered by lenders to new account holders for a specific period of time. After the introductory period ends the interest rate is increased to the normal rate.

Judgment: A decision based on a legal process.

Lien: A legal claim to satisfy a debt. A claim is made against property, like real estate, if a debt is not paid.

Liquid: An asset easily sold or converted to cash.

Maturity: The date when the balance of a loan is due.

Minimum Payment: The smallest payment allowed to keep an account in good standing.

Over-limit: A balance on a credit card higher than the original or allowed credit limit.

Principal: The balance of a loan not including interest and other fees.

Public Record Data: Information on a credit report regarding tax liens, judgments, lawsuits, and other legal proceedings.

Refinance: A loan acquired for the purpose of paying off another loan.

Second Mortgage: A mortgage made after an original mortgage; a home equity loan is a form of second mortgage.

Secured Credit Card: Credit card that requires collateral or funds deposited in order to receive the card.

Settlement: An agreement with a creditor to repay a portion of an original debt.

Term: The length of a loan.

Unsecured Credit: A loan that does not require collateral.

Upside Down: A condition where a borrower owes more money than the secured item is worth. For example, if a borrower owes more on a car loan than the fair market value of the car, he or she is considered to be upside down.

VA Loan: Loan granted to veterans of military service and guaranteed by the Veteran's Administration.

Investing

Annuity: Even stream of payments over a given period of time.

Annuity plans: Plans provided by insurance companies that offer a predetermined amount of retirement income to individuals.

Appreciate: Increase in the value of an asset.

Arbitrage activity: In the securities industry, the purchasing of undervalued shares and the resale of these shares for a higher profit.

Ask: Price at which a seller is willing to sell.

Basis: Difference between the price movement of a futures contract and the price movement of the underlying security.

Bearer bonds: Bonds that require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.

Beta: Sensitivity of an asset's returns to market returns; measured as the covariance between asset returns and market returns divided by the variance of market returns.

Bid: Price a purchaser is willing to pay for a specific security.

Bond: Debt obligation with long-term maturities issued by governments or corporations.

Bond price elasticity: Sensitivity of bond prices to changes in the required rate of return.

Bridge loan: Funds provided as temporary financing until other sources of long-term funds can be obtained; commonly provided by securities firms to firms experiencing leveraged buyouts.

Broker: Person or company that executes securities transactions between two parties.

Call option: Contract that grants the owner the right to purchase a specified financial instrument for a specified price within a specified period of time.

Call premium: Difference between a bond's call price and its par value.

Capital appreciation funds: Mutual funds made up of stocks of companies that have potential for very high growth.

Certificate of deposit (CD): Deposit offered by depository institutions that specifies maturity, deposit amount, and interest rate.

Closed-end investment funds: Mutual funds that do not repurchase the shares they sell.

Commercial paper: Short-term securities (usually unsecured) issued by well-known creditworthy firms.

Commission brokers: Brokers who execute orders for their customers.

Common stock: Certificate representing partial ownership of a corporation.

Convertibility clause: Provision that allows investors to convert a bond into a specified number of common stock shares.

Convertible bonds: Bonds that can be converted into a specified number of the firm's common stock.

Corporate bonds: Bonds issued by corporations in need of long-term funds.

Covered call: Sale of a call option to partially cover against the possible decline in the price of a stock that is being held.

Currency futures contract: Standardized contract that specifies an amount of a particular currency to be exchanged on a specified date and at a specified exchange rate.

Currency put option: Contract that grants the owner the right to sell a specified currency for a specified price, within a specified period of time.

Currency swap: An agreement that allows the periodic swap of one currency for another at specified exchange rates; it essentially represents a series of forward contracts.

Depreciate: Decrease in the value of an asset.

Discount bonds: Bonds that sell below their par value.

Discount rate: Interest rate charged on loans provided by the Federal Reserve to depository institutions.

Duration: Measurement of the life of a bond on a present value basis.

Effective yield: Yield on foreign money market securities adjusted for the exchange rate.

Equity securities: Securities such as common stock and preferred stock that represent ownership in a business.

Exercise price (or strike price): Price at which the investment that underlies a contract can be purchased or sold.

Federal funds rate: Interest rate charged on loans between depository institutions.

Federal Reserve: Central bank of the United States.

Federal Reserve district bank: A regional government bank that facilitates operations within the banking system by clearing checks, replacing old currency, providing loans to banks, and conducting research; there are twelve Federal Reserve district banks.

Financial market: Market in which financial assets (or securities) such as stocks and bonds are traded.

Floor brokers: Individuals who facilitate the trading of stocks on the New York and American Stock Exchanges by executing transactions for their clients.

Flotation costs: Costs of placing securities.

Full-service brokerage firms: Brokerage firms that provide complete information and advice about securities, in addition to executing transactions.

Futures contract: Standardized contract allowing one to purchase or sell a specified amount of a specified instrument (such as a security or currency) for a specified price and at a specified future point in time.

Growth fund: Mutual funds containing stocks of firms that are expected to grow at a higher than average rate. Growth funds are typically right for investors who are willing to accept a moderate degree of risk.

Income fund: Mutual funds composed of bonds that offer periodic coupon payments.

Initial margin: A margin deposit established by a customer with a brokerage firm before a transaction can be executed.

Initial public offering (IPO): A first-time offering of shares by a specific firm to the public.

International mutual fund: Portfolio of international stocks created and managed by a financial institution; individuals can invest in international stocks by purchasing shares of an international mutual fund.

In the money: Describes a call option whose premium is above the exercise price or a put option whose premium is below the exercise price.

Junk bond: Corporate bonds that are perceived to have a high degree of risk.

Limit order: Requests by customers to purchase or sell securities at a specified price or better.

Liquidity: Ability to sell assets easily without loss of value.

Load fund: Mutual funds that have a sales charge imposed by brokerage firms that sell the funds.

Maintenance margin: A margin requirement that reduces the risk that participants will later default on their obligations.

Margin call: Call from a broker to participants in futures contracts (or other investments) informing them that they must increase their margin.

Margin requirements: The proportion of invested funds that can be borrowed versus paid in cash; set by the Federal Reserve.

Market orders: Requests by customers to purchase or sell securities at the market price existing when the order reaches the exchange floor.

Money market account: Deposit account that pays interest and may allow checking privileges.

Municipal bonds: Debt securities issued by state and local governments, which can usually be classified as either general obligation bonds or revenue bonds.

Mutual fund: An investment company that sells shares representing an interest in a portfolio of securities.

No-load fund: Mutual funds that do not have a sales charge.

Option premium: Price paid for an option contract.

Out of the money: Describes a call option whose premium is below the exercise price or a put option whose premium is above the exercise price.

Preferred stock: Certificate representing partial ownership of a corporation, without significant voting rights. Preferred stocks may provide dividends but normally do not.

Prime rate: Interest rate charged on loans by banks to their most creditworthy customers.

Prospectus: A pamphlet that discloses relevant financial data on the firm and provisions applicable to the security.

Put option: Contract that grants the owner the right to sell a specified financial instrument for a specified price within a specified period of time.

Secondary stock offering: A new stock offering by a firm that already has stock outstanding.

Securities and Exchange Commission (SEC): Agency that regulates the issuance of securities disclosure rules for issuers, the exchanges, and participating brokerage firms.

Short selling: The sale of securities that are borrowed, with the intent of buying those securities to repay what was borrowed.

Standard & Poor 500 Index: Index of stocks of 500 large firms.

Stock index futures: Financial futures contracts on stock indexes.

Stop-loss order: Order of a sale of a specific security when the price reaches a specified minimum.

Strike price (exercise price): Price at which an option can be exercised.

Treasury bills: Securities issued by the U.S. Treasury.

Writer: The seller of an option contract.

Zero-coupon bonds: Bonds that have no coupon payments.

Auto Buying and Insurance

Adjusted Capitalized Cost: Total amount financed on a car loan. Includes deductions like down payments, credits, trade-ins, and rebates, as well as additions for financing charges and other fees.

Aggregate Limit: The maximum amount that can be paid for a claim on an insured vehicle, regardless of how many people are injured or the cost of items damaged.

Amount Financed: Total amount borrowed to purchase a car. (Same as adjusted capitalized cost.)

Anti-Lock Brakes: Brakes that automatically pump when the pedal is pressed to the floor during an emergency stop.

"As Is": Vehicle sold "as is," with no warranty or guarantees. Purchaser of the car is responsible for all repairs, etc.

Base Price: The cost of a car without options but including all standard equipment and the factory warranty.

Blue Book: The National Auto Dealers' Association's (NADA) Used Car Book that estimates used car prices based on model, make, year, mileage, and features.

Blue Book Value: The value of a vehicle as estimated by the blue book guide. Also commonly referred to as "book value."

Bodily Injury Liability: Protection for the insured for all sums up to policy limits which the insured must pay due to bodily injury to a third party. Coverage also pays defense costs against legal actions.

Buyer's Guide: Form filled out by dealers explaining any warranty and warranty terms. The Federal Trade Commission requires all dealerships to display the buyer's guide in the vehicle's window.

Capitalized Cost: Value of a vehicle at the beginning of the lease; the residual value is the value of a vehicle at the end of the lease term.

Collision Coverage: Auto insurance that protects a vehicle against direct accidental loss by collision with another vehicle or object.

Comprehensive Coverage: Car insurance coverage that protects against losses to a vehicle caused by something other than a collision. Can include theft, vandalism, flooding, fire, and glass breakage, among other causal factors.

Dealer Invoice: The price the dealer paid the factory for the car.

Dealer Sticker Price: Price of a vehicle including base price plus the cost of all options, markups, etc.

Deductible: The amount the purchaser must pay if repairs are necessary.

Depreciation: The reduced value of a car after it has been purchased. Depreciation is based on time as well as maintenance history, use, etc.

Down Payment: The amount of money paid up front to purchase the vehicle.

Early Termination Fee: Fee paid if a lease is terminated early.

Excess Mileage: Number of miles exceeding the terms of a lease. If a lease allows 12,000 miles a year and the car is driven 15,000 miles, 3,000 miles are considered excess mileage and a per-mile fee is charged.

Excess Wear & Tear: Damage or wear on a vehicle beyond what is considered normal wear and tear. Conditions are specified in the lease.

Extended Warranty: A form of insurance policy on a vehicle that will cover repairs and at times regular maintenance.

Full Glass Coverage: Waives a comprehensive deductible for all window glass claims. (Not available in all states.)

Gap Insurance: Insurance that pays if a leased car is stolen or totaled, above and beyond what standard auto insurance will pay. Gap insurance covers the gap between the value of a vehicle and the amount owed on a lease, including penalties for early termination.

Liability: Responsibility for injury or damage suffered by another person or persons.

Medical Payments: Coverage that pays up to a specific amount for injuries sustained by the owner and any covered persons in the vehicle, regardless of who is at fault for the accident.

Motor Vehicle Report: A report listing moving violations like speeding tickets as well as serious violations a driver has accumulated in the past several years. Used to determine insurability and the cost of insurance.

M.S.R.P.: Manufacturers Suggested Retail Price; sticker price of the vehicle.

No Fault Coverage: Insurance that pays regardless of who is at fault for an accident.

Options: Extra features that can be added to a standard vehicle, usually in packages. Options can include air bags, anti-lock brakes, power locks and windows, rear wiper, rear defroster, etc.

Property Damage Liability: Coverage for damage to another person's property, like vehicles, homes, fences, etc.

Purchase Option Price: Selling price of a vehicle if that vehicle is purchased at the end of a lease period.

Residual Value: The value of a vehicle at the end of the lease period. The higher the residual value, the lower the monthly lease payments, on average.

Rental Reimbursement: Coverage to pay for rental car expenses while a vehicle is being repaired or until a new vehicle can be acquired.

Title: Vehicle ownership history

Towing Insurance: Reimburses for expenses if a vehicle needs to be towed.

Trade-in Allowance: Amount the dealer will pay for a trade-in if a new vehicle is purchased.

Umbrella Policy: A liability insurance policy that provides additional coverage extending beyond the limits in a standard vehicle insurance policy.

Uninsured Motorist Coverage: Protects the owner and occupants of a vehicle for bodily injury up to the policy limit in the event of an accident with a legally liable uninsured motorist.

Upside Down Loan: A loan where the amount owned is greater than the value of the vehicle.

Vehicle Identification Number (VIN): The vehicle serial number, usually found on the dashboard on the driver's side.

Warranty: Guarantees that certain mechanical and body parts will be repaired or replaced if failure occurs. Warranties are based on limits like mileage or elapsed time.

Life Insurance

Accelerated Death Benefit: A provision allowing the policyholder to receive all or part of the benefits of a policy before they die. Benefits may be paid for terminal illnesses, organ transplants, nursing home confinement, etc.

Accidental death benefit: A provision that pays more in case of a death by accident.

Amendment: A change to a policy that modifies certain policy benefits.

Assignment: Transferring rights and benefits of an insurance policy to another party.

Assumed interest rate: Minimum interest rate on a variable life insurance policy.

Beneficiary: The person or persons designated to receive death benefits from a life insurance policy.

Burial policy: A policy to cover funeral and burial costs.

Cash value: The money that accumulates in a life insurance policy while the policy is in force; can be borrowed against.

Commission: Fee paid to an agent or broker when a new life insurance policy is purchased.

Convertible term insurance: Exchanging a term life insurance policy for another plan of insurance without providing evidence of insurability, like a physical.

Cost-of-living rider: Increasing term insurance coverage, factoring in an increased benefit amount based on cost of living increases.

Death benefit: Amount paid to the beneficiary after the death of the policyholder.

Decreasing term: Term life policy where the death benefit decreases over time.

Effective date: The date the insurance policy goes into effect.

Endorsement: Additions to a policy that modify benefits or terms.

Evidence of insurability: Proof of an individual's health, financial status, lifestyle, habits, or job to the extent those conditions affect acceptability for insurance.

Face value: The dollar amount of the policy that will be paid at death or at maturity of the policy.

Flexible premium policy: A life insurance policy where the policyholder can increase or decrease the frequency or amounts of premiums.

Grace period: The time period during which the insured can pay overdue premiums and keep a policy in force.

Group life: Life insurance plans provided through a job, association, or other organization where the individual members of the group receive coverage.

Hazardous activity: Activities that may be considered too hazardous to qualify for coverage.

Insured: Person who, if he or she dies, will trigger a life insurance payout.

Lapsed policy: A policy that was terminated due to failure to pay premiums.

Material misrepresentation: A significant misstatement in an application form. The insurance company may not have to pay benefits if the misstatement was significant.

Mortgage life policy: Life insurance policy intended to pay off a mortgage balance if the insured dies during the mortgage term.

Paid-up life insurance: Insurance where no further or additional premiums are due.

Permanent life: a term used to describe any life insurance other than term life insurance.

Policyholder: The person who owns an individual insurance policy. This person may be the insured, a relative, the beneficiary, a company, or anyone else.

Premium: Amount paid by the policy owner for coverage.

Renewable term: A policy guaranteeing the policy owner the right to renew coverage at the end of the term without presenting evidence of insurability.

Rider: Written addition or amendment to an insurance policy that adds or limits the benefits payable under the policy. Typical riders include accelerated death benefits, accidental death benefits, automatic premium loan, guaranteed insurability, and premium waivers.

Surrender: Terminating or canceling a policy before the maturity date and receiving the cash surrender value.

Term life: Life insurance that offers no cash value but only pays a benefit if the insured passes away.

Universal life: Flexible type of life insurance contract that allows policy owners to adjust policy premiums and timing of payments.

Variable life: Type of whole life insurance policy in which the death benefit and the cash value relate to the investment performance of a separate account fund that the policyholder selects. The separate account assets are invested in bonds, money market funds, stocks, and other instructions.

Whole Life Insurance Policy: Form of cash value policy intended to be permanent, as opposed to coverage for a specific number of years.

Safeguard Financials

Card Scanner: A device used to scan and save information from credit cards, driver's licenses, passports, medical cards and other cards.

Crimeware: A term used to describe malware and other programs used to automate the process of identity theft and cyber crime. Crimeware is designed to access online account information and illegally access funds, etc.

Data Breach: Unintentional disclosure of information that compromises the security of personal information and can lead of identity theft. "Data breach" is typically used to describe inadvertent disclosure of information on the part of a company or organization.

Drive-by Download: Software automatically installed on a computer during a visit to a website, without user knowledge.

Dumpster Diving: Looking through trash for personal information, etc.

Fraud: An act or practice resulting in the loss of rights or property. Fraud typically involves making false and misleading representations in order to cheat or steal.

Hacker: An individual who creates or takes advantage of security weaknesses.

Identity Fraud: Using personal information that is "made up" as opposed to stolen from an individual.

Identity Theft: Stealing another person's information to commit a crime or fraud.

Keystroke Logging: Software tools that capture a user's keystrokes, thus gaining access to logins, passwords, and other information.

Mail Fraud: Stealing mail to obtain personal information, medical information, to apply for pre-approved credit cards, etc.

Malicious Adware: Advertising driven software that displays or downloads misleading advertisements to a computer. May be spyware.

Malware: Harmful software like viruses, Trojan horses, worms, and spyware.

Pharming: Redirecting Internet traffic from one website to another in order to trick users into entering personal information.

Phishing: Tricking a person into giving personal information, often through links sent within emails. Typically identity thieves phish by posing as a financial institution.

Pretexting: Collecting personal information by using false pretenses, typically over the phone or by email.

Security Alert: Statement added to a credit report after a credit bureau has been notified the consumer was a victim of fraud or identity theft. Helps protect the consumer from further occurrences.

SEO Poisoning: Manipulating search engine results to place malware site at the top of search engine results.

Spam: Unsolicited emails, often from non-legitimate businesses or entities.

Spyware: Any application that gathers information without an individual's knowledge.

Trojan Horse: An application that installs malicious programs that can run unnoticed by the user.

Virus: An application that can install itself and infect a computer without the user's knowledge.

Worm: Computer virus that can self-replicate by resending itself via email or other network application.

 

 

 

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