Financial Tools

Our glossary defines the terms that can help define your future.

Planning your financial future can be complicated — and being unclear about just one word can throw you off. Here we've defined some commonly used terms to help you with your planning.

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529 college savings plan

An education savings plan sponsored by a state or institution designed to help families set aside funds for future college costs. Any earnings in a 529 college savings plan are tax deferred.

401(k) plan

A type of tax-qualified retirement savings account, offered through an employer, which allows employees to put a percentage of earned wages into a tax-deferred investment account offered by the employer.

Accelerated death benefit

Usually having to do with terminal illness or catastrophic circumstances, this feature allows access to a portion of a life insurance policy's death benefit, or payout.


A type of insurance vehicle issued by an insurance company where contributions and earnings are tax-deferred, making it an attractive savings option for retirement. There are several types of annuities: fixed, variable, immediate, deferred, indexed and equity linked. As an annuity owner, you have control over how long the annuity is invested, when you receive benefits and how often you are paid.

Asset allocation

The strategy of investing your money among several asset classes, such as equities, fixed income and cash instruments, to balance risk and return in your portfolio based on your goals, risk tolerance and time horizon. Asset Allocation programs do not assure a profit or protect against loss in a declining market.

Automatic deposit

A regularly scheduled electronic deposit to an account. Also known as direct deposit.


The person or organization designated to receive proceeds after an insured's or owner's death.


The proceeds or payout from a life insurance policy, supplemental health policy or an annuity. Typically paid to the policy holder or the beneficiary.


A security representing the debt of the company or government issuing it. When a company or government issues a bond, it borrows money from you and you would then be considered a bondholder; it then uses the money to invest in its operations. In exchange, the company or government promises to repay you (the bondholder) the amount you invest, plus interest, at a set period of time called a maturity date.

Cash investment

A short-term, generally liquid, investment into which you invest cash and typically receive a return in 90 days or less. Examples include money market funds and certificates of deposit (CDs).

Cash value

With permanent life insurance, part of your monthly premiums go toward insuring your life and part goes toward building money or "cash value". This part of your policy earns tax-deferred interest and can be available for loans or withdrawals.


A restriction put on certain financial products indicating the highest level of earning permitted for a specified period. For example, if an annuity has a 3.75 percent ceiling, the most it can earn during the specified period is 3.75 percent, even if the market return was higher.

Certificates of deposit (CD)

A savings vehicle offered by a financial institution that earns a fixed rate of interest over a specified period of time. CDs are insured by the FDIC and are used as short-range or mid-range savings options.

Compounding interest

Interest paid on both the principal and the accumulated unpaid interest.


The amount of money you put into a savings plan, such as a 401(k) or IRA for retirement, or a 529 plan for college.

Conversion allowance

A credit the insurance company provides when converting a term life insurance policy to a permanent policy. In many instances, it can also help build the initial cash value amount in the new permanent policy.

Conversion date

The last day you are able to convert your term policy to a permanent policy.

Convertible term insurance

Term life insurance that can be exchanged (converted) for a permanent life insurance policy without having to qualify for coverage with another medical exam or risk assessment.

Death benefit

The payment a beneficiary receives upon the insured's or owner's death.

Deductible Contribution

A contribution that you may place into an IRA, 401(k), or other retirement plan each year that can reduce your taxable income by the same amount. That is, the deductible contribution is the portion of your retirement contribution that is tax deductible. The IRS generally sets annual limits on deductible contributions.


The strategy of having a variety of investments in your financial portfolio to hedge and balance against the investments already in it. Ideally, this minimizes the risk inherent in any one investment, and increases the possibility of optimizing a return overall. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Dollar cost averaging

An investment strategy in which you invest with the same amount of money at regular times. For example, you may buy $1,000 in Stock A every month, regardless of Stock A's current price. Because this means you buy fewer shares when the price is high and more when the price is low, dollar-cost averaging aims to reduce the average cost of the shares you buy. Dollar cost averaging is most common with shares of a mutual fund or a retirement plan.

Dollar cost averaging does not assure a profit and does not protect against loss in declining markets.

Eligible rollover distribution

The money in a retirement plan, such as a 401(k), that can be moved to another qualified plan such as an Individual Retirement Account (IRA) without triggering income tax or penalties.

Employer-sponsored retirement plan

A valuable benefit such as a 401(k) plan that may be offered to you as an employee that can help you save for retirement in a tax-advantaged way.

Expiry date

The last day the policy or rider(s) can be extended to.

Face amount

This is the amount of death benefit at the time of issue. The actual amount a beneficiary will receive may be less if you've taken out a loan or made a withdrawal.

Fixed annuity

This type of annuity offers a specified rate of return to the holder for a defined period of time.

Fixed interest rate (CDs and annuities)

An interest rate that does not change for a specified period of time.

Fixed interest rate (life insurance)

An interest rate that may change over the life of the policy but offers a minimum guaranteed rate.


A guard offered in some financial products indicating the lowest level of return for a specified period, even if the market return was lower.

Grace period

A period of time, as defined in your policy, following your premium due date in which you can make a payment to avoid cancellation.

Guaranteed premium

Your premium payments are fixed and will not change.

Immediate annuity

This type of annuity requires a single purchase payment upon which you'll begin receiving regular payments for the time period specified in your contract, which could last your lifetime. It is typically purchased by those entering retirement who want a predictable, steady stream of income, regardless of market activity. Also known as an income annuity.

In force

A term used to mean the policy's coverage is in effect.

Index funds

A type of mutual fund designed to replicate the performance of established securities indices, such as the S&P 500.

Indexed annuity

A type of an annuity in which the performance is linked to a specified market index, such as the S&P 500.

Individual Retirement Account (IRA)

A type of savings plan that helps you save for retirement during your working years by allowing you to make contributions up to a certain limit each year and offers certain tax advantages. Two types of IRAs are: (1) traditional IRA, which allows for tax deductible contributions and (2) a non-deductible IRA, which has non-deductible contributions.


The criteria that qualifies you for life insurance coverage. Factors include health, risk profile and life expectancy.


The person whose life is covered by the policy purchased.

Interest rate (debt)

The percentage of money you pay on the amount you owe on debt such as credit cards, mortgages and loans.

Interest rate (earnings)

The percentage of money you earn on your investment.

Life insurance

Provides payment to a beneficiary that can be the basis of financial stability and security after the death of the insured.

Long-term investment vehicle

An investment that you do not plan to use for at least ten or more years.

Modal factors

A multiplier used by a life insurance company to determine your premium payment based on how often you wish to pay - monthly, quarterly or annually.

Money market fund

The lowest-risk type of mutual fund that invests in Treasury bills, negotiable certificates of deposit and similar short-term investments.

Mutual fund

A pool of investments managed by professional money managers that are usually a combination of stocks, bonds, and cash investments. Mutual funds are sold by prospectus.

Paid-up life insurance

A type of contract that establishes a point in time when premium payments cease, but coverage does not.

Payment class

Establishes your premium payment based on the information outlined on your application and the results of your medical exam (if required).


A benefit, usually funded by an employer, that provides employees a stream of income in retirement.

Permanent life insurance

A type of policy that does not expire during the life of the insured and combines a death benefit with a savings portion that can build cash value. It is typically more expensive than term life insurance.


The documented contract of insurance.

Policy owner

The person who has the right to all privileges under the contract of insurance.

Policy owner (life insurance)

The person who has the right to all privileges under the contract of insurance and controls the policy. Generally, the owner and the insured are the same person.


The amount you pay to an insurance company for coverage.

Pre-tax contribution

Contributions to a retirement plan. You do not pay taxes on the contributions in the year they are made, but defer taxes until you begin withdrawing from the plan. Usually pre-tax contributions are made to traditional IRAs and most 401(k)s.


The amount of money you invest.


A legal document which is required by and filed with the Securities and Exchange Commission. It provides details and facts about an investment offering for sale to the public so that a consumer can make an informed decision at purchase.

Rate of return

The amount of money an investment generates over a given period of time as a percentage of the amount of principal originally invested.


The changing of the percentages of different types of investments in a portfolio. This could be due to changes in your investment goals or market conditions. If your investment goals change (or if the portfolio is not meeting them satisfactorily), you would rebalance the portfolio to maintain your original level of asset allocation. For example, if your portfolio is half bonds and half stocks and you wish to have lower risk, you might rebalance the portfolio to be three quarters bonds and one quarter stocks.


A feature that provides an additional benefit that can be added to your insurance policy or annuity contract. It is usually optional and available for an additional cost.


The uncertainty associated with any investment and the chance that the value of it could decline in the marketplace. That is, risk is the possibility that the actual return on an investment will be different from its expected return.

Rollover IRA

A type of individual retirement account that you fund with a lump-sum distribution from your IRA, employer's retirement plan such as a 401(k), when you change jobs or when you retire. The lump-sum distribution must be deposited in an IRA rollover account within 60 days of job separation to avoid taxes.

Roth IRA

A type of individual retirement account that you make with non-deductible contributions up to a certain limit throughout your working life where earnings grow tax-deferred. Unlike traditional IRAs, withdrawals are tax-free but contributions are not deductible.

S&P 500

Short for "Standard and Poor's 500," which is an index of the 500 most widely traded stocks on the New York Stock Exchange (NYSE).


An investment that represents ownership in a corporation.

Supplemental health insurance

A type of insurance designed to cover various out-of-pocket expenses beyond your regular health insurance coverage.

Surrender charge

The cost for early termination of your life insurance policy, annuity contract or other investment.

Target-date fund

A type of mutual fund that is designed with a specific year in mind and takes care of asset allocation and rebalancing for you.


Earnings on an investment taxed at a later point in time, usually when the money is withdrawn. Typically associated with earnings from Traditional IRAs and annuities.


Some investments are tax-exempt, which means you don't have to pay income tax on the earnings they produce.

Tax-filing date

The last date in which your tax preparation paperwork can be sent to the government for review - usually April 15 unless an extension is secured.


No taxes are due. With a Roth IRA, no taxes are due on earnings or withdrawals if certain conditions are met.


An account, such as a 401(k), that qualifies for favorable tax treatment from the IRS. It typically is in the form of a deferred or reduced tax liability.

Term life insurance

An affordable type of policy that provides coverage for a limited period of time, or "term."

Time horizon

The amount of time an individual anticipates leaving their money invested.

Traditional IRA

A type of individual retirement account where contributions may be tax deductible and earnings grow tax-deferred. Withdrawals may be subject to income tax.


A legal arrangement whereby control over property is transferred to a person or organization (the trustee) for the benefit of someone else (the beneficiary). Trusts are created for a variety of reasons, including tax savings and improved asset management.


The process that an insurance company uses to determine the risk of offering insurance to a potential customer based on a variety of conditions, including health, risk profile and life expectancy.

Universal life insurance

This type of policy places part of your premium into a cash account that earns interest and accumulates tax-deferred. It is designed to offer lifetime protection and is typically more expensive than term life insurance. It also gives you the flexibility to change your plan and payments with your needs.

Variable annuity

This type of annuity is an insurance company product designed to accumulate tax-deferred retirement savings and allows you to participate in the markets. The return fluctuates positively or negatively based on the market performance of the underlying investment options, sometimes called investment portfolios or subaccounts. Variable annuities are sold by prospectus.

Variable universal life insurance

This type of policy allows you to select a range of investment options to maximize the potential return of your policy's cash value.

Whole life insurance

This type of permanent policy covers you for your lifetime, not just a specific time period. It is often purchased with a smaller face amount to cover final expenses.


A legal document containing a person's wishes for his or her property and assets upon death. Unlike trusts, wills are subject to probate proceedings and become public at time of death.

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