Financial Glossary

Use my financial glossary to help figure out confusing financial terminology.

Please help add to the financial glossary. Suggest terms to add here.

Accrued interest: Interest which has accumulated but not been paid. On bond purchases, a buyer pays the seller accrued interest through the trading date.

Actuary: An individual trained in calculating insurance premiums, reserves and dividends.

Accidental death benefit: A life insurance option that increases the death benefit in the event that the insured’s death is accidental. If the accidental death benefit is double the face value of the policy, this option is often called a “double indemnity” provision.

Agent: Any person who acts legally for another person with the latter person’s consent.

Annuitant: The person designated to receive an annuity.

Asset: Something of value which is owned or possessed. Maybe be tangible (a house) or intangible (goodwill).

Balance sheet: List of a person or company’s assets minus liabilities.

Bankrupt: Legally when a debtor voluntarily or involuntarily is declared financially insolvent by a court. More loosely, financially ruined.

Blue chip: Term indicating the security of a company with a record of sustained profitability, superior management and future prospects.

Bond: A certificate of indebtedness. In the financial markets, a bond is evidence of a debt and future liability of a government entity, corporation, partnership or person.

Book value: The proportionate amount of money that would accrue to each share of outstanding capital stock if all of a corporation’s assets were converted to cash at market value on a specific date and all debts and financial liabilities were paid in full. Simpler: if you sold everything a company owned and then paid all the company’s debts, then converted the value to stock, how much this amount would be in dollar terms.

Capital stock: All outstanding preferred stock and common stock of a corporation listed at the dollar amount assigned to a security by the issuer.

Cash surrender value: An amount available to an insurance policyholder upon voluntary termination of a policy before it becomes payable by death or maturity.

Chartered Life Underwriter (CLU): A professional designation given to life insurance professionals who have passed a series of examinations and met other eligibility requirements.

Collateral: Property or evidence or property given to a creditor as security for repayment of a loan.

Contestability period: The period of time (normally two years but varies) during which the insurer can challenge the validity of a life insurance policy.

Convertibility: The ability to exchange one type of insurance for another (i.e. whole life to term) without additional medical review or examination.

Corporation: Most common form of business organization in which the total worth of the organization is divided into shares of stock.

Credit life insurance: Term life insurance sold by a lender to cover the repayment of a loan, installment purchase or other obligation in case of the debtor’s death.

Derivative securities (derivatives): Financial instruments which represent another security and derive their value from the market performance of the security they represent. Example: commodity futures and stock options.

Dividend: Distribution of the earnings of a corporation, usually in the form of cash, stock or property.

Dividend (to policyholder): In an insurance policy, a return of part of the premiums. A refund which represents the difference between the premium charged by the insurance company and the company’s mortality costs, actual expenses and investment expenses.

Dow-Jones averages: The arithmetic mean of closing prices on a selected group of industrial, public utility and transportation stocks, including a composite average of all of the selected stocks on the New York Stock Exchange (NYSE).

Endowment insurance: Type of insurance that pays the insured if they are living on the maturity date of the policy or the beneficiary if the insured dies prior to the maturity date of the policy.

Executor: A person, trust, bank or agency identified as the entity to carry out provisions of a will.

Face amount: The amount stated in an insurance policy that will be paid upon the death of the insured or upon the maturity date of the policy.

Family policy: Life insurance policy that provides coverage on all members of the family in one contract.

Federal Reserve System: The entire U.S. banking system. Includes the Federal Reserve Banks, Federal Reserve Branch Banks, all national banks and state-chartered banks that have been admitted to membership in the Federal Reserve system.

Group insurance: Insurance plan which members of a group are insured under a single policy issued to the group, while the individual members of the group have separate certificates of insurance (example, employees of a company).

Hedge fund: A private equity investment group, generally established as a limited partnership for the purpose of investing money.

Indemnity: An insurance industry principle which holds that the individual recovering under an insurance claim is only entitles to be restored to the approximate financial condition that they were in prior to the loss.

Independent agent: An individual business operator who represents several insurance companies and divides the policies that they write among the companies they represent. A good choice to get the lowest priced policy.

Indexed life insurance: Type of whole life insurance policy that provides for both the death benefit and the premiums to automatically increase each year in accordance with the annual increase in the consumer price index (CPI).

Insolvency: Financial condition existing when a person or company’s liabilities, other than those representing ownership, are more than its assets.

Investment portfolio: List of income producers or capital assets owned by an individual, company, partnership, institution or trust. Examples: stocks, bonds, promissory notes, other companies, etc.

Legal corporate person: Term applied to a corporation which is permitted to own property, sue, be sued, and accrue credit as well as exercise many rights normally given to a human.

Lien: A legal claim on property done to secure payment of a debt or fulfillment of some form of contract obligation. Example: a mortgage on a house is a lien on the house. If the mortgage is not paid by the home owner, the bank can foreclose on the home because of their lien on the property.

Listed security: Stock, bond or other security that is accepted, listed, recorded and traded on one of the security exchanges. Example, all of the stocks on the NYSE.

Living benefit rider: Insurance policy clause which allows the insured to receive all or part of the poicy’s death benefit if certain conditions are met. Often used to help the insured pay their health care costs if they become terminally ill.

Marginal buying: Buying additional securities, paid for in part from funds borrowed from a bank or broker, using the securities already owned as collateral. Also called buying on margin.

Master contract: Contract between an insurance company and a group insurance policy holder (usually an employer or association). Insures the participating individuals under a single life insurance contract.

Maturity date: Date when payment of the principal is due on securities and commercial paper. Example: when a bond matures, the entity that borrowed the money in the form of the bond pays the other party (the holder of the bond) their principal back.

Monetary policy: Government actions relating to currency revaluation, credit expansion/contraction, discount/re-discount policy, and the purchase and sale of government securities.

Money market fund: Mutual fund that specializes in investing in short-term securities that ideally have low volatility. Money market funds are ways for a customer to hold near cash assets and get a little higher interest rate than a savings account.

Mutual company: Usually a corporation with no capital stock and whose profits, less certain deductions, are available for distribution to customers.

Mutual insurance company: Nonprofit insurance company that is owned by the policyholders.

Option: Oral or written agreement, often for a prepaid consideration, allowing person to buy or sell something of value within a specified time period.

Over-the-counter (OTC) market: Purchase and sale of stock and/or other securities outside the organized stock exchanges.

Paid-up insurance: Insurance on which all required premiums have been paid.

Period certain: Specified time during which the insurer guarantees the payment of benefits.

Permanent life insurance: Refers to any type of life insurance that accrues a cash value.

Port authority: A commission or agency, usually created by legislative action, which is given power to coordinate land, water and sometimes airplane traffic in and around an area.

Power of attorney: Legal authority giving one person power to act on behalf of another person in all matters or in only limited matters according to the agreement.

Price-to-earnings ratio (PE ratio): The market price of a company’s common stock divided by its per-share earnings.

Prospectus: A document which offers securities for sale. Required by regulation to meet certain standards and specifications of the securities and exchange commission, plus directives of the state where the securities are sold.

Public corporation: Corporation created by the government, usually to serve a public purpose. Example: a municipal water company.

Public service corporation: Private corporation providing a service of particular importance for the public’s welfare, such as telephone or electric service corporations.

Reinstatement provision: Provision that outlines the conditions that an insurance policyholder must meet in order for the insurer to reinstate the policy after it has been terminated for nonpayment of premiums.

Reinsurance: Transaction between two insurance companies in which one company purchases insurance from another company to cover a portion of the risks that the first company doesn’t want to retain.

Renewability: Insurance provision which allows the insured to renew a term policy without medical examination. Premium payments are usually higher.

Short interest: On a given date, the difference between the number of shares of stock “short-sellers” have borrowed and sold, and the number they must buy in the future to replace them. When short interest on a security increases, it means that the short-sellers think the market price of the security will decrease.

Sinking fund: Fund to which deposits are made on a periodic basis for the purpose of ultimately paying a debt(such as a bond) or replacing an asset, such as a building.

Solvency: Condition that exists when a company or person’s total assets exceed their total liabilities.

Stock rights: Short term stock purchase option which allows existing stockholders to buy shares of a new stock issue at a price with is below the prevailing market price of their currently held shares.

Stop-loss order: An order to a stockbroker to sell a security at a stipulated price during a declining market in the security, or to buy a security at a stipulated price during a rising market in that security.

Supplemental group life insurance: Life insurance coverage that exceeds basic coverage provided in a group policy. Supplemental coverage is usually paid for by the insured.

Trust: An arrangement whereby property is held by one person (called a trustee) for the benefit of another.

Underwriter: Organization that assesses insurance risk and guarantees that funds will be available to pay for insured losses.

Usury: Interest in excess of the maximum amount established by law.

Warrant: Long term stock purchase option which allows the holder to buy shares of stock at a specified price.

Wasting asset: Asset which cannot be replaced and its life cannot be prolonged. Example: a coal mine.

Working capital: The current assets of an enterprise, less the amount of current liabilities, as of a certain date.

Yield: In the financial market, the annual net return on an investment expressed as a percent.

Yield, current: An investment’s current annual return, expressed as a percent, at its current market price.

Tags: Financial Glossary