401(k) Plan: A qualified profit sharing or stock bonus plan under which plan participants have an option to put money into the plan or receive the same amount as taxable cash compensation. Amounts contributed to the plan are not taxable to the participants until withdrawn. Generally funded entirely or in part through salary reductions elected by employees. Salary reductions are subject to an annual limit.

403(b) Plan: A tax-deferred annuity retirement plan available to employees of public schools and certain nonprofit organizations.

Absolute Assignment: A policy assignment under which the assignee receives full control over the policy and full rights to its benefits. As a general rule, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of such debt, even though the assignment may be absolute in form. The insurance company does not guarantee the validity of the assignment.

Accidental Death Benefit: In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.

Accumulation: In property and casualty insurance, refers to the total combined risks that could be involved in a single loss event.

Act of God: An accident or event resulting from natural causes, without human intervention or agency, and one that could not have been prevented by reasonable foresight or care, e.g., floods, lightning, earthquake, or storms.

Actual Cash Value: Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation

Actuary: An individual, often holding a professional designation, e.g., Fellow of the Casualty Actuarial Society (FCAS), who computes statistics relating to insurance, typically estimating loss reserves and developing premium rates.

Adjuster: One who settles insurance claims. This typically involves investigation of the loss and a determination of the extent of coverage.

Aleatory contract: An agreement concerned with an uncertain event that provides for unequal transfer of value between the parties. Insurance policies are aleatory contracts because an insured can pay premiums for many years without sustaining a covered loss. Conversely, insureds sometimes pay relatively small premiums for a short period of time and then receive coverage for a substantial loss.

Annual Crediting Cap: The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity. Annuity: A stream of periodic payments made over a specified period of time.

Authorized non-admitted reinsurer: An unlicensed reinsurer authorized to transact reinsurance in the state or country.

Aliases (separate with |): A.

Bailee: A person or organization to whom possession of the property of others has been entrusted, usually for storage, repair, or servicing. Except for policies issued expressly for such purposes, most property policies specifically prohibit coverage for benefit of a bailee.

Bancassurance: The marketing and sale of insurance products through bank distribution channels.

Bankruptcy condition: A common insurance policy condition that prevents an insurer from being relieved of its obligations in the event of bankruptcy or insolvency of the insured or the insured's estate.

Before-Tax Earnings: A taxpayer's gross income from salary, commissions, sales, fees, etc., before deductions for federal, state or other income taxes.

Beneficial Interest: A financial or other valuable interest arising from an insurance policy regardless of who formally owns the policy.

Beneficiary: An individual, institution, trustee or estate which receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, or other contract.

Benefit Period: In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

Binder: A temporary, binding agreement, secured by a payment to evidence good faith, used until a formal contract takes effect.

Book Value: An accounting term. The book value of a stock is determined from a company's records, by adding all assets then deducting all debts and other liabilities, plus the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to fair market value.

Broker: An individual or firm which acts as an intermediary between a buyer and seller, usually charging a commission. For securities and most other products, a license is required.

Buy-Sell Agreement: An agreement between the owners of a business that provides that the shares owned by any one of them who dies or withdraws from the business shall be sold to and will be purchased by the surviving co-owners or by the entity itself at a value or formula previously agreed upon by the parties and stipulated in the agreement. Also applies to buyout arrangements between owners and key employees.

Bypass Trust: An estate planning device (also called a credit shelter trust, family trust, or B trust in "AB" plans where the A trust funds for the marital deduction) used to minimize the combined estate taxes payable by spouses whereby, at the death of the first spouse, the estate is divided into two parts and one part is placed in trust usually to benefit the surviving spouse without being taxed at the surviving spouse's death, while the other part passes outright to the surviving spouse or is placed in a marital deduction trust. A by-pass trust permits a maximum of $1.350,000 transfer to heirs of the spouses on an estate tax free basis under the unified gift and estate tax credits as they exist in 2001.

Aliases (separate with |): B

Capital: Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company's policyowners in the event it develops financial problems; the policyowners' benefits are thus protected by the insurance company's capital. Shareholders' interest is second to that of policyowners. Capital Gain or Capital Loss: The profit or loss from the sale of a capital asset.

Capitalization: The total amount of the various securities issued by a corporation. Capitalization may include bonds, debentures, preferred and common stock, long term debt and surplus. Bonds and debentures are usually carried on the books of the issuing company in terms of their par or face value. Preferred and common shares may be carried in terms of par or stated value. Stated value may be an arbitrary figure decided upon by the board of directors or may represent the amount received by the company from the sale of the securities at the time of issuance.

Captive Agent: Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.

Cash Basis Method: A method of determining when income must be reported and when expenses can be deducted. It is used by most individual taxpayers. Certain partnerships, corporations, and other taxpayers may not use the cash method. Under the cash method, income is generally reported in the tax year money is received, and expenses are usually deducted in the tax year they are paid.

Cash Surrender Value: The equity amount available to the owner of a life insurance policy should he or she decide it is no longer wanted. Calculated separately from the legal reserve.

Cash Value: The equity amount available to the policy owner when a life insurance policy is surrendered to the company, or the amount upon which the total available for a policy loan is determined. During the early policy years in a traditional whole life policy, the cash value is the reserve less a surrender charge; in the later policy years, the cash surrender value usually equals or closely approximates the reserve value.

Ceded Reinsurance Leverage: The ratio of the reinsurance premiums ceded, plus net ceded reinsurance balances from non-US affiliates for paid losses, unpaid losses, incurred but not reported (IBNR), unearned premiums and commissions, less funds held from reinsurers, plus ceded reinsurance balances payable, to policyholders' surplus. This ratio measures the company's dependence upon the security provided by its reinsurers and its potential exposure to adjustment on such reinsurance. Charitable Gift Annuity: An arrangement whereby the donor makes a gift to charity and receives back a guaranteed lifetime (or joint lifetime) income based on the age(s) of the annuitant(s).

Charitable Lead Trust: An arrangement whereby the charity receives an income from a trust for a period of years, then the remainder is paid to non-charitable beneficiaries (generally either the donor or his or her heirs).

Charitable Remainder Annuity Trust: A charitable trust arrangement whereby the donor or other beneficiary is paid annually an income of a fixed amount of at least 5% but not more than 50% of the initial fair market value of property placed in the trust, for life or for a period of up to 20 years; one or more qualified charitable organizations must be named to receive the remainder interest upon the death of the donor or other income beneficiaries, and the value of the charitable remainder interest must be at least 10% of the net fair market value of all property transferred to the trust, as determined at the time of the transfer.

Charitable Remainder Trust: An arrangement wherein the remainder interest goes to a legal charity upon the termination or failure of a prior interest.

Charitable Remainder Unitrust: A charitable trust arrangement whereby the donor or other beneficiary is paid annually an income of a fixed percentage of at least 5% but not more than 50% of the annually revalued trust assets, for life or for a period of up to 20 years; one or more qualified charitable organizations must be named to receive the remainder interest upon the death of the donor or other income beneficiaries, and the value of the charitable remainder interest must be at least 10% of the net fair market value of all property transferred to the trust, as determined at the time of the transfer.

Codicil: A legal document, which supplements and changes an existing will. Generally utilized to make minor changes to the original will.

Collateral Assignment: When a life insurance contract is transferred to an individual or other party as security for a debt. This usually temporary assignment does not transfer all policy rights.

Collateral Assignment Method (Split Dollar): A policy ownership arrangement under a split-dollar arrangement using life insurance where the employee (or a third party) owns the policy and names a personal beneficiary but assigns part of the policy or death benefit to the employer as collateral for the employer's premium advances under the policy.

Concealment: Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.

Consideration: One of the elements of a binding contract; the exchange of values by the parties to the contract. Such values may be money, promises, property, etc. In insurance, the policy owner's consideration is the first premium payment and the application; the insurance company's consideration is the contract itself.

Constructive Receipt Doctrine: A federal tax rule, which provides that when a taxpayer has an unrestricted right to receive a pecuniary benefit, that is when it is made available without a substantial risk of forfeiture, the benefit is considered to have been received for income tax purposes whether or not it was actually received.

Contingent Beneficiary: Beneficiary of a life insurance policy who is entitled to receive the policy proceeds on the insured's death if the primary beneficiary dies before the insured; or the beneficiary who receives the remaining payments if the primary beneficiary dies before receiving the guaranteed number of payments.

Convertible: Term life insurance that can be exchanged for a cash value life insurance policy without evidence of insurability.

Corporate Owned Life Insurance (COLI): Life insurance owed by a corporation, insuring the lives of its employees.

Corpus of a Trust: The term used to designate the body of assets placed in a trust. The trust holds title to all property included in the corpus.

Cost of Insurance (COI): The cost of insurance rate charged on the difference between the death benefit and account value, also known as the net amount at risk. The cost of insurance rate is set to cover more than the cost of providing the death benefit. The cost of insurance rate helps cover administrative costs, taxes, and other expenses. The cost is deducted from the account value monthly.

Credit Shelter Trust: An estate planning device (also called a bypass trust, family trust, or B trust in "AB" plans where the A trust funds for the marital deduction) used to minimize the combined estate taxes payable by spouses whereby, at the death of the first spouse, the estate is divided into two parts and one part is placed in trust usually to benefit the surviving spouse without being taxed at the surviving spouse's death, while the other part passes outright to the surviving spouse or is placed in a marital deduction trust. A credit shelter trust permits a maximum of $1.350,000 transfer to heirs of the spouses on an estate tax free basis under the unified gift and estate tax credits as they exist in 2001.

Cross Purchase Buy Sell Plan: In a cross purchase plan, the surviving owners (rather than the business itself) agreed to buy the deceased or departing owner's business interests. That purchase is made for an agreed-on price or according to an agreed-on formula.

Crummy Trust: A trust established granting a beneficiary a limited power to withdraw income or principal or both. This power is exercisable during a limited period of time each year and is non-cumulative. The power of withdrawal is generally limited to the amount excludable from gift tax liability under the annual gift tax exclusion or to the greater of $5,000 or 5 percent of the trust property.

Cumulative Planned Premium: The total of the planned premiums scheduled to be paid to date by the policy owner.

Cumulative Loan: The total of the annual loans and loan interest, if accrued, to date.

Cumulative Retirement Income: The total of the annual retirement income distributions projected to be taken to date from an insurance policy whether by way of loans or withdrawals.

Custodianship: An ownership arrangement in which property management rights are given to a custodian for the benefit of a child beneficiary under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act; a custodian's duties resemble those of a trustee, although the custodian does not take legal title to the trust property and custodianship ends when the minor reaches the age of majority as specified by state law. May also apply to property management rights of individuals who are determined to be incompetent to handle their own affairs.

Aliases (separate with |): C

Death Benefit Only Arrangement (DBO): A type of deferred compensation arrangement in which an employer agrees to pay only a death benefit to a deceased employee's heirs rather than the customary retirement benefit (and perhaps ancillary benefits) associated with conventional deferred compensation.

Decedent: The person who has died.

Declarations: Statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.

Deferred Compensation Plan: A plan in which the executive elects to defer compensation into an account in the expectation of receiving the deferrals plus earnings at retirement; may involve company contributions.

Defined Benefit Plan: A plan in which the company specifies the benefit the plan will deliver. Typically involves only company contributions; company bears the investment risk. (Examples: pension or cash balance plan).

Defined Contribution Plan: A plan in which the company defines the contribution it will make to the employee's account in the plan rather than a fixed benefit the employee will receive. Typically involves both company and employee contributions; employee bears the investment risk.

Direct Skip: An outright generation-skipping transfer, either by gift or at death, to a recipient, known as a "skip person," who is two or more generation levels below the transferor. This type of property transfer prompts the generation-skipping transfer tax.

Direct Transfer: The movement of a tax-deferred retirement asset from one plan or custodian directly to another. A direct transfer is not a withdrawal and does not incur any taxes or penalties.

Donor: A person who makes a gift. The person setting up a trust can be called donor, trustor, grantor, or settlor.

Dower: The life estate of a widow in the property of her husband. At common law a wife had a life estate in one-third (in value) of the property of her husband who died without leaving a valid will or from whose will she dissented. In many states common law dower has been abolished by statute or never has been recognized.

Durable Power of Attorney: A written legal document which allows one person (the principal) to authorize another person (the attorney-in-fact or agent) to act on his or her behalf with respect to specified types of property, and which may remain in effect during a subsequent disability or incompetency of the principal.

Durable Power of Attorney for Health Care: A written legal document which grants decision-making powers related to health care to an agent; generally provides for removal of a physician, the right to have the incompetent patient discharged against medical advice, the right to medical records, and the right to have the patient moved or to engage other treatment.

Aliases (separate with |): D

Economic Benefit: The value of the death benefit protection provided to employee under a split dollar plan, as defined by IRS revenue rulings and notices. The economic benefit amount is equal to the employee death benefit multiplied by the economic benefit rate, plus the cost of "other benefits" that are owned, controlled by or otherwise provided to the employee under the policy. The economic benefit rate is an age specific rate per thousand, which may be determined from government tables (i.e., IRS Table 2001 for individual policies, or the rate calculated by applying the Greenberg to Greenberg formula to IRS Table 2001 rates for joint survivor policies) or by using rates found in ING Security Life's alternative term products (single life alternative term or joint survivor alternative term).

Economic Benefit Doctrine: A federal tax rule, which provides that when an employer provides an economic benefit to an employee, that benefit is includable in the employee's gross income even if not received in cash or property.

Employee Benefit Plan: A plan established or maintained by an employer or employee organization, or both, for the purpose of providing employees a certain benefit, such as pension, profit-sharing, stock bonus, thrift medical, sickness accident, or disability benefits.

Employee Benefit Trust: A trust established to hold the assets of an employee benefit plan.

Employee Stock Ownership Plan: An Employee Stock Ownership Plan (ESOP) is essentially a stock bonus plan in which employer stock is used for contributions. A "KSOP" plan also includes §401(k) Plan features. Employer contributions are tax deductible and are not currently taxed to the employee. Earnings accumulate income tax deferred and distributions are generally taxed as ordinary income.

Endorsement: Written provision that adds to, deletes, or modifies the provisions in the original contract.

Endorsement Method (Split Dollar): A life insurance policy ownership arrangement under a split-dollar arrangement in which the employer owns the policy and an endorsement to the policy spells out the employee's rights.

Equity Split-Dollar: An arrangement in which the employer's share of the cash value and death benefit of life insurance on an employee's life is confined to its aggregate net premium payments; any cash value in excess of the employer's premiums inures to the benefit of the other party (employee or third party). The taxation of this arrangement is addressed in IRS Notice 2001-10.

ERISA: The acronym for the Employee Retirement Income Security Act of 1974, a federal law that established minimum standards for certain employee benefit plans, especially qualified employer retirement plans.

Errors and Omissions Insurance: Liability insurance policy that provides protection against loss incurred by a client because of some negligent act, error, or omission by the insured.

Escheat: Assignment of property to the state because there is no verifiable legal owner - typically, where there is no heir to property.

Estate: Everything of value (all property) that a person owns while living or at the time of death.

Estate Planning: Process designed to conserve estate assets before and after death, distribute property according to the individual's wishes, minimize federal estate and state inheritance taxes, provide estate liquidity to meet costs of estate settlement, and provide for the family's financial needs.

Estate Tax: A tax imposed on the transfer of property from a decedent to his or her heirs, legatees or devisees.

Executor or Executrix: An individual or institution nominated in a will and appointed by a court to settle the estate of a deceased.

Aliases (separate with |): E

Fair Market Value: The price at which an item can be sold at the present time between two unrelated people, neither under compulsion to buy or sell.

Family Attribution Rules: A federal tax rule that may cause the ownership of stock by one family member to be attributed to another for purposes of determining the income tax consequences of a distribution by the corporation in redemption of the stock.

Fee Simple Ownership: Outright ownership of property with absolute rights to dispose of or gift it to anyone.

Fiduciary: A person in the position of great trust and responsibility, such as the executor of a will or the trustee of a trust.

Five and Five Power: A provision that allows a trust beneficiary to withdraw the greater of $5,000 or five percent of the principal from a trust without causing the entire trust property to be included in his or her estate for federal estate taxation.

Fixed-Period Option: Life insurance settlement option in which the policy proceeds are paid out over a fixed period of time.

Funding Instrument: An insurance contract or trust agreement that states the terms under which the funding agency will accumulate, administer, and disburse the pension funds.

Future Interest: An ownership interest in property in which unlimited possession or enjoyment of property is delayed until some future time.

Aliases (separate with |): F

General Partner: A general partner is a partner of a partnership who is personally liable for all partnership debts and is permitted to participate in the management of the partnership.

General Partnership: A partnership that has only general partners and no limited partners. Each partner is liable for all partnership debts and there is no limited liability.

General Power of Appointment: A power of the donee (the one who is given the power) to pass on an interest in property to whomever he pleases, including himself or his estate.

Generation Skipping Transfer (GST): A transfer of property, usually in trust, that is designed to provide benefits for beneficiaries who are two or more generations younger than the generation of the grantor.

Generation Skipping Transfer Tax (GST): A transfer tax generally assessed on transfers to grandchildren, great grandchildren and others who are at least two generations younger than the donor.

Generation Skipping Transfer Tax Exemption: An exemption from generation-skipping tax for transfers by an individual either during life or at death.

Generation Skipping Trust: Any trust having beneficiaries who belong to two or more generations younger than the grantor.

Gift: A voluntary transfer of property for which nothing of value is received in return. If the Internal Revenue Service is to recognize a transfer as a gift, the donor(s) must unconditionally transfer all title and control of the property to the recipient(s) at the time the gift is given.

Gifting: A means of implementation of an estate plan through gifts to intended successors in the ownership of assets owned by the person(s) making the gifts.

Grace Period: Period of time during which a policyowner may pay an overdue premium without causing the policy to lapse.

Grantee: A person to whom property is transferred by deed or to whom property rights are granted by means of a trust instrument or some other document.

Grantor: The person who establishes the trust. Also called the creator, settlor, donor or trustor.

Grantor Retained Annuity Trust: A trust in which the grantor retains the right to a set annual dollar amount (the annuity) for a fixed term and gives the principal to others, such as the grantor's children, at the end of that term. If the grantor survives until the end of the annuity term, all of the trust principal will be excluded from the grantor's estate for estate tax purposes. A grantor retained annuity trust is sometimes referred to as a "GRAT."

Grantor Trust: For purposes of the income taxation of trusts, a trust in which the grantor or a third party, because of certain rights to income or principal or certain powers over the disposition of income and principal, is treated as the owner of the trust and taxed on the income thereof. Consequently, a grantor trust is not treated as a separate entity for income tax purposes.

Gross Estate: The total value of all property in which a deceased had an interest. This must be included in his or her estate for federal tax purposes.

Group "Carve Out" Life Insurance Plan: This plan is an alternative to group term insurance. It provides life insurance coverage to selected employees by "carving out" all or a portion of their coverage under an employer sponsored group term plan and then provides them with individual policies. The plan can be designed as either a Bonus §162 Plan or a split dollar plan.

Group Life Insurance: Life insurance provided on a number of persons in a single master contract. Physical examinations are not required, and certificates of insurance are issued to members of the group as evidence of insurance.

Group-Term Life Insurance Program: An employer may provide employees with life insurance coverage through an IRC §79 group-term policy, the first $50,000 of which generally produces no taxable cost to the employee.

Guaranteed Investment Contract (GIC): A debt instrument issued by an insurance company, usually in a large denomination, and often bought for retirement plans. The interest rate paid is guaranteed, but the principal is not.

Guaranteed Insurability: An insurance policy in which the insurer is required to renew the policy for a specified amount of time regardless of changes to the health of the insured. The agreement requires that premiums are paid on time and that the insurer makes no changes except if a premium change is made for an entire class of policyholders. Also called guaranteed renewable or conversion privilege or convertible term insurance.

Guaranteed Net Surrender Value: The guaranteed surrender value which equals the guaranteed net policy value minus the surrender charge, if any.

Guardian: A person legally entrusted with the care of, and managing the property and rights of, another person, usually a minor child.

Aliases (separate with |): G

Heir: A person entitled by law to inherit part or all of the estate of an ancestor who died without leaving a valid will.

Holographic Will: A will written entirely in the testator's own handwriting

Human Life Value: For purposes of life insurance, the present value of the family's share of the deceased breadwinner's future earnings.

Aliases (separate with |): H

Incapacity: The lack of ability to act on your own behalf.

Incidents of Ownership: Includes a variety of rights and powers that an insured decedent may have held over a life insurance policy; the possession of one or more of these incidents of ownership within three years of death will bring the policy proceeds into the insured's gross estate.

Income Beneficiary: The beneficiary of a trust who is entitled to receive the income from it.

Income in Respect of a Decedent (IRD): Income earned by a decedent or income to which the decedent had a right prior to death, but which was not properly includible in his or her gross income prior to death

Incontestable Clause: A provision in a life insurance policy that prevents the insurer from revoking coverage because of alleged misstatements by the insured after a specified period, usually about two years.

Individual Retirement Account (IRA): A tax-deferred retirement account for an individual that can be established by a person with earned income. Earnings accumulate tax-deferred until the funds are withdrawn beginning at age 59 ½ or later (or earlier, with a 10% penalty).

Initial Reserve: In life insurance, the reserve at the beginning of any policy year.

Installment Sale: A sale in which taxable gain is recognized over a number of years as the payment for the property sold is received.

Insurable Interest: The expectation of a monetary loss that can be covered by insurance.

Insurance: Pooling of fortuitous losses by transfer of risks to insurers who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk.

Insurance Trust: An irrevocable trust established to own an insurance policy or policies and thereby prevent them from being included in the insured's estate.

Insuring Agreement: That part of an insurance contract that states the promises of the insurer.

Intangible Property: Property that cannot be touched and that represents real value such as bonds, stock certificates, promissory notes, certificates of deposit, bank accounts, contracts, leases, and other similar items.

Inter vivos Trust: A type of trust created during the settlor's lifetime.

Interest Credit: The nonguaranteed amount credited to the policy's account value based upon a rate of interest specified by the insurance company.

Interest Option: Life insurance settlement option in which the principal is retained by the insurer and interest is paid periodically.

Intergenerational Succession: Succession in property ownership in which the property is transferred from one generation to another; usually from members of an older generation to members of a younger generation.

Intestate: A person who dies without having made and left a valid will.

Intestate Succession: The distribution of property to heirs according to the statutes of the state of residency upon the death of a person who owned the property but did not leave a valid will.

Investment Gain/Loss: The total increase or decrease in account value as a result of investment division performance during the policy year.

Irrevocable Beneficiary: Beneficiary designation allowing no change to be made in the beneficiary of an insurance policy without the beneficiary's consent.

Irrevocable Trust: A trust that cannot be changed or terminated after it is established.

Aliases (separate with |): I.

Joint Tenancy: A form of ownership shared with an unlimited number of individuals. Each tenant owns an equal undivided share of the property.

Joint Tenancy with Rights of Survivorship (JTWRS): The holding of property by two or more individuals in a manner that upon the death of one tenant, the survivor(s) succeed to full ownership by operation of law.

Aliases (separate with |): J

Keogh Plan (HR-10 Plan): Retirement plan individually adopted by self-employed persons.

Kiddie Tax: Unearned income (dividends, rents, interest, etc) of a child under age 14 will be taxed to the child at the parent's highest income tax rate.

Aliases (separate with |): K

Lack of Marketability Discount: When the value of an asset is less than its initial or expected fair market value due to unusual circumstances that make it not readily saleable. For example, a limited partnership interest.

Lateral Succession: Succession in property ownership in which the property is transferred between members of the same generation.

Law of Large Numbers: Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.

Legal Reserve: Liability item on a life insurer's balance sheet representing the redundant or excessive premiums paid under the level-premium method during the early years. Assets must be accumulated to offset the legal reserve liability. Purpose of the legal reserve is to provide lifetime protection.

Letters of Administration: Document issued by the probate court giving the administrator authority to administer the estate.

Letters Testamentary: Document issued by the probate court giving the executor authority to administer the estate under the provisions of the decedent's will.

Liability: A financial obligation, debt, claim, or potential loss.

Life Income Option: Life insurance settlement option in which the policy proceeds are paid during the lifetime of the beneficiary. A certain number of guaranteed payments may also be payable.

Life Insurance Planning: Systematic method of determining the insured's financial goals, which are translated into specific amounts of life insurance, then periodically reviewed for possible changes.

Limited Liability Company (LLC): An entity formed under state statute that has the legal characteristic of limited liability similar to that of a corporation, while it may qualify to be treated as a partnership for tax purposes.

Limited Partner: A partner in a partnership who can't participate in the management of the partnership's business. A limited partner's liability is limited to loss of his investment in the partnership.

Limited Partnership: Form of partnership composed of both a general partner(s) and a limited partner(s); the limited partners have no control in the management of the company and are usually financially liable only to the extent of their investment in the partnership.

Living Trust: A written legal document into which you place all of your property, with instructions for its management and distribution upon your disability or death.

Loan: Money that is lent. In life insurance a loan can be taken against the cash value of a life insurance policy. If the insured dies while there is an outstanding loan balance, the amount of the loan and any unpaid interest due will be deducted from the death proceeds.

Loan Interest Charge: The annual interest expense charged to the policy owner on the amount borrowed from a policy's cash value. If loan interest is not paid in cash, it is added to the outstanding loan balance. The unpaid loan interest will then increase the amount borrowed.

Aliases (separate with |): L

Marital Deduction: A deduction allowing for the unlimited transfer of any or all property from one spouse to the other generally free of estate and gift tax.

Medical Information Bureau (MIB): Bureau whose purpose is to supply underwriting information in life and health insurance to member companies, which report any health impairments of an applicant for insurance.

Minor Child: A person who has not yet reached the legal age of majority. This age can differ with each state, but generally is between 16 and 21 years. The term does not apply to an emancipated minor.

Minority Discount: A discount applied to the value of an interest in a corporation, limited liability company or limited partnership that is not publicly marketable to reflect the fact that a minority interest in the company has less value than a controlling interest, since the holder of the former cannot control business actions.

Aliases (separate with |): M

National Association of Insurance Commissioners (NAIC): Group founded in 1871 that meets periodically to discuss industry problems and draft model laws in various areas and recommends adoption of these proposals by state legislatures. The NAIC opposes federal regulation of insurance.

Needs Approach: Method for estimating amount of life insurance appropriate for a family by analyzing various family needs that must be met if the family head should die and converting them into specific amounts of life insurance. Financial assets are considered in determining the amount of life insurance needed.

Net Amount at Risk: In life insurance, the difference between the face value of a life insurance policy and its cash value (also known as "pure amount of protection").

Nonforfeiture Law: State law requiring insurance companies to provide at least a minimum nonforfeiture value to policyowners who surrender their cash value life insurance policies.

Nonqualified Deferred Compensation Plan: A contractual arrangement that calls for paying an individual or group of executives future benefits. It does not qualify for favorable tax treatment, but has far fewer restrictions than qualified plans. Non-qualified plans are unsecured and subject to risks; they must remain "unfunded" to avoid current taxation.

Aliases (separate with |): N

Ownership Clause: Provision in life insurance policies under which the policyowner possesses all contractual rights in the policy while the insured is living. These rights can generally be exercised without the beneficiary's consent.

Aliases (separate with |): O