Financial Glossary

A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.

A 529 plan is a tax-advantaged savings plan designed to help families save for future education expenses, offering tax-free growth and withdrawals when used for qualified education costs.

Actual Cash Value is a property valuation method that equals replacement cost minus depreciation, representing what property is worth today after accounting for wear and tear.

Agency is a legal relationship where a real estate agent (agent) is authorized to act on behalf of a client (principal) in a real estate transaction.

An annuity is an insurance contract that provides a stream of income payments, typically for retirement, in exchange for an initial lump sum or series of payments.

An appraisal is a professional assessment of a property's market value, typically required by lenders before approving a mortgage to ensure the loan amount is appropriate.

An adjustable rate mortgage (ARM) is a home loan with an interest rate that changes periodically based on market conditions, typically starting with a lower fixed rate before adjusting.

A bear market is a financial market condition characterized by falling prices, investor pessimism, and negative sentiment, typically defined as a 20% or greater decline from recent highs.

A beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.

Beta is a measure of a security's volatility relative to the overall market, where a beta of 1.0 means the security moves with the market, above 1.0 means more volatile, and below 1.0 means less volatile.

A blue chip stock is a share of a large, well-established, financially sound company with a history of reliable performance, stable earnings, and often regular dividend payments.

A bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.

A broker-dealer is a financial firm that buys and sells securities for its customers (broker) and for its own account (dealer), regulated by FINRA and the SEC.

A bull market is a financial market condition characterized by rising prices, investor optimism, and expectations of continued gains, typically defined as a 20% or greater rise from recent lows.

A call option gives the holder the right to buy an underlying asset at a specified strike price before the expiration date.

A capital gain is the profit realized when an investment or asset is sold for more than its original purchase price, subject to taxation based on holding period.

Cash value is the savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals during the policyholder's lifetime.

Closing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.

Closing costs are fees and expenses paid at the real estate closing beyond the property price, typically 2-5% of the loan amount, including lender fees, title insurance, escrow, and prepaid items.

Coinsurance is a cost-sharing arrangement where the insured pays a percentage of covered medical expenses after the deductible is met, typically 20% with insurance paying 80%.

Coinsurance is a property insurance provision requiring the insured to carry coverage equal to a specified percentage (usually 80%) of the property value or face a penalty at claim time.

Common stock is a security representing ownership in a corporation, giving shareholders voting rights and potential dividends.

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.

A copay is a fixed dollar amount that an insured person pays for a covered healthcare service, typically due at the time of service, regardless of the total cost.

A death benefit is the amount of money paid to beneficiaries upon the death of an insured person, typically the face amount of a life insurance policy.

A deductible is the amount a policyholder must pay out-of-pocket before the insurance company begins to pay for covered expenses.

A deductible is the amount the insured must pay out-of-pocket before insurance coverage begins, representing a form of self-insurance that reduces premiums.

A deed is a legal document that transfers ownership (title) of real property from one party to another.

Diversification is an investment strategy that spreads investments across various assets, sectors, or geographic regions to reduce risk without necessarily sacrificing returns.

A dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.

Dollar-cost averaging is an investment strategy of investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of volatility over time.

Earnest money is a deposit made by a buyer to demonstrate serious intent to purchase a property, typically held in escrow until closing.

Equity is the difference between a property's current market value and the amount owed on the mortgage, representing the owner's ownership stake in the property.

Escrow is a neutral third-party arrangement where money or documents are held until all conditions of a real estate transaction are met.

An ETF is an investment fund that trades on stock exchanges like individual stocks, typically tracking an index with lower fees than mutual funds.

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

A fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.

FINRA (Financial Industry Regulatory Authority) is a self-regulatory organization that oversees broker-dealers and their registered representatives, administering qualification exams and enforcing securities rules.

Foreclosure is the legal process by which a lender takes ownership of a property when the borrower fails to make mortgage payments, typically after several months of default.

A grace period is a set time after the premium due date during which a policy remains in force even if the premium hasn't been paid, typically 30-31 days for life insurance.

Homeowners policies are standardized insurance contracts (HO-2, HO-3, HO-5, etc.) that provide property and liability coverage for owner-occupied residences.

An HSA is a tax-advantaged savings account for individuals with high-deductible health plans, offering triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Inflation is the rate at which the general level of prices for goods and services rises over time, decreasing the purchasing power of money.

Interest rate risk is the potential for investment losses due to changes in interest rates, particularly affecting fixed-income securities like bonds whose prices fall when rates rise.

An investment adviser is a person or firm that provides advice about securities for compensation, regulated by the SEC (if managing $100M+) or state regulators, and held to a fiduciary standard.

An IPO is the first sale of stock by a private company to the public, allowing the company to raise capital from public investors and become publicly traded.

An IRA is a tax-advantaged personal retirement savings account that individuals can open independently, offering either tax-deductible contributions (Traditional) or tax-free withdrawals (Roth).

A lien is a legal claim against a property that must be paid when the property is sold, serving as security for a debt or obligation.

A limit order is an instruction to buy or sell a security at a specified price or better, guaranteeing the price but not guaranteeing execution.

Long-term care insurance is coverage that pays for extended care services not covered by health insurance or Medicare, including nursing home care, assisted living, and in-home care.

A margin account is a brokerage account that allows investors to borrow money from the broker to purchase securities, using the account assets as collateral.

A market order is an instruction to buy or sell a security immediately at the best available current price, guaranteeing execution but not the price.

A mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.

A municipal bond (muni) is a debt security issued by a state, city, or county to finance public projects, with interest typically exempt from federal income tax.

A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities.

Named perils coverage only protects against specific risks explicitly listed in the insurance policy, such as fire, lightning, windstorm, and theft. If a peril is not named, it is not covered.

NAV is the per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of outstanding shares.

Open perils coverage (also called "all-risk" or "special form") protects against all causes of loss EXCEPT those specifically excluded in the policy, providing broader protection than named perils.

An option is a contract giving the holder the right, but not the obligation, to buy (call) or sell (put) an asset at a specified price before a certain date.

The out-of-pocket maximum is the most you have to pay for covered healthcare services in a plan year, after which your insurance pays 100% of covered costs.

The P/E ratio is a valuation metric comparing a company's stock price to its earnings per share, used to assess whether a stock is overvalued or undervalued relative to its earnings.

The Personal Auto Policy is a standardized auto insurance contract covering liability, medical payments, uninsured motorists, and physical damage for personal vehicles.

Preferred stock is a hybrid security with features of both stocks and bonds, offering fixed dividends and priority over common stock in liquidation.

An insurance premium is the amount paid by the policyholder to the insurance company for coverage, typically paid monthly, quarterly, or annually.

A prospectus is a legal document filed with the SEC that provides details about an investment offering, including risks, fees, objectives, and management.

A put option gives the holder the right to sell an underlying asset at a specified strike price before the expiration date.

Replacement cost is a property valuation method that pays the full cost to replace damaged property with new items of like kind and quality, without deducting for depreciation.

RMDs are mandatory annual withdrawals from traditional retirement accounts (Traditional IRA, 401(k)) that must begin at age 73, calculated based on account balance and life expectancy.

A Roth IRA is a retirement account funded with after-tax dollars that grows tax-free and allows tax-free withdrawals in retirement, with no required minimum distributions.

The SEC is the U.S. federal agency responsible for enforcing securities laws, regulating securities markets, and protecting investors from fraud and market manipulation.

Short selling is an investment strategy where an investor borrows shares to sell immediately, hoping to buy them back later at a lower price and profit from the decline.

SIPC is a nonprofit corporation that protects customers of failed broker-dealers by restoring securities and cash up to $500,000 per customer, including $250,000 for cash claims.

A stock split is a corporate action that divides existing shares into multiple shares, reducing the price per share proportionally while maintaining the same total market value.

Suitability is the requirement that investment recommendations must be appropriate for a client's financial situation, risk tolerance, and investment objectives.

Systematic risk is the inherent risk that affects the entire market or asset class, which cannot be eliminated through diversification and includes factors like interest rates, inflation, and recessions.

Term life insurance provides death benefit protection for a specific period (term), with no cash value accumulation, offering the lowest premium for the highest coverage.

Title is the legal right to own, use, and dispose of real property, representing the bundle of rights that come with property ownership.

Title insurance is a policy that protects property buyers and lenders against losses from defects in title, such as liens, encumbrances, or ownership disputes that existed before purchase.

Treasury securities are debt instruments issued by the U.S. government to finance operations, considered the safest investments due to being backed by the full faith and credit of the U.S.

Umbrella insurance is excess liability coverage that provides additional protection beyond the limits of underlying policies (auto, homeowners), typically in $1 million increments.

Underwriting is the process by which an insurance company evaluates risk and determines whether to accept an application for coverage and at what premium rate.

Universal life insurance is a permanent life insurance policy with flexible premiums and death benefits, plus a cash value component that earns interest based on current market rates.

A variable annuity is an insurance contract where payouts depend on the performance of underlying investments chosen by the contract owner, offering growth potential with market risk.

Whole life insurance provides permanent death benefit protection with guaranteed cash value accumulation, level premiums, and coverage that lasts your entire life.

Workers compensation is a no-fault insurance system that provides medical benefits, disability income, and death benefits to employees injured on the job, while protecting employers from lawsuits.

Yield is the income return on an investment, expressed as a percentage, including interest or dividends received.