Personal Finance
Terms
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- Settlement Options
- alternative ways a beneficiary can choose to receive the policy benefits upon the death of insured. include: 1. Lumpsum settlement, 2. interest-only settlement, 3. installment-payments settlement, and 4 life-annuity settlement.
- Stop-Loss Provision
- Medical insurance feature that limits the total dollar amt. that the policyholder is responsible for paying.
- Nonforfeiture Rights
- The right of a policyholder to choose to receive the policy's cash value in exchange for the policyholder giving up his or her right to a death benefit.
- Benefits of Renting
- Very mobile, can relocate without incurring real estate selling costs. No down payment required. May involve lower monthly cash flow. You only pay rent; homeowner pays mortgage, taxes, insurance, and upkeep. No home repair, No Grounds keeping, No property taxes
- Negative Amortization
- Occurs in mortgages with payment cap limits but not interest rate caps. A situation in which monthly payments are less than interest that's due on the loan. Unpaid interest is added to the principal, and you end up owing more at the end of the month than you did at the beginning of the month.
- Closing Costs
- Expenses associated with finalizing the transfer of ownership of the house. One time expense
- Multiple Earnings Approach
- You should have 5 or 6 times your annual earnings.
- PMI
- extra insurance that lenders require from most homebuyers who obtain loans that are more that 80% of their new home's value. In other words, buyers with less than a 20% down payment are normally required to pay PMI.
- Major Medical Insurance
- Insurance that covers medical costs beyond those covered by basic health insurance.
- Credit Life Insurance
- Group life insurance provided by a lender for its debtors. For benefit of financial company not your family.
- Who needs Life Insurance?
- Middle aged person with young children, Mother with young children.
- Incontestability Clause
- lies don't matter after holding policy for 2 years.
- Needs Approach
- attempts to determine the funds necessary to meet the needs of a family after the death of the primary breadwinner. Method of of determining how much you need based on funds your family would need to maintain its lifestyle after your death. (Includes all factors)
- HSAs
- Health Savings Accounts: new option that help many people pay for medical expenses. Those who use include Self-employed, small business owner, employees of small to medium sized business. Allows individuals to pay for current health expenses and save for future qualified medical expenses on tax free basis.
- Escrow Account
- A reserve account account in which funds are deposited, generally on a monthly basis, and accumulate over time until they are drawn out to pay taxes & insurance. Logic: paying insurance and taxes regularly, in small amts, is less painful than than paying them in one large, annual lump sum.
- Grace period
- Period in which you can get policy back
- Points
- You pay points only once, at closing, charges used to raise the effective cost of the mortgage loan, which must be paid in full at time of the sale.
- Title Search
- Paid to an attorney for searching ownership records to make sure the person selling you the property really owns it. Title insurance must be purchased to protect you against challenges to the title, perhaps from a foreign deed.
- Down payment
- One time cost which is the up-front money due at the time of the sale when buying a home. The amount of money outside of or not covered by mortgage funds that the homebuyer puts down on a home at the time of sale. Buyer's equity or ownerhip share in house.
- Fixed Rate Mortgage
- The monthly payment doesn't change, regardless of what happens to market interest rates. No matter how much interest rates fluctuate, your payment remains the same.
- Premiums
- Insurance Payments
- Term Insurance
- Pure life insurance. You pay a set premium that's based on the probability that you'll die. For that premium, you receive a set amt of coverage for a set number of years. (Very inexpensive when you pay, it gives you protection. No Cash value. Becomes unaffordable as you get older.
- Benefits of Buying
- Allows you to build up equity over time, Possibility of home appreciation, personal freedom, tax adv.: deduction of interest and property taxes. No rent rising over time. Home potential source of cash in form of home equity loans.
- Living Benefits
- they allow for the early payout of a percentage of the anticipated death benefits to the terminally ill. You get a % if the face value. Takes away shark-investor opportunity.
- Accidental Death/Mulitple Indemnity
- If you die accidentally, beneficiary gets double the money.
- Beneficiary
- Person who gets the benefit.
- Loan Origination Fee
- Is generally point, or 1 percent of the loan amount. Its purpose is to compensate the lender for the cost of reviewing and finalizing the loan. Unfortunately, because it's not an interest payment, it's not tax deductible.
- Policy reinstatement Clause
- Provides the right to restore a policy that has lapsed after the grace period has expired. Generally, reinstatement is provided for within a specified period (usually 3 to 5 yrs after the policy has expired.)
- Universal Life Insurance
- a type of cash value insurance that's much more flexible than whole life. It allows you to vary the premium payments and the level of protection.
- Benefits of 30 yr mortgage
- Lower payments give more flex., Provide affordability, If prepayment provision, can pya like 15 yr mortgage.
- Buying Car with Cash
- Cheapest way to get a car.
- Worker's Compensation
- State laws that provide payment for work related accidents
- Dread Disease Insurance
- Ex. cancer insurance. Provides additional coverage for the costs associated with one specific disease.
- COBRA
- Consolidated omnibus Budget Reconciliation ACt. If you work for a company with 20 employees you will be given the opportunity to continue your health insurance coverage for 18 months to 3 years after you leave the company. responsible for cost but probably cheaper than individual
- Benefits of 15 yr mortgage
- lower int. rate. equity built up faster pace, provides a discipline to force savings. increased equity may allow you to trade up to more expensive home. Saves quite a bit of interest over life of mortgage.
- Waiver of Premium
- if you become permanently disabled
- Disability Insurance
- Health insurance that provides payments to the insured in the event that income is interrupted by illness, sickness, or accident.
- Whole Life Insurance
- Cash value insurance that provides permanent coverage and a death benefit when the insured dies. If the insured turns 100, the policy pays off, even thoguh the insured hasn't died. You can make better in retirement fund.
- Decreasing Term Insurance
- Premium stays the same but coverage goes down. Tied into paying off the mortgage.
- Earnest Money
- Given by buyer to seller when contrtact is accepted, is deposit on the purchase assuring the seller that the buyer is serious about buying.
- Leasing a car makes sense if:
- closed end not opened end. You are financially stable. You do not drive car 15,000 miles annually, you are not bothered by thought of monthly payments that never end, you use car for business travel, you do not modify your car.
- Accident Insurance
- If you are in an accident, an accident insurance policy will provide a specific amount for every day you must stay in the hospital and a certain amt. for every day you must stay in the hospital and a certain amount for the loss of any body parts or limbs.
- Preexisting Conditions
- Excludes coverage for a specified length of time or forever for any preexisting illness that the policyholder may have. Lieing on application could make it null and void.
- Flexible Spending Accounts
- Savings plan established by an employer that allows each employee to have pretax earnings deposited into a specially designated account. Employees can withdraw funds from their accounts to offset unreimbursed medical or dental expenses, like co-pays to doctors, or qualified health care. Contributions not used by end of year are lost.
- Mortgage Life insurance
- Same as credit life except it is in regards to paying off the mortgage.
- Policy Owner
- The one who takes out a policy.
- Definition of a Disability
- can't perform the duties of their own occupation or perform duties of "any occupation for which reasonably suited. Wise to go with policy with definition of not being able to perform job.
- Variable Life Insurance
- Insurance that provides permanent insurance coverage as whole life does; however, the policyholder, rather than the insurance company, takes on the investment risk.
- Adjustable rate Mortgage (ARM)
- mortgage loan in which the interest rate charged fluctuates with the level of current interest rates. Loan fluctuates or is adjusted, at set intervals (say every 5 years) and only within set limits. In general fixed rate is better than (ARM)
- Managed Health Care Plan
- Some version of HMO. Entitles you to the health care of a specified group of participating doctors, hospitals, and clinics. These plans are generally offered by health maintenance organizations or variations of them.
- Suicide Clause
- If you have policy for two years and then commit suicide you genrally get the money.