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Financial Terms | |
Benefit |
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Definition of BenefitBenefitAn instruction that pays a cash amount upon the occurrence of a specific event.
Related Terms:Accidental Death Benefit (ADB)Coverage against accidental death usually payable in addition to base amount of coverage. Accumulated Benefit Obligation (ABO)An approximate measure of the liability of a plan in the event of a Automatic Benefits PaymentAutomatic payment of moneys derived from a benefit. Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s Benefit ValueThe amount of cash payable on a benefit. Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off benefits-provided rankinga listing of service departments in an order that begins with the one providing the most service ![]() cafeteria plan a “menu” of fringe benefit options that includecash or nontaxable benefits Cost-Benefit AnalysisThe calculation and comparison of the costs and benefits of a policy or project. cost-benefit analysis the analytical process of comparing therelative costs and benefits that result from a specific course Cost-benefit ratioThe net present value of an investment divided by the investment's initial cost. Also called Death BenefitAmount paid on death of an insured. Defined benefit planA pension plan in which the sponsor agrees to make specified dollar payments to Defined Benefit PlanA pension plan that pays out a predetermined dollar Equivalent annual benefitThe equivalent annual annuity for the net present value of an investment project. Flat benefit formulaMethod used to determine a participant's benefits in a defined benefit plan by ![]() Incremental costs and benefitsCosts and benefits that would occur if a particular course of action were Living BenefitSome insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life Insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada. Net benefit to leverage factorA linear approximation of a factor, T*, that enables one to operationalize the Pension Benefit Guaranty Corporation (PBGC)A federal agency that insures the vested benefits of Target Benefit PlanA defined benefit plan under which the employer makes tax benefit (of depreciation)the amount of depreciation deductible for tax purposes multiplied by the tax rate; Unit benefit formulaMethod used to determine a participant's benefits in a defined benefit plan by Workers' Compensation BenefitsEmployer-paid insurance that provides their employees with wage compensation if they are injured on the job. Accelerated depreciationAny of several methods that recognize an increased amount activity based costing (ABC)A relatively new method advocated for the Adjusted Cash Flow Provided by Continuing OperationsCash flow provided by operating Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity administrative departmentan organizational unit that performs management activities benefiting the entire organization; AssetA resource, recorded through a transaction, that is expected to yield a benefit to a AssetProbable future economic benefit that is obtained or controlled by an entity as a result of AssurisAssuris is a not for profit organization that protects Canadian policyholders in the event that their life insurance company should become insolvent. Their role is to protect policyholders by minimizing loss of benefits and ensuring a quick transfer of their policies to a solvent company where their benefits will continue to be honoured. Assuris is funded by the life insurance industry and endorsed by government. If you are a Canadian citizen or resident, and you purchased a product from a member life insurance company in Canada, you are protected by Assuris. attribute-based costing (ABC II)an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute Automatic Waiver of PremiumA benefit that automatically forfeits premium payments. Bankruptcy cost viewThe argument that expected indirect and direct bankruptcy costs offset the other BeneficiaryThis is the person who benefits from the terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or a life insurance policy. In relation to RRSP's, RRIF's, LIF's, Annuities and of course life insurance, if the beneficiary is a spouse, parent, offspring or grand-child, they are considered to be a preferred beneficiary. If the insured has named a preferred beneficiary, the death benefit is invariably protected from creditors. There have been some court challenges of this right of protection but so far they have been unsuccessful. See "Creditor Protection" below. A beneficiary under the age of 18 must be represented by an individual guardian over the age of 18 or a public official who represents minors generally. A policy owner may, in the designation of a beneficiary, appoint someone to act as trustee for a minor. Death benefits are not subject to income taxes. If you make your beneficiary your estate, the death benefit will be included in your assets for probate. Probate filing fees are currently $14 per thousand of estate value in British Columbia and $15 per thousand of estate value in Ontario. BeneficiaryThe person designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. Beneficiary (Credit Insurance)The person or party designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor. Cafeteria PlanA flexible benefits plan authorized under the Internal Revenue Canada Pension Plan (CPP)A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec). Capital budgetingThe series of steps one follows when justifying the decision to purchase Capital LeaseOne where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability. Cash Surrender ValueThis is the amount available to the owner of a life insurance policy upon voluntary termination of the policy before it becomes payable by the death of the life insured. This does not apply to term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications. Cash Surrender Valuebenefit that entitles a policy owner to an amount of money upon cancellation of a policy. ClaimRequest for payment of benefits under the terms of an insurance policy. ClaimantPerson or party making request for payment of benefits under the terms of an insurance policy. Contingent BeneficiaryThis is the person designated to receive the death benefit of a life insurance policy if the primary beneficiary dies before the life insured. This is a consideration when husband and wife make each other the beneficiary of their coverage. Should they both die in the same car accident or plane crash, the death benefits would go to each others estate and creditor claims could be made against them. Particularly if minor children could be survivors, then a trustee contingent beneficiary should be named. Conversion RightTerm life insurance products are offered as non-convertible or convertible to a certain time in the future. The coversion right has a time limit, usually to the policy holder's age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability. There is a slightly higher cost for a term policy with the conversion priviledge but it is a valuable feature should a policy holder's health change for the worst and continued insurance coverage becomes a necessity. Critical Illness InsuranceCoverage that provides a lump-sum payment should you be diagnosed with a critical illness and survive a pre-determined period of time. There are no restrictions on how you use your benefit. Davis-Bacon Act of 1931A federal Act providing wage protection to nongovernment Dead Peasants InsuranceAlso known as "Dead Janitors Insurance", this is the practice, where allowed, in several U.S. states, of numerous well known large American Corporations taking out corporate owned life insurance policies on millions of their regular employees, often without the knowledge or consent of those employees. Corporations profiting from the deaths of their employees [and sometimes ex-employees] have attracted adverse publicity because ultimate death benefits are seldom, even partially passed down to surviving families. DeductibleA flat amount that an insured must pay before the insurance company makes any benefit payments under a health insurance policy. Deferred Tax AssetFuture tax benefit that results from (1) the origination of a temporary difference Defined contribution planA pension plan in which the sponsor is responsible only for making specified Disability InsuranceInsurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. There are limits to how much you can receive based on your pre-disability earnings. Rates will vary based on occupational duties and length of time in a particular industry. This kind of coverage has a waiting period before you can begin collecting benefits, usually 30, 60 or 90 days. The benefit paying period also varies from 2 years to age 65. A short waiting period will cost more that a longer waiting period. As well, a long benefit paying period will cost more than a short benefit paying period. DiversificationInvesting so that all your eggs are not in the same basket. By spreading your investments over different kinds of investments, you cushion your portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification. earned incomeEarned income is generally an individual's salary or wages from employment. It also includes some taxable benefits. Earned income also includes business income if the individual is self-employed. Earned income is used as the basis for calculating RRSP maximum contribution limits. Employee Retirement Income Security Act of 1974 (ERISA)A federal Act that sets minimum operational and funding standards for employee benefit Entitlement ProgramA program, such as social security, under which everyone meeting the eligibility requirements is entitled to receive benefits from the program, so that costs are not known in advance. Equity-based insuranceLife insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio. Federal Unemployment Tax Act (FUTA)A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a Financial IncentiveAn expression of economic benefit that motivates behavior that might otherwise not take place. First To Die CoverageThis means that there are two or more life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing life insurance at the same time, it is wise to compare the cost of this kind of coverage with individual policies having a multiple policy discount. Flow-through basisAn account for the investment credit to show all income statement benefits of the credit golden parachutea benefits package that is triggered by the Group Life InsuranceThis is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually one year renewable term insurance. The cost of this coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates. IndemnityA type of contract in which the amount of the benefit to be paid is based on the actual amount of financial loss determined at the time of the loss - for example, hospital expense insurance. Independent ProjectsA situation where an increase (or decrease) in the benefits of one IndexationThe adjustment of benefits to compensate for the effects of inflation. Insider tradingTrading by officers, directors, major stockholders, or others who hold private inside Insurance Policy (Credit Insurance)A policy under which the insurance company promises to pay a benefit of the person who is insured. InsuredThis is the person covered by the life insurance policy. Upon this person's death, a tax free benefit will be paid to that person's estate or a named beneficiary. Insured plansDefined benefit pension plans that are guaranteed by life insurance products. Related: noninsured plans Insured Retirement PlanThis is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today." InsurerThe party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company. Intangible assetA legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual LapseThis refers to the termination of an insurance policy due to the owner of the policy failing to pay the premium within the grace period [Usually within 30 days after the last regular premium was required and not paid]. It is possible to re-instate the coverage with the same premium and benefits intact but the life insured will have to qualify for this coverage all over again and bring up to date all unpaid premiums. Lapse subsidizedThis refers to the practice of some life insurance companies to offer policies which are lower in price because they have assumed a high probability that the policies will be cashed in by their owners for one reason or another before the death benefit becomes available. It is a bold and risky offer by the insurance company because sometimes the purchasers of these policies simply don't lapse them. Last To Die CoverageThis means that there are two or more life insured on the same policy but the death benefit is paid out on the last person to die. The cost of this type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. This kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage. Leveraged equityStock in a firm that relies on financial leverage. Holders of leveraged equity face the LiabilityA probable future sacrifice of economic benefits arising from present obligations of McNamara-O'Hara Service Contract Act of 1965A federal Act requiring federal contractors to pay those employees working on a federal contract at Money purchase planA defined benefit contribution plan in which the participant contributes some part and Mortgage InsuranceCommonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage. Mortgage Life insurance (Credit Insurance)Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage. Multiple LivesTwo or more death benefits based on one definition with different insureds. mutual fundWhen you buy a mutual fund, you are pooling your money with that of other investors. An investment professional called a portfolio advisor takes that money and invests it for all the investors in a variety of different securities as determined by the investment objectives of the mutual fund. This gives you the benefit of diversification that is, being invested in many different investments at once. Non-insured plansDefined benefit pension plans that are not guaranteed by life insurance products. Related: Normal annuity formThe manner in which retirement benefits are paid out. Normalizing methodThe practice of making a charge in the income account equivalent to the tax savings Operating LeaseOne where the risks and benefits, as well as ownership, stays with the lessor. opportunity costa potential benefit that is foregone because opportunity costbenefit or cash flow forgone as a result of an action. Other long term liabilitiesValue of leases, future employee benefits, deferred taxes and other obligations Pension planA fund that is established for the payment of retirement benefits. Pension planA formal agreement between an entity and its employees, whereby the perka fringe benefit provided by the employer PerquisitesPersonal benefits, including direct benefits, such as the use of a firm car or expense account for Personal trustAn interest in an asset held by a trustee for the benefit of another person. 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