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Definition of Cover
The purchase of a contract to offset a previously established short position.
Schedule of depreciation rates allowed for tax purposes.
Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
Refers to recouping, or regaining, invested capital over
The number of times that financial obligations (for interest, principal payments,
Ratios used to test the adequacy of cash flows generated through earnings for purposes of
A form of individual retirement account whose earnings
A short call option position in which the writer owns the number of shares of the underlying
A strategy that involves writing a call option on securities that the investor
A portfolio manager invests dollars in an instrument denominated in a foreign
Strategies that involve a position in an option as well as a position in the
A put option position in which the option writer also is short the corresponding stock or has
Earnings before interest and income taxes plus one-third rental charges, divided
This 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.
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Fixed Charge Coverage Ratio
A measure of how well a company is able to meet its fixed
Purchase or sale of forward foreign currency in order to offset a known future cash flow.
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
Last To Die Coverage
This 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.
MACRS (Modified Accelerated Cost Recovery System)
A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).
Modified Accelerated Cost Recovery System (MACRS)
Depreciation method that allows higher tax deductions in early years and lower deductions later.
Price discovery process
The process of determining the prices of the assets in the marketplace through the
An upward movement of prices. Opposite of reaction.
A short call option position in which the writer does not own shares of underlying stock
A short put option position in which the writer does not have a corresponding short stock
Mutual funds that do not charge an upfront or back-end commission, but instead take out up to
Any depreciation method that produces larger deductions for depreciation in the
Accidental Death and Dismemberment
coverage that provides a lump-sum payment to you or your survivors if an accident results in the loss of a limb, paralysis or your death.
Accidental Death Benefit (ADB)
coverage against accidental death usually payable in addition to base amount of coverage.
State laws covering the issue and trading of securities.
A short term loan to cover the immediate cash requirements until permanent financing is received.
A plan expressed in monetary terms covering a future period of time and based on a defined
To cover, offset or close out a short position. Related: evening up, liquidation.
This is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.
capital investment analysis
Refers to various techniques and procedures
Money used to purchase fixed assets for a business, such as land, buildings, or machinery. Also, money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses.
cash burn rate
A relatively recent term that refers to how fast a business
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
In medical insurance, the insured person and the insurer sometimes share the cost of services under a policy in a specified ratio, for example 80% by the insurer and 20% by the insured. By this means, the cost of coverage to the insured is reduced.
This 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.
An intermediate measure of profit equal to sales revenue
the difference between selling price and
The margin that results when variable production costs are subtracted
contribution margin ratio
the proportion of each revenue dollar remaining after variable costs have been covered;
The percentage tax charged by a state to an employer to
Term 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.
Cost of Insurance
The cost of insuring a particular individual under the policy. It is based on the amount of coverage, as well as the underwriting class, age, sex and tobacco consumption of that individual.
Critical Illness Insurance
coverage 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.
Critical Illness Insurance (Credit Insurance)
coverage that provides a lump-sum payment should you become seriously ill with a specified illness. The payment is made to your creditors to pay off your debt owing.
Current assets divided by current liabilities. This ratio indicates the extent to which the claims of short-term creditors are covered by assets expected to be converted to cash in the near future.
a form of analysis in which statistical techniques
A non-cash expense that provides a source of free cash flow. Amount allocated during the
Those points designated by futures exchanges at which the financial instrument or
A technique by which a company recovers the high cost of its plant-and-equipment assets gradually during the number of years they’ll be used in the business. Depreciation can be physical, technological, or both.
Insurance 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.
Disability Insurance (Credit Insurance)
Group Insurance designed to cover monthly obligations due to a borrower being unable to work due to sickness or injury.
With respect to a project financing, an arrangement under which the sponsors of a project
Earnings before interest and taxes. The measure often is used to gauge coverage of fixed charges.
In project financing, the risk that the project's output will not be salable at a price that will
Economic Value Added (EVA)
Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
Educational Assistance Plan
A plan that an employer creates on behalf of its
Errors and Omissions Insurance
Insurance coverage purchased by the agent/broker which provides protection against loss incurred by a client because of some negligent act, error, oversight, or omission by the agent/broker.
Evidence of Insurability
Evidence submitted to Canada Life that is used to determine whether an individual is eligible for the insurance coverage the individual has applied for.
A specific condition or circumstance listed in the policy that are not covered by the policy
A variety of options available to an investor to recover their invested capital and the return on their investment.
Export Credit Insurance
The granting of insurance to cover the commercial and political risks of selling in foreign markets.
Objectives of a financial nature that the firm will strive to accomplish during the period
1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
Future-oriented financial information prepared using assumptions all of which reflect the entity's planned courses of action for the period covered given management's judgment as to the most probable set of economic conditions.
A term used to designate all contracts covering the sale of financial instruments or physical
A term used to designate all contracts covering the sale of financial instruments or physical
Group Life Insurance
This 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.
An accounting statement that summarizes information about a company in the following format:
This clause in regular life insurance policy provides for voiding the contract of insurance for up to two years from the date of issue of the coverage if the life insured has failed to disclose important information or if there has been a misrepresentation of a material fact which would have prevented the coverage from being issued in the first place. After the end of two years from issue, a misrepresentation of smoking habits or age can still void or change the policy.
In England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary.
This 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.
An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada Mortgage and Housing Corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]
Job Loss Insurance (Credit Insurance)
coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.
Joint Policy Life
One insurance policy that covers two lives, and generally provides for payment at the time of the first insured's death. It could also be structured to pay on second death basis for estate planning purposes.
This 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.
Level Premium Life Insurance
This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.
Some 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.
Long-term financial plan
Financial plan covering two or more years of future operations.
Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to
The amount added to a lower figure to reach a higher figure, expressed as a percentage of the
Commonly 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.
Naked option strategies
An unhedged strategy making exclusive use of one of the following: Long call
A loan repayment schedule in which the outstanding principal balance of the loan
In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
NSF (non-sufficient funds)
This appears on your statement if there are insufficient funds in your account to cover a cheque that you have written or a pre-authorized payment that you have already arranged. You will be charged a service fee for non-sufficient funds.
The margin needed to cover a specific new position. Related: Margin, security deposit (initial)
Other-than-Temporary Decline in Market Value
The standard used to describe a decline in market value that is not expected to recover. The use of the other-than-temporary description as
Is an agreement with the Bank or Financial Institution to cover overdrafts. This service will typically involve a fee and be limited to a pre-set maximum amount.
System whereby a depositor may write cheques in excess of the balance, with the bank automatically extending a loan to cover the shortage.
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
A method of investment appraisal that calculates the number of years taken for the cash flows from an investment to cover the initial capital outlay.
Time until cash flows recover the initial investment of the project.
A written document that serves as evidence of insurance coverage and contains pertinent information about the benefits, coverage and owner, as well as its associated directives and obligations.
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