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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.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
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 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
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Purchase or sale of forward foreign currency in order to offset a known future cash flow.
The ratio of the earnings before interest and taxes to the annual interest expense. This
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
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
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).
Refers to recouping, or regaining, invested capital over
Fixed Charge Coverage Ratio
A measure of how well a company is able to meet its fixed
Modified Accelerated Cost Recovery System (MACRS)
Depreciation method that allows higher tax deductions in early years and lower deductions later.
Coverdell Education IRA
A form of individual retirement account whose earnings
First 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 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.
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.
Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.
Any depreciation method that produces larger deductions for depreciation in the
State laws covering the issue and trading of securities.
To cover, offset or close out a short position. Related: evening up, liquidation.
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
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
With respect to a project financing, an arrangement under which the sponsors of a project
In project financing, the risk that the project's output will not be salable at a price that will
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,
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
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
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
The margin needed to cover a specific new position. Related: Margin, security deposit (initial)
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
1) Amount paid for a bond above the par value.
A procedure that allows firms to file one registration statement covering several issues of
Short-term financial plan
A financial plan that covers the coming fiscal year.
To cover all contingencies within a specified range.
Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously
The transition point between economic recession and recovery.
Mutual funds that do not charge an upfront or back-end commission, but instead take out up to
Zero-balance account (ZBA)
A checking account in which zero balance is maintained by transfers of funds
A technique by which a company recovers the high cost of its plant-and-equipment assets gradually during the number of years theyâ€™ll be used in the business. Depreciation can be physical, technological, or both.
An accounting statement that summarizes information about a company in the following format:
A plan expressed in monetary terms covering a future period of time and based on a defined
Economic Value Added (EVA)
Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
The amount added to a lower figure to reach a higher figure, expressed as a percentage of the
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.
capital investment analysis
Refers to various techniques and procedures
cash burn rate
A relatively recent term that refers to how fast a business
An intermediate measure of profit equal to sales revenue
return on assets (ROA)
Although there is no single uniform practice for
the difference between selling price and
contribution margin ratio
the proportion of each revenue dollar remaining after variable costs have been covered;
a form of analysis in which statistical techniques
return of capital
the recovery of the original investment (or principal) in a project
The margin that results when variable production costs are subtracted
Time until cash flows recover the initial investment of the project.
Costs that have been incurred and cannot be recovered.
Real Business Cycle Theory
Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.
The percentage tax charged by a state to an employer to
Educational Assistance Plan
A plan that an employer creates on behalf of its
Earnings before interest and taxes. The measure often is used to gauge coverage of fixed charges.
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
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.
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.
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.
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.
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.
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.
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.]
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.
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.
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.
This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
This is an administrative fee which is part of most life insurance policies. It ranges from about $40 to as much as $100 per year per policy. It is not a separate fee. It is incorporated in the regular monthly, quarterly, semi-annual or annual payment that you make for your policy. Knowing about this hidden fee is important because some insurance companies offer a policy fee discount on additional policies purchased under certain conditions. Sometimes they reduce the policy fee or waive it altogether on one or more additional policies purchased at the same time and billed to the same address. The rules are slightly different depending on the insurance company. There could be enormous savings if several people in the same family or business were intending to purchase coverage at the same time.
This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
Sometimes called seg funds, segregated funds are the life insurance industry equivalent to a mutual fund with some differences.The term "Mutual Fund" is often used generically, to cover a wide variety of funds where the investment capital from a large number of investors is "pooled" together and invested into specific stocks, bonds, mortgages, etc.
Generally, a suicide clause in a regular life insurance policy provides for voiding the contract of insurance if the life insured commits suicide within two years of the date of issue of the coverage.
Temporary Life Insurance
Temporary insurance coverage is available at time of application for a life insurance policy if certain conditions are met. Normally, temporary coverage relates to free coverage while the insurance company which is underwriting the risk, goes through the process of deciding whether or not they will grant a contract of coverage. The qualifications for temporary coverage vary from insurance company to insurance company but generally applicants will qualify if they are between the ages of 18 and 65, have no knowledge or suspicions of ill health, have not been absent from work for more than 7 days within the prior 6 months because of sickness or injury and total coverage applied for from all sources does not exceed $500,000. Normally a cheque covering a minimum of one months premium is required to complete the conditions for this kind of coverage. The insurance company applies this deposit towards the cost of a policy at its issue date, which may be several weeks in the future.
Term Life Insurance
A plan of insurance which covers the insured for only a certain period of time and not necessarily for his or her entire life. The policy pays a death benefit only if the insured dies during the term.
A type of life insurance or annuity first introduced by Lorenzo Tonti, a Neopolitan banker, in France in the 17th century. It consisted of a fund to which a group of persons contribute, the benefits ultimately accruing to the last survivor or to those surviving after a specified time, in equal shares. The only insurance plans available today which we are aware of that display characteristics of a tontine are some children's Registered Educational Savings Plans (RESP's). These plans generally stipulate that if the child who is covered under the plan does not use the accumulated savings to attend an accredited university, then only the principal invested is returned. All growth in the plan is held to be distributed to other plan holders who do go on to attend university.
This could be the person (broker or agent) who helps you choose the proper type of life insurance or disability insurance and the insurance company for your particular needs. This could also be the person at the insurance company's head office who reviews your application for coverage to determine whether or not the insurance company will issue a policy to you.
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