Unit 3 - Insurance and Investments

Trustee (3.3)

A financially independent firm that acts as the investor's representative

Bond Indenture (3.3)

A legal document describing conditions of bonds issued

Dividend (3.3)

A payment made by a corporation to its shareholder members

Guardian (3.6)

A person who assumes responsibility for providing the children with personal care and managing the estate for them

Executor (3.6)

A person willing and able to execute provisions of someone's will

Windfalls (3.3)

A piece of unexpected good fortune

Insurance Company (3.1)

A risk-sharing firm that assumes financial responsibility for losses from an insured risk

Workman's Insurance Compensation (3.2)

A system whereby an employer must pay, or provide insurance to pay, the lost wages and medical expenses of an employee who is injured on the job

Retirement (3.6)

A time in life when most of one's income changes from earned income to employer-based benefits, private savings, and perhaps income from Social Security and part-time employment

Speculative Stock (3.4)

A type of stock a company issues that has a potential for substantial earnings in the future

Blue-Chip Stock (3.4)

A type of stock a company issues that has been around for a long time, has a well-regarded reputation, dominates its industry, and is known for being a solid, relatively safe investment

Common Stock (3.3)

A type of stock that represents ownership in a corporation allowing you to elect a board of directors and the ability to vote on corporate policy

Growth Stock (3.4)

A type of stock where a company offers the promise of much higher profits tomorrow and has a consistent record of relatively rapid growth in earnings in all economic conditions

Expense Ratio (3.5)

Annual operating fee of a mutual fund

Health Insurance Laws (3) (3.2)

COBRA - requires many employers to offer employees and dependents the option to continue their group coverage for a set period of time following a layoff The Health Insurance Portability and Accountability Act - if you change jobs you will not lose your health insurance for a period of time The Affordable Healthcare Act - intended to make healthcare more affordable for Americans by putting more regulations on the health insurance industry

Why Corporations sell Bonds (3.3)

Corporations sell for several reasons including raising funds for major purchases Could be building a new factory, buying out a competitor... Sometimes sold to fund the corporations ongoing business activities if capital is low They will also sell if they cannot sell their own stock Sometimes to gain leverage Lastly, all interest paid to bondholders is tax-deductible by the firm

Cost of Automobile Insurance (3) (3.1)

Cost is associated with the type of vehicle (age, make, model, theft rate), rating territory (assessed risk of the area you live in), and you (age, sex, marital status, credit history, driving record)

Copayment (3.2)

Cost sharing in the form of a flat dollar amount you pay ($10-50)

Homeowners Insurance (3.1)

Covers damage or destruction of the building you live, and other structures on your property

Automobile Insurance (3.1)

Covers financial loss due to legal expenses, medical expenses, and lost wages associated with injuries caused by an automobile accident you were responsible for

NASDAQ (3.4)

Electronic marketplace for over 5,000 companies

Diversification (3.3)

Having a wide variety of investments within a portfolio

Turnover Ratio (3.5)

How often the fund's portfolio changes

Types of Preferred Stock (3.4)

Hybrid security, cumulative preferred, convertible preferred

Ways Mutual Funds Make Money (3.5)

Income is earned from dividends on stocks and interest on bonds held in the fund's portfolio If the fund sells securities that have increased in price, the fund has a capital gain Most funds also pass on these gains to investors in a distribution If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price

4 Types of Risk (3.3)

Inflation, interest rate, business failure, and market

Deductible (3.2)

Initial amount paid before insurance company pays

Whole Life Insurance (3.2)

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be

The Principle of Indemnity (3.1)

Insurance will pay no more than actual financial losses suffered

Mutual Fund (3.5)

It is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar asset

Securities Exchange (3.4)

Marketplace where members, representing investors, meet to buy and sell securities

Treasury Bonds (3.3)

Maturity of 30 years attached to it with a higher interest rate than notes and bills, with a minimum of $100

Bond Rating Companies (how they rate) (3.3)

Moody's: Aaa Aa (High), A Baa (Medium), Ba B (Spec), Caa C (Poor) S&P: AAA AA (High), A BBB (Medium), BB B (Spec), CCC D (Poor)

Ways Stock Pay You (3.4)

More time equals more opportunity for your investments to go up The best companies tend to increase their profits over time, and investors reward these greater earnings with a higher stock price, that higher price translates into a return for investors who own the stock More time in the market also allows you to collect dividends, if the company pays them

Must Haves (health insurance) (3.2)

Offer basic coverage for hospital and doctor bills Provide at least 120 days' hospital room and board in full Provide at least a $1 million lifetime maximum for each family member Pay at least 80% for out of hospital expenses after a yearly deductible of $500 per person or $1,000 per family Impose no unreasonable exclusions Limit your out-of-pocket expenses to no more than $3,000 to $5,000 a year, excluding dental, vision care and prescription costs

Money Managers (3.5)

People who invest the fund's capital and attempt to produce capital gains and income for the fund's investors (they are professionals)

Insurance (3.1)

Protection against possible financial loss

Renters Insurance (3.1)

Purchased when renting to protect loss or damage against personal property

Treasury Bills (3.3)

Require $1000 minimum up to $5 million, reach maturity at 4, 13, 26 and 52 weeks, and are sold at a discount rate, which means that if you buy a bond from the government you will not receive fixed payments, but instead you would buy the bond for $4,500 and receive $5,000 for it at the end of its maturity

Roth IRA (3.6)

Same as an IRA but contributions are not tax deductible, instead your withdrawals are tax free because you paid them upfront

Why Costs of Health Insurance are Rising (3.2)

Sophisticated technologies, as we get better at diagnosis and treatment our costs will increase Variety and frequency of treatments, don't go to the hospital when you have a cold or the stomach bug, that causes costs to go up People living longer alongside baby boomers Limited competition, will change when insurance companies can compete across state lines Health care professionals high income Unnecessary medical care Fraud and waste are two more with malpractice cases

Types of Mutual Funds (3.5)

Stock funds, fixed income funds, index funds, and balanced funds

2 Methods of Purchasing Life Insurance (3.2)

The Easy Method 70% of your salary for seven years, example: Annual income $100,000....$70,000 X 7 = $490,000 Take that money and do the above with it (pay off mortgage, invest...) The DINK Method This means you have a dual income, no kids Cover your funeral and ½ of debts assuming your spouse keeps working

Premium (3.1)

The amount paid for an insurance policy

Liquidity (3.3)

The degree to which an asset or security can be bought or sold in the market without affecting the asset's price, is also an important feature to an investment

Capital Gains (3.4)

The difference between what you paid for an investment and what received when you sold that investment

Risk-Return Trade-Off (3.3)

The potential return on any investment should be directly related to the risk the investor assume

Net Asset Value (3.5)

The price of the fund by dividing the total value of the securities in the portfolio by the total amount of shares outstanding

Individual Retirement Account (3.6)

These allow individuals to direct pretax income, up to specific annual limits, toward investments

Mortgage Bond (3.3)

These are bonds secured by various assets of the issuing firm, such as real estate and property

Settlement Options (3.2)

These are choices of how the insurance money is paid out

Employer Pension Plans (3) (3.6)

These are individual accounts to which employers contribute a specific amount annually: contribution plan, 401k, 403b

Municipal Bonds (3.3)

These are issued by state and local governments (cities, counties, school districts and special taxing districts)

Debentures (3.3)

These are not secure and are only backed by the creditworthiness and reputation of the issuer

Government Bonds (3.3)

These are written pledges to repay a specified sum of money at maturity with periodic interest known as coupon payments

Treasury Notes (3.3)

These have a maturity of 2, 3, 5, 7, and 10 years with a fixed interest paid every six months, with minimum of $100

Sectors (3.5)

These refer to the types of businesses the fund invests in, such as financial services or healthcare

Estate Planning (3.6)

This a definite plan for the administration and disposition of your property during your lifetime and at your death

Living Will (3.6)

This allows you to specify whether or not to be kept on artificial life support (DNR)

Corporate Bonds (3.3)

This is a corporation's written pledge to repay a specified amount of money with interest

Social Security (3.6)

This is a federal insurance program that provides benefits to retired persons, the unemployed, and the disabled

Term Life Insurance (3.2)

This is a policy with a set duration limit on the coverage period and fixed payments

Why Companies Issue Stock (3.4)

This is a way to raise money to expand or start a business Can also be used to pay for ongoing operations Companies don't have to pay these back at the end of a maturity, since there is no maturity with stock Dividends are not mandatory and have to be voted on by the board of directors before they are distributed

Intestate (3.6)

This is if you do not have a will the state will distribute your assets, if this happens then the state will even determine who the guardian of your children will be, difficult for blended families

Face Amount (3.2)

This is the dollar value of protection listed in a policy and amount used to calculate the premium

Power of Attorney (3.6)

This is the last thing to be aware of, or a legal document authorizing someone to legally act on your behalf if you become seriously ill or injured (can be combined with a living will)

Liability (insurance kind) (3.1)

This is the legal responsibility for the financial cost of another person's losses or injury

Debt Financing (3.3)

This is where the investor becomes the creditor and receives a promise that the principal and interest on the debt will be repaid

Life Insurance (3.2)

This protects someone who depends on you from financial loss related to your death reducing financial burdens of survivors

Pension Benefit Guarantee Corporation (3.6)

This provides an insurance program that guarantees certain benefits to eligible workers whose employers' defined-benefit plans are not financially sound enough to pay their obligations

Mortality Table (3.2)

This provides odds on your dying based on your age and sex

Reverse Stock Splits (3.4)

This results in a smaller number of shares from an original share

Will (3.6)

This specifies the disposition of property after death

Policy Limits (3.1)

This specifies the maximum dollar amounts that will be paid under a policy

Convertible Bond (3.3)

This type of bond can be converted, at the owner's option, for a specified number of shares of the corporation's common stock

Income Stock (3.4)

This type of stock may not grow too quickly, but pays a cash dividend higher than that offered by most companies year after year

Beneficiaries (3.2)

Those who receive benefits upon the insured death

Preferred Stock (3.3)

Type of stock that must be paid out its dividends before dividends to common stockholders and the shares do not have any voting rights

Stop-Loss (3.2)

When the policyholder pays coinsurance up to a certain amount, after which your insurance pays 100%

Stock Splits (3.4)

When the shares of stock owned by existing shareholders are divided into a larger number of shares; done to change (lower) price

Open Enrollment Period (3.2)

When you can begin or make changes in coverage or switch among alternative health plans

Coinsurance (3.2)

When your insurance company pays part of your medical bills after the deductible

Disability Income Insurance (3) (3.2)

Workman's Compensation, Social Security, and Private Income Insurance