Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

 A

Accidental death benefit – increases the death benefit paid to your beneficiary if you die accidentally.

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 B

Beneficiary – person(s) you choose to receive an inheritance. For example, the beneficiary of your life insurance policy will be paid the amount of the death benefit.

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 C

Capital gain – if your investment increases in value, a capital gain is the profit you make on the sale (the difference between your original purchase price and the price you sell it for). Capital gains are not taxed at as high a rate as employment income or interest.

Cash value – the portion of the money, beyond what you pay for your cost of insurance, that grows within your policy on a tax-deferred basis. You can usually borrow against this value and, in some cases, any remaining amount is paid to the beneficiary.

Common shares – often pay dividends, but not always. They generally give you a right to vote at the company’s annual meeting.

Company risk –the risk that the individual companies you invest in don’t perform as well as you expected.

Cost of insurance – the amount you pay to cover the cost of insurance for all basic insurance benefits and any additional benefits included in the policy.

Coupon rate – the specified interest rate that is paid on a bond.

Coverage for children – provides a small benefit if one of your children dies but also gives your children the ability to obtain lifetime coverage. They may even be able to increase their coverage when the children become adults, regardless of changes in health or other risk factors.

Credit or default risk – the chance that a company you’ve invested in will go bankrupt or have its credit rating downgraded, making it more expensive for the company to borrow money.

Currency or exchange rate risk – how changes in the value of the Canadian dollar might affect the growth or value of your investment.

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 D

Death benefit – the amount of money paid or due to be paid on the insured person’s death.

Discount brokerage – a firm that executes trades on behalf of individual investors. They charge a lower commission rate but do not provide the quality of service offered by a traditional, full-service brokerage (e.g. investment advice, in-house investment research, etc.).

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 E

Evidence of insurability – may include medical, financial, lifestyle, and family medical history information and other personal history information needed to approve your application for life insurance.

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 G

Guaranteed insurability – lets you increase your coverage amount, without having to prove that you are in good health.

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 I

Inflation risk – the chance that your investment won’t let you maintain your purchasing power.

Interest rate risk – how changes in the current interest rate might affect the growth or value of your investment.

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 K

Key person – a business owner, partner or employee who is vital to the success of the business because they provide money to support its operation, contribute special skills, or both.

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 L

Living benefit – pays part of the death benefit in advance if you are diagnosed with a terminal illness. This is usually a discretionary payment made by the insurance company and is not normally found in your policy.

Longevity risk – the chance that you’ll live longer than your income can support you.

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 M

Management expense ratio (MER) – the portion of a mutual fund’s expenses, including the fund manager’s compensation, that are charged by a fund company before any returns are paid to investors.

Market risk – the possibility that the price of a stock or bond drops, driven by a general drop in the overall market.

Maturity date – the date the bond issuer must repay the principal amount of the bond.

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 N

Net asset value per share (NAVPS) – the value of one unit in a mutual fund. It is calculated daily by adding the value of all investments owned by the fund (minus any liabilities), and dividing by the number of available units.

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 P

Permanent life insurance – provides lifetime coverage even though you pay premiums for only a pre-determined period of time. As long as your premiums are paid, your life insurance stays in effect, no matter what your age or health. Most permanent life insurance policies have a cash value that grows over time, almost like a savings account.  

Policy anniversary – the date every year that your policy became effective.

Policy fund – where your payments earn interest based on the investment account options you choose. The cost of your insurance is deducted from this fund and whatever is left-over grows tax-deferred.

Preferred shares – do not give you voting rights but do pay dividends.

Premium – the monthly or annual payments you make in exchange for your life insurance policy.

Principal (or face value) – the original amount “borrowed” by a bond issuer. This represents the price of an individual bond when it is first issued for sale to investors.

Probate – the court process used to determine whether a will is valid or invalid and to confirm the power of the executor appointed in the will, or appoint one in cases where there is no will, to administer the estate.

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 R

Rate of return – the gain (or loss) you make as a percentage of the total amount you’ve invested.

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 T

Term insurance benefit – gives you the ability to add term insurance to a permanent or universal life policy to protect you, your spouse, a family member or business partner for a temporary need.

Term life insurance – provides temporary insurance protection.

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 U

Universal life insurance – combines permanent insurance protection plus the ability to make investments that grow tax-deferred within the policy.

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 W

Waiver of premium – if you become disabled and unable to earn an income, your coverage continues, though you don’t have to pay your premiums.

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