Financial Glossary
Clear, exam-focused definitions of 380+ terms from securities, insurance, and real estate. Perfect for SIE, Series 7, Life & Health, and Real Estate exam prep.
1031 Exchange
A 1031 exchange is a tax-deferred transaction under IRC Section 1031 that allows real estate investors to sell an investment property and reinvest the proceeds in a "like-kind" property while deferring capital gains taxes, provided strict IRS deadlines are met.
1035 Exchange
IRC Section 1035 allows tax-free exchange of life insurance to life insurance/annuity/LTC, or annuity to annuity/LTC, but NOT annuity to life insurance.
4% Rule (Retirement Withdrawal)
The 4% rule suggests withdrawing 4% of your initial portfolio in the first year, then adjusting for inflation annually, with a high probability of not running out of money over 30 years.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.
403(b) Plan
A 403(b) plan is a tax-advantaged retirement savings account for employees of public schools, tax-exempt organizations, and certain ministers, allowing pre-tax contributions up to $23,500 in 2025.
457(b) Plan
A 457(b) plan is a deferred compensation retirement plan for state and local government employees with a major advantage of no 10% early withdrawal penalty after separation from service.
529 Plan
A 529 plan is a tax-advantaged savings plan designed to help families save for future education expenses, offering tax-free growth and withdrawals when used for qualified education costs.
Abstract of Title
An abstract of title is a condensed history of all recorded documents affecting a property's ownership, including deeds, mortgages, liens, and other encumbrances, used to verify clear title before a real estate transaction.
Accelerated Death Benefit
An accelerated death benefit is a life insurance policy provision that allows terminally ill policyholders to receive a portion of their death benefit while still living, typically when diagnosed with a terminal illness with 12-24 months to live.
Accord and Satisfaction
Accord and satisfaction is a contract doctrine where parties agree to accept different performance (accord) than originally promised, and upon completion of that substitute performance (satisfaction), the original obligation is discharged.
Accretion
Accretion is the gradual and imperceptible addition of land to a property through natural deposits of soil, sand, or sediment by water action, with the new land becoming the property of the landowner.
Actual Cash Value (ACV)
Actual Cash Value is a property valuation method that equals replacement cost minus depreciation, representing what property is worth today after accounting for wear and tear.
Actus Reus (Guilty Act)
Actus reus is the physical component of a crime consisting of a voluntary act, an omission when there is a legal duty to act, or possession, which must concur with mens rea to establish criminal liability.
Additional Medicare Tax (0.9%)
Additional Medicare Tax is a 0.9% tax on wages, self-employment income, and railroad retirement compensation exceeding $200,000 (single) or $250,000 (married filing jointly), with no employer match and reported on Form 8959.
Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is your total gross income minus specific above-the-line deductions (adjustments), serving as the starting point for calculating taxable income and determining eligibility for many tax benefits.
ADR (American Depositary Receipt)
An ADR is a certificate issued by a U.S. bank representing shares in a foreign company, allowing American investors to buy foreign stocks on U.S. exchanges in U.S. dollars without dealing with foreign exchanges or currencies.
Adverse Possession
Adverse possession is a legal doctrine that allows someone to claim ownership of land after occupying it openly, continuously, and without permission for a statutory period, typically ranging from 5 to 20 years depending on the state.
Adverse Selection
Adverse selection is an insurance phenomenon where higher-risk individuals are more likely to purchase insurance than lower-risk individuals, creating an imbalanced risk pool that can lead to increased premiums and potential market instability.
Agency (Real Estate)
Agency is a legal relationship where a real estate agent (agent) is authorized to act on behalf of a client (principal) in a real estate transaction.
Alpha (Jensen's Alpha)
Alpha measures excess return relative to CAPM prediction, indicating manager skill in adding (positive alpha) or losing (negative alpha) value.
Amortization
Amortization is the process of spreading loan payments over time in regular installments, with each payment covering both principal and interest, gradually reducing the loan balance to zero.
Anchoring Bias
Anchoring bias is over-reliance on the first piece of information encountered (the "anchor") when making decisions, even when arbitrary or outdated.
Annuity
An annuity is an insurance contract that provides a stream of income payments, typically for retirement, in exchange for an initial lump sum or series of payments.
Anticipatory Breach
Anticipatory breach (anticipatory repudiation) occurs when a party clearly and unequivocally indicates before performance is due that they will not perform their contractual obligations, giving the non-breaching party immediate rights to remedies.
Appraisal
An appraisal is a professional assessment of a property's market value, typically required by lenders before approving a mortgage to ensure the loan amount is appropriate.
Appreciation
Appreciation is the increase in a property's value over time due to market conditions, improvements, inflation, or increased demand, representing a key source of real estate investment returns.
ARM (Adjustable Rate Mortgage)
An adjustable rate mortgage (ARM) is a home loan with an interest rate that changes periodically based on market conditions, typically starting with a lower fixed rate before adjusting.
Assault (Tort)
Assault is an intentional tort where defendant causes plaintiff to reasonably apprehend imminent harmful or offensive contact, requiring present ability but no actual touching.
Asset Allocation
Asset allocation is an investment strategy that divides a portfolio among different asset classes (stocks, bonds, cash) based on an investor's goals, risk tolerance, and time horizon to optimize risk-adjusted returns.
Assignment (Insurance)
Assignment is the transfer of some or all policy rights from the policyholder to another party, commonly used for collateral assignments (securing loans) or absolute assignments (permanent transfer of ownership).
Assumption of Risk
Assumption of risk is a defense where plaintiff voluntarily encountered known risk. California distinguishes primary assumption (complete bar for inherent risks) and secondary (merged into comparative negligence) under Knight v. Jewett.
At-Risk Rules (Section 465)
At-risk rules limit business loss deductions to the amount economically at risk, preventing deductions for losses funded by nonrecourse financing.
Attempt (Criminal Law)
Criminal attempt is an inchoate offense requiring specific intent to commit a target crime plus a substantial step (MPC) or act beyond mere preparation (common law) toward completing that crime.
Attorney-Client Privilege
Attorney-client privilege protects confidential communications between client and attorney made for purpose of obtaining or providing legal advice, belonging to client who alone can waive it.
Authentication (Evidence)
Authentication is the evidentiary requirement under FRE 901 that proponent must produce sufficient proof to support finding that item is what proponent claims it to be.
Avulsion
Avulsion is the sudden and perceptible loss or addition of land caused by the action of water, such as a flood or change in a river's course, where the original owner retains title to the displaced land.
Backdoor Roth IRA
Backdoor Roth IRA is a strategy where high-income individuals make nondeductible Traditional IRA contributions and convert to Roth, with pro-rata rule applying to existing pretax IRA balances.
Basis Point
A basis point (bp) is one-hundredth of one percent (0.01%), commonly used to express changes in interest rates, bond yields, and fees. 100 basis points equals 1%.
Battery (Tort)
Battery is an intentional tort requiring harmful or offensive contact with another person without consent, where defendant intended to cause the contact or was substantially certain it would occur.
Bear Market
A bear market is a financial market condition characterized by falling prices, investor pessimism, and negative sentiment, typically defined as a 20% or greater decline from recent highs.
Beneficiary
A beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.
Best Evidence Rule
The best evidence rule under FRE 1002 requires that to prove content of a writing, recording, or photograph, the original must be produced unless exception applies.
Best Execution
Best execution is the obligation of broker-dealers to execute customer orders at the most favorable terms reasonably available under the circumstances, considering price, speed, and likelihood of execution.
Beta
Beta is a measure of a security's volatility relative to the overall market, where a beta of 1.0 means the security moves with the market, above 1.0 means more volatile, and below 1.0 means less volatile.
Beta Coefficient
Beta coefficient measures systematic risk relative to the market. Beta of 1 means it moves with the market, greater than 1 means more volatile, less than 1 means less volatile.
Bid-Ask Spread
The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask), representing a transaction cost and liquidity indicator.
Binder
A binder is a temporary insurance contract that provides immediate coverage until the formal policy is issued, typically valid for 30 to 90 days and containing the essential terms of the future policy.
Blockbusting
Blockbusting is an illegal practice where real estate agents induce homeowners to sell by exploiting fears about racial or ethnic groups moving into the neighborhood, then profit by reselling to minority buyers at inflated prices.
Blue Chip Stock
A blue chip stock is a share of a large, well-established, financially sound company with a history of reliable performance, stable earnings, and often regular dividend payments.
Blue Sky Laws
Blue sky laws are state-level securities regulations designed to protect investors from fraud, requiring registration of securities offerings and brokers within each state.
Bond
A bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.
Broker-Dealer
A broker-dealer is a financial firm that buys and sells securities for its customers (broker) and for its own account (dealer), regulated by FINRA and the SEC.
Bucket Strategy
Bucket strategy segments retirement portfolio into time-based buckets: short-term (cash 1-2 years), intermediate (bonds 3-7 years), and long-term (stocks 8+ years) to manage sequence of returns risk.
Bull Market
A bull market is a financial market condition characterized by rising prices, investor optimism, and expectations of continued gains, typically defined as a 20% or greater rise from recent lows.
Bundle of Rights
The bundle of rights is the set of five legal rights that come with property ownership: the right to use, possess, transfer, encumber, and exclude others (remembered by the acronym UPTEE).
Bypass Trust (Credit Shelter Trust)
A bypass trust (credit shelter trust or B trust) uses the first spouse's estate tax exemption by holding assets outside the surviving spouse's estate while providing income to the survivor, preserving exemption amount from estate taxes.
Cafeteria Plan (Section 125)
A cafeteria plan (Section 125 plan) allows employees to choose from various pre-tax benefits including health insurance, FSAs, and dependent care, reducing taxable income through salary reduction.
Call Option
A call option gives the holder the right to buy an underlying asset at a specified strike price before the expiration date.
Cap Rate (Capitalization Rate)
Cap rate is a real estate investment metric calculated by dividing a property's Net Operating Income (NOI) by its current market value or purchase price, expressed as a percentage to evaluate potential return.
Capital Gain
A capital gain is the profit realized when an investment or asset is sold for more than its original purchase price, subject to taxation based on holding period.
Capital Gains Tax
Capital gains tax is a tax on the profit from selling investments or assets. Short-term gains (assets held less than 1 year) are taxed as ordinary income; long-term gains (held more than 1 year) receive preferential rates of 0%, 15%, or 20% based on income.
Carryover Basis
Carryover basis means the recipient of a gift takes the donor's original cost basis, with adjustments for gift tax paid. Used for lifetime gifts (NOT inheritance, which gets stepped-up basis).
Cash Flow Analysis
Cash flow analysis examines the timing and amounts of money flowing in and out of a household or business to ensure adequate liquidity, identify patterns, and plan for financial goals.
Cash Value
Cash value is the savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals during the policyholder's lifetime.
Catch-Up Contributions
Catch-up contributions allow workers age 50+ to contribute extra amounts above normal limits to retirement accounts including 401(k), IRA, and 403(b) plans, with SECURE 2.0 adding super catch-up for ages 60-63.
Chain of Title
Chain of title is the complete, sequential history of all transfers of property ownership from the original owner to the present owner, used to verify clear and marketable title.
Character Evidence
Character evidence is evidence of a person's general character traits or propensities, generally inadmissible under FRE 404(a) to prove conduct on particular occasion, though exceptions exist in criminal cases.
Charitable Lead Trust (CLT)
A charitable lead trust pays income to charity for a term of years, with remainder passing to non-charitable beneficiaries (typically family), providing gift/estate tax benefits on the remainder interest.
Charitable Remainder Trust (CRT)
A charitable remainder trust provides income to the donor or other beneficiaries for life or a term, with the remainder passing to charity, offering an immediate income tax deduction and avoiding capital gains on contributed assets.
Churning
Churning is the illegal practice of excessive trading in a customer's account by a broker primarily to generate commissions, without regard to the customer's investment objectives.
Class Action
A class action under FRCP Rule 23 is a lawsuit where one or more representative plaintiffs sue on behalf of a larger group (class) with common claims, requiring numerosity, commonality, typicality, adequacy, and satisfaction of one Rule 23(b) category.
Cliff Vesting
Cliff vesting is an all-or-nothing vesting schedule where employees become 100% vested after a specified period (typically 3 years for qualified plans), with no vesting before that point.
Closing (Real Estate)
Closing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Closing Costs
Closing costs are fees and expenses paid at the real estate closing beyond the property price, typically 2-5% of the loan amount, including lender fees, title insurance, escrow, and prepaid items.
Cloud on Title
A cloud on title is any document, claim, lien, or encumbrance that could impair or affect the owner's title to property, making the title unmarketable until resolved.
CMA (Comparative Market Analysis)
A Comparative Market Analysis (CMA) is an evaluation of similar recently sold properties (comparables) used by real estate agents to help sellers set listing prices and buyers make competitive offers.
Coinsurance (Health Insurance)
Coinsurance is a cost-sharing arrangement where the insured pays a percentage of covered medical expenses after the deductible is met, typically 20% with insurance paying 80%.
Coinsurance (Property Insurance)
Coinsurance is a property insurance provision requiring the insured to carry coverage equal to a specified percentage (usually 80%) of the property value or face a penalty at claim time.
Collateral Estoppel (Issue Preclusion)
Collateral estoppel (issue preclusion) prevents relitigation of specific issues of fact or law that were actually litigated, necessarily decided, and essential to the judgment in a prior proceeding between the same parties.
Commerce Clause
The Commerce Clause (Article I, Section 8, Clause 3) grants Congress power to regulate interstate commerce, with the Dormant Commerce Clause implicitly limiting state regulation that discriminates against or unduly burdens interstate commerce.
Commingling
Commingling is the illegal practice of mixing client funds with personal or business funds, violating fiduciary duties and real estate licensing laws that require separate trust/escrow accounts.
Common Stock
Common stock is a security representing ownership in a corporation, giving shareholders voting rights and potential dividends.
Comparables (Comps)
Comparables (comps) are recently sold properties similar to a subject property in location, size, features, and condition, used by appraisers and agents to estimate market value.
Comparative Negligence
Comparative negligence apportions damages based on each party's fault. California follows "pure" comparative negligence under Li v. Yellow Cab (1975), allowing recovery even when more than 50% at fault.
Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.
Confirmation Bias
Confirmation bias is the tendency to seek, interpret, and remember information that confirms pre-existing beliefs while ignoring contradictory evidence.
Consideration (Contracts)
Consideration is the bargained-for exchange of legal value between parties that supports enforceability of a contract, requiring both a bargain (exchange) and legal detriment or benefit.
Contestability Period
The contestability period is typically the first two years of a life insurance policy during which the insurer can investigate and deny claims based on material misrepresentation or fraud in the application.
Contingency
A contingency is a condition or clause in a real estate contract that must be satisfied before the transaction can close, allowing buyers to cancel without penalty if the condition is not met.
Conventional Loan
A conventional loan is a mortgage not insured or guaranteed by a government agency (unlike FHA, VA, or USDA loans), typically requiring a 20% down payment to avoid private mortgage insurance (PMI).
Conversion Privilege
The conversion privilege is a policy provision allowing the policyholder to convert a term life insurance policy to a permanent life insurance policy without providing evidence of insurability (no medical exam required).
Convertible Bond
A convertible bond is a corporate bond that can be converted into a predetermined number of the company's common stock shares, offering both fixed income and equity upside potential.
Copay (Copayment)
A copay is a fixed dollar amount that an insured person pays for a covered healthcare service, typically due at the time of service, regardless of the total cost.
Correlation Coefficient
Correlation coefficient (r) measures the degree to which two investments move together, ranging from +1 (perfect positive) through 0 (no relationship) to -1 (perfect negative), used in portfolio diversification.
Crummey Power
A Crummey power gives trust beneficiaries a temporary right to withdraw contributions made to the trust, converting gifts to the trust into present interests that qualify for the annual gift tax exclusion.
Current Yield
Current yield is a bond's annual interest payment divided by its current market price, expressing the income return as a percentage without accounting for capital gains or losses.
Day Trading
Day trading is the practice of buying and selling securities within the same trading day, closing all positions before the market closes to avoid overnight risk and leverage requirements.
Death Benefit
A death benefit is the amount of money paid to beneficiaries upon the death of an insured person, typically the face amount of a life insurance policy.
Debt Avalanche Method
The Debt Avalanche Method is a debt reduction strategy where debts are paid off in order from highest interest rate to lowest, minimizing total interest paid and providing the mathematically optimal path to debt freedom.
Debt Snowball Method
The Debt Snowball Method is a debt reduction strategy where debts are paid off in order from smallest balance to largest, regardless of interest rate, providing psychological wins that build momentum.
Declarations Page
A declarations page (dec page) is the first page of an insurance policy that summarizes essential coverage information including the named insured, policy number, coverage limits, deductibles, premiums, and effective dates.
Deductible (Health Insurance)
A deductible is the amount a policyholder must pay out-of-pocket before the insurance company begins to pay for covered expenses.
Deductible (Property & Casualty)
A deductible is the amount the insured must pay out-of-pocket before insurance coverage begins, representing a form of self-insurance that reduces premiums.
Deed
A deed is a legal document that transfers ownership (title) of real property from one party to another.
Deed of Trust
A deed of trust is a security instrument used instead of a mortgage in some states, involving three parties: the borrower (trustor), lender (beneficiary), and neutral third party (trustee) who holds legal title until the loan is paid.
Defamation (Libel & Slander)
Defamation is a tort involving publication of false statement of fact to third party that damages reputation, divided into libel (written) and slander (spoken).
Defined Benefit Plan (Pension)
A defined benefit plan promises a specified monthly benefit at retirement, typically based on salary and years of service, with the employer bearing all investment risk.
Defined Contribution Plan
A defined contribution plan is a retirement plan where contributions are made to individual accounts, with the final benefit depending on contributions and investment performance.
Delayed Retirement Credits
Delayed Retirement Credits are permanent increases to Social Security benefits for delaying past Full Retirement Age, adding 8% per year up to age 70.
Depreciation (Real Estate)
Depreciation in real estate has two meanings: for tax purposes, it is the annual deduction for the cost of investment property over time (27.5 years residential, 39 years commercial); for appraisal, it is the loss in value due to physical, functional, or external obsolescence.
Depreciation Recapture
Depreciation recapture requires taxpayers to recognize previously claimed depreciation as income when selling an asset - ordinary income for Section 1245 property, 25% max for unrecaptured Section 1250 gain.
Disability Insurance
Disability insurance provides income replacement when a policyholder cannot work due to illness or injury, typically paying 60-70% of pre-disability income after an elimination period.
Disposition Effect
The disposition effect is selling winning investments too quickly while holding losing investments too long, resulting in suboptimal returns and tax inefficiency.
Diversification
Diversification is an investment strategy that spreads investments across various assets, sectors, or geographic regions to reduce risk without necessarily sacrificing returns.
Diversity Jurisdiction
Diversity jurisdiction under 28 U.S.C. Section 1332 grants federal courts power to hear civil cases between citizens of different states when the amount in controversy exceeds $75,000, requiring complete diversity where no plaintiff shares citizenship with any defendant.
Dividend
A dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.
Dollar-Cost Averaging
Dollar-cost averaging is an investment strategy of investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of volatility over time.
Dormant Commerce Clause
The Dormant Commerce Clause is a judicial doctrine inferring from the Commerce Clause a negative prohibition against state laws that discriminate against or unduly burden interstate commerce, even when Congress has not acted.
Dual Agency
Dual agency occurs when a single real estate agent or brokerage represents both the buyer and seller in the same transaction, creating a potential conflict of interest that requires disclosure and consent.
Due Diligence
Due diligence is the investigation period in a real estate transaction during which buyers thoroughly examine the property, review documents, and verify all aspects of the purchase before finalizing the deal.
Duration
Duration is a measure of a bond's price sensitivity to interest rate changes, expressed in years. A higher duration means greater price volatility when interest rates change.
Dying Declaration
A dying declaration is a hearsay exception under FRE 804(b)(2) for a statement by declarant who believed death imminent, concerning cause or circumstances of impending death, admissible in homicide prosecutions and civil cases when declarant unavailable.
Dynasty Trust
A dynasty trust is an irrevocable trust designed to last multiple generations (perpetually in some states), sheltering assets from estate, gift, and GST taxes across generations.
Earnest Money
Earnest money is a deposit made by a buyer to show good faith when making an offer on a property, which is typically applied to the purchase price at closing.
Earnings Per Share (EPS)
Earnings Per Share (EPS) is a company's net profit divided by the number of outstanding common shares, calculated as (Net Income - Preferred Dividends) / Weighted Average Common Shares Outstanding. It is a key metric for evaluating profitability and stock valuation.
Easement
An easement is a non-possessory right to use another person's land for a specific purpose, such as accessing a road or running utility lines.
Economic Substance Doctrine
The Economic Substance Doctrine requires that a transaction have meaningful economic purpose beyond tax avoidance. Transactions lacking economic substance can be disregarded for tax purposes.
Efficient Market Hypothesis (EMH)
The Efficient Market Hypothesis proposes that stock prices fully reflect all available information, making it impossible to consistently outperform the market through stock selection or market timing.
Eligible Designated Beneficiary (EDB)
An Eligible Designated Beneficiary (EDB) is one of five categories of IRA beneficiaries who are exempt from the SECURE Act's 10-year distribution rule and can still stretch inherited IRA distributions over their own life expectancy: surviving spouses, minor children of the decedent, disabled individuals, chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent.
Elimination Period
The elimination period (also called waiting period) is the time between when a disability or long-term care need begins and when insurance benefits start being paid.
Emergency Fund
An Emergency Fund is a readily accessible savings reserve equal to 3-6 months of essential living expenses, designed to cover unexpected costs or income loss without requiring debt or liquidating investments.
Eminent Domain
Eminent domain is the government's constitutional power to take private property for public use, provided the owner receives just compensation as required by the Fifth Amendment.
Encumbrance
An encumbrance is any claim, lien, or liability attached to real property that may diminish its value or affect the owner's ability to transfer clear title.
Endorsement
An endorsement (also called a rider) is a written amendment attached to an insurance policy that modifies, adds, or removes coverage from the original policy terms.
EPO (Exclusive Provider Organization)
An EPO is a managed care health insurance plan that requires members to use in-network providers for all non-emergency care, but unlike HMOs, does not require a primary care physician referral to see specialists.
Equal Protection Clause
The Equal Protection Clause of the Fourteenth Amendment prohibits states from denying any person equal protection of the laws, requiring that similarly situated individuals be treated alike and subjecting government classifications to varying levels of judicial scrutiny.
Equity (Securities)
Equity represents ownership interest in a company, typically in the form of common or preferred stock. Shareholders are owners who share in profits and have voting rights but bear the most risk if the company fails.
Escrow
Escrow is a neutral third-party arrangement where documents and funds are held until all conditions of a transaction are satisfied.
Estate Tax (Federal)
The federal estate tax is a tax on the transfer of property at death, applying to estates exceeding the exemption amount ($13.99M in 2025, $15M in 2026) at rates up to 40%.
Evidence of Insurability
Evidence of insurability (EOI) is proof that a person qualifies for insurance coverage based on their health status, typically required for late enrollees, increased coverage, or certain life events.
Ex-Dividend Date
The ex-dividend date is the first day a stock trades without the right to receive the next declared dividend. To receive the dividend, you must own the stock before this date.
Exchange Rate Risk (Currency Risk)
Exchange rate risk is the potential for loss when the value of investments fluctuates due to changes in currency exchange rates between countries.
Exchange-Traded Fund (ETF)
An exchange-traded fund (ETF) is an investment fund that trades on stock exchanges like individual stocks, typically tracking an index while offering diversification, low costs, and tax efficiency.
Excited Utterance Exception
An excited utterance is a hearsay exception under FRE 803(2) for a statement relating to a startling event, made while declarant was under stress of excitement, admissible because excitement eliminates opportunity for fabrication.
Exclusion
An exclusion is a policy provision that specifies conditions, circumstances, or types of losses that are not covered by an insurance policy, eliminating the insurer's obligation to pay for those particular claims.
Exclusion Ratio
The exclusion ratio determines what portion of each annuity payment is tax-free (return of principal) versus taxable (earnings), calculated by dividing the investment in the contract by expected return.
Exclusive Agency Listing
An exclusive agency listing is a listing agreement where one broker has the exclusive right to market the property, but the seller retains the right to sell the property themselves without owing a commission.
Exclusive Listing
An exclusive listing is a listing agreement where only one broker is authorized to market and sell a property, with two types: exclusive right to sell (broker gets commission regardless of who sells) and exclusive agency (owner can sell without commission).
Exclusive Right to Sell Listing
An exclusive right to sell listing is a listing agreement where one broker has the exclusive right to sell the property and earns the commission regardless of who finds the buyer, including the seller.
Executor / Personal Representative
An executor (personal representative) is a person named in a will to manage a deceased person's estate, including gathering assets, paying debts, and distributing property to beneficiaries.
Expense Ratio
An expense ratio is the annual fee charged by a mutual fund or ETF to cover operating expenses, expressed as a percentage of assets under management. Lower expense ratios mean more of your money stays invested.
Extended Term Insurance
Extended term insurance is a nonforfeiture option that uses the cash value of a permanent life insurance policy to purchase paid-up term insurance for the same face amount, lasting as long as the cash value allows.
Fair Housing Act
The Fair Housing Act is a federal law that prohibits discrimination in housing based on race, color, religion, national origin, sex, familial status, and disability.
False Imprisonment
False imprisonment is an intentional tort involving unlawful restraint of a person against their will within bounded boundaries through physical barriers, force, threats, or other coercive means.
Fee Simple
Fee simple (also called fee simple absolute) is the most complete form of property ownership, granting the owner full bundle of rights including the right to use, sell, lease, or bequeath the property without restrictions, with ownership lasting indefinitely and passing to heirs.
Felony Murder Rule
The felony murder rule imposes murder liability on a defendant who causes a death during commission of an inherently dangerous felony (BARRK: Burglary, Arson, Robbery, Rape, Kidnapping), without requiring proof of intent to kill.
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration, designed for first-time and lower-income homebuyers with lower down payment requirements (3.5%) and more flexible credit standards, requiring mortgage insurance premium (MIP).
Fiduciary
A fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.
Fiduciary Standard
The fiduciary standard is the highest legal standard of care in financial services, requiring advisers to act in their clients' BEST interest at all times, not merely recommend "suitable" investments. It applies to Registered Investment Advisers (RIAs) under the Investment Advisers Act of 1940.
Financial Planning Process (7 Steps)
The Financial Planning Process is the CFP Board's official 7-step framework for delivering comprehensive financial advice, beginning with understanding client circumstances and progressing through goal identification, analysis, recommendation development, presentation, implementation, and ongoing monitoring.
FINRA
FINRA (Financial Industry Regulatory Authority) is a self-regulatory organization that oversees broker-dealers and their registered representatives, administering qualification exams and enforcing securities rules.
First Amendment Rights
The First Amendment protects five fundamental freedoms from government infringement: freedom of religion (Establishment and Free Exercise Clauses), freedom of speech, freedom of the press, the right to peaceably assemble, and the right to petition the government.
Fixture
A fixture is personal property that has been permanently attached to real property and becomes part of the real estate, transferring with the property when sold unless specifically excluded in the contract.
Foreclosure
Foreclosure is the legal process by which a lender takes ownership of a property when the borrower fails to make mortgage payments, typically after several months of default.
Form U4 (Uniform Application for Securities Industry Registration)
Form U4 is the registration form that individuals must complete to become associated with a FINRA member firm and obtain required securities licenses, including personal, employment, and disclosure history.
Form U5 (Uniform Termination Notice)
Form U5 is the form filed when a registered representative leaves a FINRA member firm, documenting the reason for termination and any disclosure events that must be reported.
Fourth Amendment (Search & Seizure)
The Fourth Amendment protects individuals from unreasonable searches and seizures by the government, generally requiring a warrant supported by probable cause, with evidence obtained in violation subject to the exclusionary rule.
Framing Effect
The framing effect is a cognitive bias where people react differently to choices depending on how they are presented (framed), such as gains versus losses, even when the outcomes are mathematically identical.
Free Look Period
The free look period is a mandatory time frame (typically 10-30 days) after receiving an insurance policy during which the policyholder can cancel for a full refund of premiums paid, no questions asked.
Front Running
Front running is the illegal practice of a broker executing trades for their own account ahead of a large client order, using advance knowledge that the client's trade will likely move the market price.
Frustration of Purpose
Frustration of purpose is a contract defense that excuses performance when an unforeseen event substantially destroys the principal purpose of the contract, even though performance remains physically possible.
Full Retirement Age (FRA)
Full Retirement Age (FRA) is the age at which a person can receive full, unreduced Social Security retirement benefits - age 67 for those born in 1960 or later.
Generation-Skipping Transfer Tax (GSTT)
The GSTT is a 40% federal tax on transfers to persons two or more generations below the transferor, designed to prevent families from avoiding estate taxes by skipping generations.
Gift Tax
Gift tax is a federal tax on transferring assets to another person while alive, with an annual exclusion of $18,000 per recipient in 2024 ($36,000 for married couples splitting gifts). The lifetime exemption of $13.61 million is unified with the estate tax exemption.
Goals-Based Planning
Goals-Based Planning is a financial planning approach that organizes all strategies around specific client life goals rather than abstract metrics, measuring success by goal achievement rather than benchmark performance.
Government Pension Offset (GPO)
The Government Pension Offset (GPO) was a provision that reduced Social Security spousal or survivor benefits by two-thirds of the amount of a government pension from non-covered employment. The GPO was REPEALED by the Social Security Fairness Act, signed into law on January 5, 2025, with retroactive benefits back to January 2024.
Grace Period
A grace period is a set time after the premium due date during which a policy remains in force even if the premium hasn't been paid, typically 30-31 days for life insurance.
Graded Vesting
Graded vesting is a vesting schedule where employees gradually earn ownership over time, typically 20% per year starting in year 2, until reaching 100% after 6 years maximum.
Grantor Retained Annuity Trust (GRAT)
A GRAT is an irrevocable trust where the grantor transfers assets and retains the right to receive fixed annuity payments for a specified term, with any appreciation above the IRS Section 7520 hurdle rate passing to beneficiaries gift-tax-free.
Grantor Trust
A grantor trust is a trust where the creator (grantor) retains certain powers or interests that cause the trust income to be taxed to the grantor personally rather than to the trust, making the trust a "disregarded entity" for income tax purposes under IRC Sections 671-679.
Gross Rent Multiplier (GRM)
The Gross Rent Multiplier (GRM) is a property valuation metric calculated by dividing the property price by its annual gross rental income, providing a quick method to compare investment properties and estimate how many years of gross rent would equal the purchase price.
Growth Stock vs. Value Stock
Growth stocks are shares of companies expected to grow earnings faster than the market with high P/E ratios and minimal dividends, while value stocks trade below their intrinsic value with lower P/E ratios and often pay dividends.
Guaranteed Insurability Rider
A guaranteed insurability rider allows the policyholder to purchase additional life insurance at specified future dates or events without providing evidence of insurability (no medical exam required), regardless of changes in health.
Hazard
A hazard is a condition or circumstance that increases the likelihood or potential severity of a loss occurring from a particular peril, classified as physical, moral, or morale hazards.
Head of Household Filing Status
Head of Household is a tax filing status for unmarried taxpayers who pay more than half the cost of maintaining a home for a qualifying dependent, providing a higher standard deduction and wider tax brackets than single filers.
Healthcare Proxy
A healthcare proxy is a legal document that designates a trusted person (the agent or proxy) to make medical decisions on your behalf if you become unable to communicate or make decisions for yourself due to illness or incapacity.
Hearsay
Hearsay is an out-of-court statement offered to prove the truth of the matter asserted, generally inadmissible under FRE 801(c) and California Evidence Code Section 1200 because the declarant cannot be cross-examined.
Hedge Fund
A hedge fund is a private investment partnership using sophisticated strategies like leverage, short selling, and derivatives to generate returns for accredited investors, typically with high minimum investments and limited liquidity.
Herd Mentality
Herd mentality is following the crowd rather than independent analysis, contributing to bubbles and crashes.
HMO (Health Maintenance Organization)
An HMO is a managed care health insurance plan that provides comprehensive coverage at the lowest cost, requiring members to select a primary care physician (PCP) who coordinates all care and provides referrals to specialists within the network.
Hobby Loss Rules (Section 183)
Hobby loss rules prevent deducting hobby losses against other income, with the safe harbor presumption of profit in 3 of 5 years (2 of 7 for horses).
Home Office Deduction
Home Office Deduction allows self-employed taxpayers to deduct expenses for business use of their home, calculated using either the simplified method ($5/sq ft, max $1,500) or the regular method based on actual expenses.
Homeowners Policy (HO Forms)
Homeowners policies are standardized insurance contracts (HO-2, HO-3, HO-5, etc.) that provide property and liability coverage for owner-occupied residences.
HSA (Health Savings Account)
An HSA is a tax-advantaged savings account for individuals with high-deductible health plans, offering triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Impeachment (Evidence)
Impeachment is the process of attacking witness credibility through prior inconsistent statements, bias, sensory defects, character for untruthfulness, and prior convictions, governed by FRE 607-609.
Impossibility (Contract Defense)
Impossibility is a contract defense that excuses performance when an unforeseen event makes performance objectively impossible, such as destruction of the subject matter, death of a necessary party, or supervening illegality.
Impracticability
Impracticability is a contract defense that excuses performance when an unforeseen event makes performance extremely and unreasonably difficult or expensive, though not strictly impossible.
Incontestability Clause
The incontestability clause is a life insurance policy provision stating that after a specified period (usually 2 years), the insurer cannot contest or void the policy based on material misrepresentation in the application, except for fraud.
Indemnity
Indemnity is a fundamental insurance principle stating that an insured should be restored to the same financial position they were in immediately before a loss occurred, receiving compensation equal to the actual loss without profit or gain.
Index Fund
An index fund is a mutual fund or ETF designed to track the performance of a specific market index (like the S&P 500) by holding the same securities in the same proportions, offering broad diversification with low fees.
Inflation
Inflation is the rate at which the general level of prices for goods and services rises over time, decreasing the purchasing power of money.
Inherited IRA
An inherited IRA is a retirement account passed to a beneficiary after the owner's death, with most non-spouse beneficiaries required to deplete the account within 10 years under the SECURE Act.
Insanity Defense
The insanity defense asserts that defendant, due to mental disease or defect, lacked capacity to understand wrongfulness of conduct or conform behavior to law. California uses McNaughten test.
Insider Trading
Insider trading is the illegal practice of buying or selling securities based on material, non-public information, or tipping others to trade on such information. It violates securities laws and can result in civil and criminal penalties.
Insurable Interest
Insurable interest is a legal requirement that the person purchasing insurance must have a financial stake in the insured person or property, ensuring they would suffer a genuine loss if the insured event occurs.
Interest Rate Risk
Interest rate risk is the potential for investment losses due to changes in interest rates, particularly affecting fixed-income securities like bonds whose prices fall when rates rise.
Intermediate Scrutiny
Intermediate scrutiny is a mid-level standard of judicial review requiring the government to prove that a challenged law serves an important governmental interest and is substantially related to achieving that interest, primarily applied to gender and legitimacy classifications under the Equal Protection Clause.
Investment Adviser
An investment adviser is a person or firm that provides advice about securities for compensation, regulated by the SEC (if managing $100M+) or state regulators, and held to a fiduciary standard.
Investment Grade
Investment grade refers to bonds rated BBB-/Baa3 or higher by credit rating agencies, indicating lower default risk and greater creditworthiness compared to high-yield (junk) bonds.
Investment Policy Statement (IPS)
An Investment Policy Statement (IPS) is a formal document between an advisor and client that outlines investment objectives, risk tolerance, constraints, asset allocation guidelines, and the rules governing portfolio management decisions.
Involuntary Manslaughter
Involuntary manslaughter is an unintentional killing resulting from criminal negligence or during commission of an unlawful act not amounting to a felony (misdemeanor-manslaughter rule).
IPO (Initial Public Offering)
An IPO is the first sale of stock by a private company to the public, allowing the company to raise capital from public investors and become publicly traded.
IRA (Individual Retirement Account)
An IRA is a tax-advantaged personal retirement savings account that individuals can open independently, offering either tax-deductible contributions (Traditional) or tax-free withdrawals (Roth).
Irrevocable Life Insurance Trust (ILIT)
An ILIT is an irrevocable trust that owns life insurance policies, removing death benefit proceeds from the insured's taxable estate while providing liquidity for estate taxes.
Irrevocable Trust
An irrevocable trust is a legal arrangement where the grantor permanently transfers assets out of their estate into a trust that generally cannot be modified, amended, or terminated, providing potential estate tax benefits and asset protection.
Itemized Deductions
Itemized deductions are specific expenses taxpayers can deduct from adjusted gross income instead of the standard deduction, including state and local taxes, mortgage interest, charitable contributions, and certain medical expenses.
Joint Tenancy
Joint tenancy is a form of property co-ownership where two or more people hold equal, undivided interests with the right of survivorship, meaning when one owner dies, their share automatically passes to the surviving owner(s).
Junk Bond (High-Yield Bond)
A junk bond is a corporate bond rated below investment grade (BB+/Ba1 or lower) that offers higher interest rates to compensate investors for the increased risk of default.
Law of Large Numbers
The law of large numbers is a statistical principle stating that as the number of similar, independent exposure units increases, the actual loss experience will more closely approximate the expected or predicted loss, enabling insurers to predict losses with greater accuracy.
Leasehold
A leasehold is an interest in real property held by a tenant under a lease agreement, granting the right to possess and use the property for a specified period while ownership remains with the landlord (lessor), making it a nonfreehold estate that is less than full ownership.
Lien
A lien is a legal claim against a property that must be paid when the property is sold, serving as security for a debt or obligation.
Life Estate
A life estate is a freehold ownership interest in real property that lasts only for the lifetime of a designated person (the life tenant), after which the property passes to another party.
Life Insurance Needs Analysis
Systematic determination of appropriate coverage using DIME (Debt + Income + Mortgage + Education), Human Life Value, or Capital Needs Analysis.
Life Settlement
Sale of life insurance by a senior (65+) to a third party for 10-25% of death benefit, with proceeds TAXABLE in three tiers.
Limit Order
A limit order is an instruction to buy or sell a security at a specified price or better, guaranteeing the price but not guaranteeing execution.
Liquidity
Liquidity refers to how quickly and easily an asset can be converted to cash without significantly affecting its price. Cash is the most liquid asset, while real estate and collectibles are considered illiquid.
Lis Pendens
Lis pendens (Latin for "suit pending") is a recorded notice that a lawsuit has been filed affecting title to or possession of real property, warning potential buyers that the property is subject to litigation.
Living Will (Advance Directive)
A living will is a legal document that specifies a person's wishes regarding medical treatment and life-sustaining measures if they become terminally ill or permanently incapacitated and unable to communicate their decisions.
Long-Term Capital Gains
Long-term capital gains are profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on taxable income, significantly lower than ordinary income tax rates.
Long-Term Care Insurance
Long-term care insurance is coverage that pays for extended care services not covered by health insurance or Medicare, including nursing home care, assisted living, and in-home care.
Loss Aversion
Loss aversion is a cognitive bias where the psychological pain of losing is approximately twice as powerful as the pleasure of gaining an equivalent amount.
Malice Aforethought
Malice aforethought is the mens rea required for murder, encompassing four mental states: intent to kill, intent to cause serious bodily harm, depraved heart (extreme recklessness), and felony murder.
Margin Account
A margin account is a brokerage account that allows investors to borrow money from the broker to purchase securities, using the account assets as collateral.
Marginal Tax Rate
The marginal tax rate is the tax rate applied to your last dollar of taxable income, representing the percentage of tax you would pay on an additional dollar of income within your current tax bracket.
Market Capitalization
Market capitalization (market cap) is the total market value of a company's outstanding shares, calculated by multiplying the current stock price by the number of shares outstanding. It's used to classify companies as large-cap, mid-cap, or small-cap.
Market Maker
A market maker is a broker-dealer firm that stands ready to buy and sell a particular security at publicly quoted prices, providing liquidity to the market by maintaining bid and ask prices throughout the trading day.
Market Order
A market order is an instruction to buy or sell a security immediately at the best available current price, guaranteeing execution but not the price.
Mechanic's Lien
A mechanic's lien is a legal claim against a property by contractors, subcontractors, or suppliers who provided labor or materials for improvements but were not paid, creating a security interest in the property.
Mens Rea (Guilty Mind)
Mens rea is the mental state or criminal intent required to establish guilt for a crime, ranging from purpose (highest culpability) to negligence (lowest), and is an essential element that prosecution must prove beyond a reasonable doubt.
Mental Accounting
Mental accounting is treating money differently based on its source or intended use, violating the principle that money is fungible (interchangeable).
Metes and Bounds
Metes and bounds is the oldest legal description method for real property, using physical features, distances (metes), and directions (bounds) to define property boundaries, starting and ending at a point of beginning.
Modern Portfolio Theory (MPT)
MPT is Markowitz's 1952 framework for constructing portfolios to maximize expected return for a given risk level through diversification.
Modified Adjusted Gross Income (MAGI)
Modified Adjusted Gross Income (MAGI) is AGI with certain deductions or exclusions added back, used to determine eligibility for Roth IRA contributions, education credits, and other tax benefits with varying definitions depending on the specific tax provision.
Monte Carlo Analysis
Monte Carlo Analysis is a retirement planning technique that uses computer simulations to model thousands of possible market scenarios, generating a probability of success (typically 0-99%) for a financial plan rather than relying on a single assumed rate of return.
Moral Hazard
Moral hazard is an increased risk of loss due to dishonesty or character defects of the insured, such as intentionally causing damage to collect insurance proceeds or filing fraudulent claims.
Morbidity
Morbidity refers to the incidence of illness or disease within a population, used by insurance companies to predict the likelihood of disability claims and to calculate health and disability insurance premiums.
Mortality Table
A mortality table is a statistical chart showing the probability of death at each age, used by life insurance companies to calculate premiums, reserves, and the expected length of life for policyholders.
Mortgage
A mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.
Motion to Dismiss
A motion to dismiss under FRCP Rule 12(b) is a pre-answer motion challenging the complaint on procedural or substantive grounds, including lack of jurisdiction, improper venue, insufficient service, or failure to state a claim upon which relief can be granted.
MSRB (Municipal Securities Rulemaking Board)
The MSRB is the self-regulatory organization that creates rules governing the municipal securities market, regulating dealers and advisors who buy, sell, and underwrite state and local government bonds.
Municipal Bond
A municipal bond (muni) is a debt security issued by a state, city, or county to finance public projects, with interest typically exempt from federal income tax.
Mutual Fund
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities.
Named Perils
Named perils coverage only protects against specific risks explicitly listed in the insurance policy, such as fire, lightning, windstorm, and theft. If a peril is not named, it is not covered.
NASAA (North American Securities Administrators Association)
NASAA is the organization representing state and provincial securities regulators in the US, Canada, and Mexico, responsible for investor protection and coordinating state securities laws.
Negligence Per Se
Negligence per se establishes presumption of negligence when defendant violates statute designed to protect against type of harm suffered by plaintiff within protected class.
Net Asset Value (NAV)
NAV is the per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of outstanding shares.
Net Investment Income Tax (NIIT)
The Net Investment Income Tax (NIIT) is an additional 3.8% tax on investment income for individuals with modified adjusted gross income (MAGI) exceeding $200,000 (single) or $250,000 (married filing jointly).
Net Listing
A net listing is an employment contract where the broker keeps any amount received above the seller's minimum acceptable price, which is often illegal or discouraged due to inherent conflicts of interest.
Net Operating Income (NOI)
Net Operating Income (NOI) is a property's gross income minus operating expenses, calculated as Gross Income - Operating Expenses. NOI excludes mortgage payments, depreciation, and capital expenditures, making it the key metric for evaluating commercial real estate profitability.
Net Unrealized Appreciation (NUA)
Net Unrealized Appreciation is the difference between the current value of employer stock and its original cost basis, which receives favorable long-term capital gains tax treatment when distributed in-kind.
Net Worth Statement
A Net Worth Statement (Personal Balance Sheet) is a financial snapshot showing total assets minus total liabilities at a specific point in time, providing the foundation for financial planning by measuring wealth and tracking progress toward goals.
Nonforfeiture Options
Nonforfeiture options are provisions in permanent life insurance policies that allow policyholders to access accrued cash value if they stop paying premiums, rather than forfeiting all benefits.
Open Listing
An open listing is a non-exclusive listing agreement where the property owner can hire multiple brokers simultaneously, with only the broker who procures the buyer earning a commission.
Open Perils
Open perils coverage (also called "all-risk" or "special form") protects against all causes of loss EXCEPT those specifically excluded in the policy, providing broader protection than named perils.
Option
An option is a contract giving the holder the right, but not the obligation, to buy (call) or sell (put) an asset at a specified price before a certain date.
Ordinary Income
Ordinary income is income taxed at regular marginal tax rates (10% to 37%), including wages, salaries, interest, short-term capital gains, non-qualified dividends, and business income. Unlike long-term capital gains and qualified dividends, ordinary income does not receive preferential tax treatment.
OTC Market (Over-the-Counter Market)
The OTC market is a decentralized marketplace where securities are traded directly between parties through dealer networks rather than on a centralized exchange, including stocks not listed on major exchanges.
Out-of-Pocket Maximum
The out-of-pocket maximum is the most you have to pay for covered healthcare services in a plan year, after which your insurance pays 100% of covered costs.
Overconfidence Bias
Overconfidence bias is overestimating one's knowledge, abilities, and forecast precision, leading to excessive trading and under-diversification.
Own-Occupation Disability Insurance
Own-occupation pays benefits if you cannot perform YOUR specific occupation, even if you could work in another field.
P/E Ratio (Price-to-Earnings)
The P/E ratio is a valuation metric comparing a company's stock price to its earnings per share, used to assess whether a stock is overvalued or undervalued relative to its earnings.
Paid-Up Insurance
Paid-up insurance is a life insurance policy that requires no further premium payments because the cash value has grown enough to cover all future costs, or it was purchased as a nonforfeiture option.
Parol Evidence Rule
The parol evidence rule prevents parties from introducing evidence of prior or contemporaneous oral or written agreements to contradict, vary, or add to the terms of a fully integrated written contract.
Passive Activity Loss Rules
Passive activity loss rules limit deduction of losses from activities without material participation to the extent of passive income, with suspended losses carried forward.
Per Capita Distribution
Per capita is a Latin term meaning "by head" that specifies estate distribution equally among all living beneficiaries at the time of death, with deceased beneficiaries' shares redistributed among survivors rather than passing to their descendants.
Per Stirpes Distribution
Per stirpes is a Latin term meaning "by branch" that specifies how estate assets are distributed when a beneficiary predeceases the testator, with the deceased beneficiary's share passing down to their descendants rather than to other surviving beneficiaries.
Peril
A peril is the specific cause of loss that an insurance policy covers, such as fire, theft, windstorm, lightning, or vandalism. Insurance policies are structured around either named perils (specific listed events) or open perils (all events except exclusions).
Personal Auto Policy (PAP)
The Personal Auto Policy is a standardized auto insurance contract covering liability, medical payments, uninsured motorists, and physical damage for personal vehicles.
Personal Jurisdiction
Personal jurisdiction is the court's power over a particular defendant, requiring that the defendant have sufficient minimum contacts with the forum state such that exercising jurisdiction does not offend traditional notions of fair play and substantial justice under the Due Process Clause.
Plat (Plat Map)
A plat is a surveyed map of a subdivision showing the division of land into lots, blocks, streets, and common areas, recorded in public records to create legal descriptions for each parcel.
PMI (Private Mortgage Insurance)
Private Mortgage Insurance (PMI) is insurance required on conventional loans when the down payment is less than 20%, protecting the LENDER (not the borrower) against default. PMI can be canceled once the borrower reaches 20% equity, unlike FHA mortgage insurance.
Points (Discount Points)
Points are upfront fees paid to a lender at closing to reduce the interest rate on a mortgage, with each point equal to 1% of the loan amount and typically lowering the rate by 0.25%.
Policy Loan
A policy loan is a loan from an insurance company using the cash value of a permanent life insurance policy as collateral, which does not require credit approval and charges interest that accrues if unpaid.
POS (Point of Service Plan)
A POS (Point of Service) plan is a hybrid health insurance plan combining HMO and PPO features, requiring a primary care physician and referrals like an HMO but allowing out-of-network care at higher costs like a PPO.
Power of Attorney (POA)
A power of attorney is a legal document that authorizes a designated person (the agent or attorney-in-fact) to make financial, legal, or healthcare decisions on behalf of another person (the principal), either immediately or upon incapacity.
PPO (Preferred Provider Organization)
A PPO (Preferred Provider Organization) is a health insurance plan that offers a network of preferred providers with lower costs, while allowing members to see any provider without referrals, including out-of-network doctors at higher out-of-pocket costs.
Preferred Stock
Preferred stock is a hybrid security with features of both stocks and bonds, offering fixed dividends and priority over common stock in liquidation.
Premium (Insurance)
An insurance premium is the amount paid by the policyholder to the insurance company for coverage, typically paid monthly, quarterly, or annually.
Present Sense Impression
A present sense impression is a hearsay exception under FRE 803(1) for a statement describing an event made while or immediately after the declarant perceived it.
Primary Insurance Amount (PIA)
The Primary Insurance Amount (PIA) is the monthly Social Security benefit a worker receives if they claim benefits at their Full Retirement Age (FRA). It is calculated using a progressive formula applied to the worker's Average Indexed Monthly Earnings (AIME), with three "bend points" that provide higher replacement rates for lower earners.
Primary Market
The primary market is where new securities are issued and sold for the first time, with proceeds going directly to the issuing company or government—including IPOs and new bond offerings.
Private Placement
A private placement is the sale of securities directly to a limited number of sophisticated investors without a public offering, typically exempt from SEC registration under Regulation D.
Probate
Probate is the legal process through which a deceased person's will is validated by a court, debts are paid, and remaining assets are distributed to beneficiaries, typically taking several months to over a year and involving court supervision.
Procedural Due Process
Procedural due process is a constitutional requirement under the Fifth and Fourteenth Amendments that the government must provide fair procedures, typically notice and an opportunity to be heard, before depriving a person of life, liberty, or property.
Promissory Estoppel
Promissory estoppel is an equitable doctrine that enforces a promise lacking consideration when the promisor should reasonably expect the promise to induce reliance, the promisee actually and reasonably relies, and enforcement is necessary to avoid injustice.
Promissory Note
A promissory note is the borrower's written promise to repay a loan, containing the loan terms including principal amount, interest rate, payment schedule, and maturity date. It is the "IOU" document that creates the debt obligation, separate from the mortgage or deed of trust that secures the loan with property.
Proration
Proration is the division of ongoing property expenses such as taxes, insurance, and HOA fees between buyer and seller at closing, based on the portion of the billing period each party owns the property.
Prospectus
A prospectus is a legal document filed with the SEC that provides details about an investment offering, including risks, fees, objectives, and management.
Proximate Cause
Proximate cause (legal cause) limits liability to foreseeable consequences of negligent conduct, requiring plaintiff's harm be within scope of risk created by defendant's breach, per Palsgraf v. Long Island Railroad.
Pure Risk vs Speculative Risk
Pure risk involves only the possibility of loss or no loss (insurable), while speculative risk involves the possibility of loss, no change, or gain (not insurable). Insurance companies only cover pure risks because they can be predicted statistically and do not involve voluntary profit-seeking behavior.
Put Option
A put option gives the holder the right to sell an underlying asset at a specified strike price before the expiration date.
Qualified Personal Residence Trust (QPRT)
A QPRT is an irrevocable trust that transfers a personal residence to beneficiaries at a discounted gift tax value by retaining the right to live in the home for a specified term of years.
Qualifying Surviving Spouse
Qualifying Surviving Spouse (formerly Qualifying Widow/Widower) is a filing status available for two years after a spouse's death, allowing the surviving spouse to use married filing jointly tax rates and standard deduction if they maintain a home for a dependent child.
Quiet Title Action
A quiet title action is a lawsuit filed to establish ownership of real property and remove any clouds, claims, or disputes affecting the title, resulting in a court judgment that "quiets" all challenges to ownership.
Quitclaim Deed
A quitclaim deed is a legal document that transfers whatever ownership interest the grantor may have in a property without any warranties or guarantees about the quality of title, offering the least protection to the buyer.
Rebalancing
Rebalancing is the process of periodically adjusting a portfolio back to its target asset allocation by buying underweighted assets and selling overweighted ones. This risk management strategy can be calendar-based (e.g., quarterly or annually) or threshold-based (when allocations drift beyond set limits).
Rebating
Rebating is an illegal insurance practice where an agent offers part of their commission or other inducements to a prospect as an incentive to purchase a policy, violating state insurance laws designed to ensure fair competition.
Redlining
Redlining is the illegal discriminatory practice of denying or limiting financial services, insurance, or other services to residents of certain areas based on racial or ethnic composition rather than individual qualifications.
Reduced Paid-Up Insurance
Reduced paid-up insurance is a nonforfeiture option that uses a policy's cash value to purchase a smaller permanent life insurance policy that is fully paid up, with no further premiums required but a reduced death benefit.
Regulation D (Reg D)
Regulation D provides exemptions from SEC registration for private placements, allowing companies to raise capital by selling securities to accredited investors without the cost and time of a full public offering.
Regulation T (Reg T)
Regulation T is the Federal Reserve rule governing the extension of credit by broker-dealers to customers for purchasing securities, establishing the initial margin requirement of 50% for equity securities.
REIT (Real Estate Investment Trust)
A REIT is a company that owns, operates, or finances income-producing real estate and allows individual investors to earn dividends from real estate investments without having to buy or manage properties directly.
Remainder Interest
A remainder interest is a future ownership interest in property that becomes possessory after a life estate terminates, allowing the remainderman to receive full ownership when the life tenant dies.
Replacement Cost
Replacement cost is a property valuation method that pays the full cost to replace damaged property with new items of like kind and quality, without deducting for depreciation.
RESPA (Real Estate Settlement Procedures Act)
RESPA is a federal law that requires lenders to provide borrowers with clear disclosures about settlement costs and prohibits certain practices like kickbacks and referral fees that can inflate closing costs.
Rider (Insurance)
A rider is an optional add-on to an insurance policy that provides additional benefits or modifies coverage for an extra premium, allowing policyholders to customize their protection beyond the base policy.
Right of Survivorship
Right of survivorship is a legal feature of joint tenancy and tenancy by the entirety that automatically transfers a deceased co-owner's interest to the surviving co-owner(s), bypassing probate.
RMD (Required Minimum Distribution)
RMDs are mandatory annual withdrawals from traditional retirement accounts (Traditional IRA, 401(k)) that must begin at age 73, calculated based on account balance and life expectancy.
Roth IRA
A Roth IRA is a retirement account funded with after-tax dollars that grows tax-free and allows tax-free withdrawals in retirement, with no required minimum distributions.
Rule 144
Rule 144 provides a safe harbor for selling restricted securities and control securities, specifying holding periods, volume limitations, and filing requirements for legally reselling these securities.
Rule 145
Rule 145 governs securities issued in business combination transactions (mergers, acquisitions, reclassifications), determining when a registration statement is required for shareholders receiving new securities.
SEC (Securities and Exchange Commission)
The SEC is the U.S. federal agency responsible for enforcing securities laws, regulating securities markets, and protecting investors from fraud and market manipulation.
Secondary Market
The secondary market is where previously issued securities are bought and sold between investors, with proceeds going to the selling investor rather than the issuing company—including stock exchanges like NYSE and NASDAQ.
Securities Act of 1933
The Securities Act of 1933 is the federal law requiring registration and disclosure for new securities offerings, ensuring investors receive material information before buying, often called the "Paper Act" or "Truth in Securities Act."
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 is the federal law regulating secondary market trading, creating the SEC, and requiring ongoing disclosure by public companies, often called the "People Act" for regulating market participants.
Settlement Date
The settlement date is when a securities transaction is finalized, ownership officially transfers, and payment is exchanged—typically T+1 (one business day after the trade date) for most securities.
Short Selling
Short selling is an investment strategy where an investor borrows shares to sell immediately, hoping to buy them back later at a lower price and profit from the decline.
SIPC (Securities Investor Protection Corporation)
SIPC is a nonprofit corporation that protects customers of failed broker-dealers by restoring securities and cash up to $500,000 per customer, including $250,000 for cash claims.
Special Warranty Deed
A special warranty deed is a deed where the grantor only guarantees clear title for the period they owned the property, not for the entire history of ownership, providing less protection than a general warranty deed.
Steering (Fair Housing Violation)
Steering is an illegal practice where real estate agents direct prospective buyers or renters toward or away from certain neighborhoods based on their race, color, religion, national origin, sex, familial status, or disability.
Step-Up in Basis
Step-up in basis is a tax provision that adjusts the cost basis of inherited assets to their fair market value (FMV) at the date of the decedent's death, effectively eliminating unrealized capital gains that accumulated during the decedent's lifetime. This allows heirs to sell inherited assets with little or no capital gains tax.
Stock Split
A stock split is a corporate action that divides existing shares into multiple shares, reducing the price per share proportionally while maintaining the same total market value.
Stop Order (Stop-Loss Order)
A stop order is an order to buy or sell a security once it reaches a specified price (the stop price), at which point it becomes a market order and executes at the next available price.
Subrogation
Subrogation is the insurance principle that allows an insurer, after paying a claim, to assume the policyholder's legal right to recover damages from the third party responsible for the loss.
Suitability Standard
The suitability standard is a broker-dealer regulatory requirement that investment recommendations must be "suitable" for a client based on their financial profile, but does not require acting in the client's best interest. This is a lower standard than the fiduciary duty required of investment advisers, though Regulation Best Interest (Reg BI) has enhanced broker-dealer obligations since 2020.
Survey (Real Estate)
A survey is a professional measurement and mapping of a property that shows its boundaries, dimensions, improvements, and relationship to adjoining properties, often required for real estate transactions.
Systematic Risk (Market Risk)
Systematic risk is the inherent risk that affects the entire market or asset class, which cannot be eliminated through diversification and includes factors like interest rates, inflation, and recessions.
Tactical Asset Allocation
Tactical asset allocation makes short-term adjustments from strategic targets to capitalize on market opportunities or avoid perceived risks.
Target Date Fund
A Target Date Fund (TDF) is a diversified mutual fund that automatically adjusts its asset allocation along a "glide path" from aggressive to conservative as the target retirement date approaches, providing a hands-off investment solution for retirement savers.
Tax Credit vs Tax Deduction
Tax credits reduce tax liability dollar-for-dollar and are more valuable than tax deductions, which only reduce taxable income by a percentage based on your marginal tax bracket.
Tax-Advantaged Account
A tax-advantaged account is an investment or savings account that offers special tax benefits, either through tax-deferred growth (Traditional IRA, 401(k)) or tax-free withdrawals (Roth IRA, HSA, 529 plans), designed to encourage saving for retirement, healthcare, or education.
Tax-Deferred
Tax-deferred means investment growth is not taxed until funds are withdrawn, typically in retirement. Traditional IRAs, 401(k)s, 403(b)s, and annuities offer tax-deferred growth, with contributions often being pre-tax and withdrawals taxed as ordinary income.
Tax-Loss Harvesting
Tax-loss harvesting is a strategy of selling investments at a loss to offset capital gains or ordinary income, thereby reducing tax liability while maintaining market exposure by purchasing similar (but not substantially identical) investments.
Tenancy by the Entirety
Tenancy by the entirety is a form of co-ownership available only to married couples that includes the right of survivorship and protection from individual creditors, treating the couple as a single legal entity.
Tenancy in Common
Tenancy in common is a form of property co-ownership where two or more people hold undivided interests in the same property, with each owner able to sell or transfer their share independently and leave it to heirs.
Term Life Insurance
Term life insurance provides death benefit protection for a specific period (term), with no cash value accumulation, offering the lowest premium for the highest coverage.
Testamentary Trust
A testamentary trust is a trust created through a last will and testament that does not come into existence until the death of the testator, at which point it becomes irrevocable and must pass through the probate process.
Thrift Savings Plan (TSP)
The Thrift Savings Plan (TSP) is a defined contribution retirement savings plan for federal employees and uniformed service members, offering the same contribution limits as 401(k) plans with exceptionally low expense ratios and five core investment funds plus lifecycle options.
TILA (Truth in Lending Act)
TILA is a federal law that requires lenders to disclose key loan terms and costs to borrowers in a standardized format, including the APR, finance charges, and total payments, enabling consumers to compare credit offers.
Time Horizon
Time Horizon is the expected period an investor plans to hold an investment before needing the funds, directly influencing asset allocation and risk tolerance, typically categorized as short-term (0-3 years), medium-term (3-10 years), or long-term (10+ years).
Title
Title is the legal right to own, use, and dispose of real property, representing the bundle of rights that come with property ownership.
Title Insurance
Title insurance is a policy that protects property buyers and lenders against losses from defects in title, such as liens, encumbrances, or ownership disputes that existed before purchase.
Totten Trust (POD Account)
A Totten trust is an informal revocable trust where a bank account passes directly to named beneficiaries upon death, avoiding probate while allowing full control during lifetime.
Trade Date
The trade date is the day when a securities transaction is executed—when the buyer and seller agree to the terms and the order is filled, regardless of when settlement occurs.
Transaction Broker
A transaction broker is a real estate licensee who facilitates a transaction between buyer and seller without representing either party as an agent, providing limited services while maintaining neutrality.
Treasury Securities
Treasury securities are debt instruments issued by the U.S. government to finance operations, considered the safest investments due to being backed by the full faith and credit of the U.S.
Twisting
Twisting is an illegal insurance practice where an agent induces a policyholder to replace an existing policy with a new one through misrepresentation or incomplete comparison, often to generate new commission.
Umbrella Insurance
Umbrella insurance is excess liability coverage that provides additional protection beyond the limits of underlying policies (auto, homeowners), typically in $1 million increments.
Underwriting
Underwriting is the process by which an insurance company evaluates risk and determines whether to accept an application for coverage and at what premium rate.
Unified Credit (Estate Tax Exemption)
The unified credit is a federal tax credit that exempts a specified amount of assets from estate and gift taxes during a person's lifetime and at death, set at $13.99 million for 2025 and $15 million for 2026 per individual.
Universal Life Insurance
Universal life insurance is a permanent life insurance policy with flexible premiums and death benefits, plus a cash value component that earns interest based on current market rates.
VA Loan
A VA loan is a government-backed mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses, featuring 0% down payment, no private mortgage insurance (PMI), and competitive interest rates.
Variable Annuity
A variable annuity is an insurance contract where payouts depend on the performance of underlying investments chosen by the contract owner, offering growth potential with market risk.
Venue
Venue under 28 U.S.C. Section 1391 determines the proper geographic location (judicial district) for a federal lawsuit, based on where defendants reside (if all in same state), where events occurred, or as a fallback, where any defendant is subject to personal jurisdiction.
Vesting
Vesting is the process by which an employee earns full ownership rights to employer-contributed retirement benefits over time, with employee contributions always being 100% vested immediately.
Viatical Settlement
Sale of life insurance by a terminally ill person (24 months or less) to a third party for 50-70% of death benefit, with proceeds TAX-FREE.
Volatility
Volatility is a statistical measure of the dispersion of returns for a security or market index, indicating how much the price fluctuates over time—higher volatility means greater price swings and higher risk.
Voluntary Manslaughter
Voluntary manslaughter is an intentional killing committed in "heat of passion" following adequate provocation, or under honest but unreasonable belief in self-defense (imperfect self-defense), reducing murder to a lesser offense.
Waiver of Premium Rider
A waiver of premium rider is an optional life or disability insurance provision that waives premium payments if the insured becomes totally disabled for a specified period, keeping the policy in force.
Waiver of Premium Rider
A waiver of premium rider is a life insurance provision that waives all premium payments if the policyholder becomes totally disabled, keeping the policy in force without any out-of-pocket cost during the disability.
Warranty Deed
A warranty deed is a type of deed that provides the highest level of protection for the buyer, with the grantor guaranteeing clear title and promising to defend against any claims to the property.
Wash Sale Rule
The wash sale rule prohibits investors from claiming a tax loss on a security if they purchase a substantially identical security within 30 days before or after the sale, disallowing the loss for tax purposes but adding it to the cost basis of the new shares.
Whole Life Insurance
Whole life insurance is a permanent life insurance policy that provides lifetime coverage with fixed premiums, a guaranteed death benefit, and cash value that grows at a guaranteed rate.
Windfall Elimination Provision (WEP)
The Windfall Elimination Provision (WEP) was a Social Security formula that reduced benefits for workers who earned pensions from employment not covered by Social Security while also qualifying for Social Security benefits from other covered work. The WEP was REPEALED by the Social Security Fairness Act, signed into law on January 5, 2025, with retroactive benefits back to January 2024.
Workers Compensation
Workers compensation is a state-mandated insurance system that provides medical benefits and wage replacement to employees who are injured or become ill due to their job, in exchange for employees giving up the right to sue their employer for negligence.
Yield
Yield is the income return on an investment, expressed as a percentage, including interest or dividends received.
Yield to Maturity (YTM)
Yield to maturity is the total return anticipated on a bond if held until it matures, accounting for all coupon payments, the difference between purchase price and par value, and the time value of money.
Zero Coupon Bond
A zero coupon bond is a debt security that pays no periodic interest but is sold at a deep discount to face value, with the full face value paid at maturity—the return is the difference between purchase price and par.
Zoning
Zoning is the government regulation that divides land into designated districts with specific permitted uses, building requirements, and restrictions to control development and separate incompatible land uses.
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