A

A&S
See accident and sickness insurance.

ACB
See adjusted cost basis.

Accelerated death benefit rider
Designed to pay out a portion of the benefits normally received on the death of the life insured, to insured persons during their lifetimes. Useful to cover increased expenses incurred by terminal illness, dread disease, or the need for long-term care.

Accident and sickness insurance
Offered by private (non-government) companies to cover expenses in excess of provincial coverage or those not covered in provincial plans such as prescription drugs and certain hospital benefits. Also known as A&S insurance.

Accidental death and dismemberment
A supplementary benefit rider designed to pay benefits in the event of death or the loss of a limb or sight caused by an unintended, unforeseen, and unexpected event. Also known as AD&D.

Accrual basis
A tax reporting requirement that interest income is declared when it is earned regardless of when it is actually received.

Accrued rate annuity
A non-registered annuity where tax is paid on the actual interest earned in the annuity each year. Interest values are high in early years and low in later years, complicating attempts to plan for the associated tax liability. Also know as normal annuities.

Accumulated income payment
Any distribution from an RESP, not including a refund of payments or a repayment of a CESG to the government. Funds received usually include earnings on contributions made to the plan, and may include earnings on the CESG. It can be rolled over into an RRSP if contribution room is available or withdrawn where it is treated as income for tax purposes, and also subject to an additional 20% withholding tax. Also know as AIP.

Actively-at-work provision
A group insurance eligibility requirement. Stipulates that if an employee is absent from work on the day coverage under the contract is due to begin, then coverage for that employee will not begin until the day he or she returns to work.

Activities of daily living
Basic functions of personal care such as eating, bathing, dressing, and continence. Mental or physical inability to perform these functions is a prerequisite for long-term care. Also known as ADLs.

Actuary
A professionally trained person with expertise in statistics and mathematics responsible for the calculation of premiums, expenses, life expectancy, and associated costs and reserves for insurance.

AD&D
See accidental death & dismemberment.

Adhesion
A situation where only one party sets out the terms of the contractual agreement. In insurance, the policyowner must essentially accept or reject the insurance policy in whole as presented by the insurer.

Adjustable whole life insurance
Permanent life insurance where future premium levels or face value of death benefits are not guaranteed. Premiums are typically changed every five years to reflect variations in interest rates or pricing factors such as mortality costs and insurer's expenses. In this way, the policyowner shares in the potential benefits and risks that arise when these factors change.

Adjusted cost basis
The cost of a life insurance policy from a tax perspective. Calculated as the sum of the premiums paid under the policy (less any dividends received) plus interest paid on a policy loan that was not deductible in computing income, plus amounts included in income from a non-exempt policy, minus the net cost of pure insurance. Also known as ACB.

ADL
See activities of daily living.

Administrative services only
For a group insurance plan, a company decides to take all responsibility for paying claims, and contracts only the administration of its plan to an insurance company or third-party administrator. Also known as ASO.

Agent
An individual provincially licensed to solicit and sell insurance, deliver policies, or collect premiums on behalf of an insurance company. Generally, one who is authorized to bring another party, for whom he or she acts, into contractual relations with third parties.

Agent's report
A section on an application that allows the agent to include additional information and observations not covered directly in the application that could impact an underwriting decision.

AIP
See accumulated income payment.

Aleatory contract
An agreement based on an uncertain event, where consideration given between parties is often unequal. An insurance company provides a conditional promise to pay benefits much larger than the premiums received from a policyowner.

Allowable capital loss
The percentage of an investor's total capital losses that can be included in a tax return, but only to offset taxable capital gains. Currently set at 50% by CCRA.

Allowance
Federal assistance for a Canadian resident of at least ten years, aged 60-64, whose spouse is entitled to receive OAS and GIS.

Annuitant
One to whom an annuity is payable or a person upon whose life the continuance of further payment depends. Also, one who owns an RRSP.

Annuitization
Conversion of the cash surrender value of a policy into an annuity contract. When this option is exercised, death benefits and other policy benefits expire.

Annuity
A series of income payments or receipts made at regular intervals such as yearly, or for just a specified period, during the lifetime of one or more persons.

Annuity contract
A formal agreement with a financial institution or life insurance company to provide the annuitant with an annuity.

Any occupation
A definition of total disability where benefits are paid provided the insured cannot work at any sort of employment to which he or she is suited based on education and experience.

APS
See attending physician's statement.

ASO
See administrative services only

Assignment
When a policyowner transfers ownership of all or part of an insurance policy to a third party.

ATR
See average tax rate.

Attained age
The age of the life insured used as a reference at the time of issue or renewal of a policy. It is based on the last, next, or nearest birthday.

Attending physician's statement
A requested report based on information contained in the submitted application and prepared by an applicant's physician, which provides information about the life to be insured. Also known as APS.

Attribution rule
If withdrawals are made from a spousal RRSP by the planholder in the year a contribution is made, or in the following two years, the funds are taxable, not in the hands of the planholder, but in the contributor's hands (the spouse or common-law partner) at his or her higher MTR.

Automatic premium loan
A non-forfeiture option used when a policyowner does not pay the premium when due or within the grace period. Instead of terminating the policy, the insurer borrows against the cash value of the policy and these proceeds pay the outstanding premium.

Average tax rate
The proportion of total income paid in income tax for a year, expressed as a percentage. Also known as ATR.

B

Basic RRSP
An RRSP that holds typically a single type of investment usually held in trust and managed by a financial institution.

Beneficiary
The designated person who receives the remainder of an annuity if the annuitant dies, or the death benefit proceeds should the life insured die while the policy is in force. The person named in registered plans to receive the invested funds upon the death of the plan holder.

Benefit period
The maximum length of time over which money or a right to the insured will be given for any one accident or illness resulting in disability.

Bond
An investment product representing funds loaned from investors, promising regular interest payments and the return of the principal amount invested upon maturity. It is secured by specific assets and is issued by government bodies or corporations.

Book value
For investment products, the cost or purchase price of the investment plus any reinvested amounts, such as interest, dividends, or distributions. Redemptions or fluctuations in the market price do not affect it.

Broker
An independent businessperson who may solicit and service life insurance contracts issued by any number of insurance companies.

Business continuation insurance
Protection from a severe loss of value, or the dissolution of a company, when an important partner or employee dies or becomes disabled. The policy provides sufficient funds to pay off current debts, to hire replacement employees, or to buy out the interest of the dead or disabled individual.

Business overhead expense disability insurance
A form of key person disability insurance that provides a benefit, subject to certain limits, tied to the value of specific business expenses paid by the business during the period of disability. Expenses covered include heat and lighting bills, leases, and other ongoing business expenses.

Business risk
The possibility that the issuers of financial instruments may not be able to meet their debt obligations, or the stock of a company will not be profitable.

Buy-sell agreement
A contractual arrangement between two or more people for the purchase and sale of a business interest on the occurrence of a future event, typically the death, disability, or retirement of one of the business partners. Generally, it provides for the mandatory purchase of the business interest at the time of the specified event.

Buy-sell life insurance
Insurance that is purchased on the life of the owner or a key employee of a business, specifically to provide guaranteed funding for a buy-sell agreement associated with that individual. Coverage is often provided through term insurance. Ideally, the amount of coverage matches the anticipated value of his or her interest in the business at the time of death.

C

Call option
A type of derivative that gives an investor the right to buy a set amount of the underlying security at a predetermined price for a specific time period.

Canada Customs and Revenue Agency
A federal agency that administers tax laws for the Government of Canada and for most provinces and territories; customs services; international trade legislation; and various social and economic benefit and incentive programs delivered through the tax system. Also known as CCRA.

Canada Deposit Insurance Corporation
A federal organization that insures (up to specified limits) savings held by banks, trust companies, or loan companies, in case of insolvency. Only certain investment products are covered. Mutual and segregated funds are not covered. Also known as CDIC.

Canada Education Savings Grant
A federally sponsored program whereby the government pays an amount equivalent to 20% of an RESP contribution, for the first $2000 contributed in a given year, for a total of $7200 in grants over the lifetime of the plan. If the beneficiary does not pursue post-secondary education, the accumulated grants must be returned to the government. Also known as CESG.

Canada Pension Plan
A federally sponsored retirement program designed to provide retirement benefits, disability benefits, survivor benefits and death benefits. Individuals usually purchase additional insurance to supplement these benefits. Also known as CPP.

Canada Savings Bond
A low-risk bond issued by the Government of Canada that does not trade in the secondary market and is therefore not subject to fluctuations in value. Interest is paid at regular intervals and redemption is possible on demand, triggering neither capital gains nor losses. Also know as CSB.

Canadian Investor Protection Fund
A private organization created by the investment industry that provides protection, within defined limits, to clients of member securities firms in cases where a member becomes insolvent. Coverage includes segregated funds. Also known as CIPF.

Canadian Life and Health Insurance Association
An association composed of Canadian life insurance companies, responsible for the formation of industry guidelines that are recognized in the Insurance Act and followed universally. Also known as the CHLIA.

Canadian Life and Health Insurance Compensation Corporation
A federally incorporated, not-for-profit, private company established and funded by the Canadian life insurance industry. Its mandate is to protect policy owners from losing their benefits, up to specified levels of coverage, if their insurance company becomes insolvent.

Cancelable
When the insurer may terminate an insurance policy at any time, by written notice to the policy owner.

Capital dividend account
A special account created in a corporation to retain the death benefits received when a shareholder dies and the corporation is the beneficiary under a life policy. It is a means to enable tax-free benefits, received by the corporation, to flow tax-free to remaining shareholders who wish to access these funds, thereby avoiding the unfavorable tax implications they would otherwise incur.

Capital gains
The excess of the proceeds from the sale of an asset owned for growth or income production, over its cost, less expenses incurred in connection with the sale.

Cash surrender value
The amount returned to the policy owner when a whole life insurance policy is cancelled. It is equal to the value of the policy reserve less any surrender charges imposed by the insurer. Also know as CSV.

CDIC
See Canada Deposit Insurance Corporation.

CESG
See Canada Education Savings Grant.

Charitable bequest
A gift of property, including life insurance proceeds, transferred by will to a non-profit organization. The Income Tax Act permits death benefits to pass directly to the charity, avoiding the deceased's estate and therefore any probate fees or creditors' claims.

Child life insurance
A rider that provides insurance on the life of a child of the principal life insured. It includes children born after the rider comes into effect when they reach 15 days of age.

CHLIA
See Canadian Life and Health Insurance Association.

Civil law
The legal system of Quebec based on the French Civil Code. Disputes are settled by reference to an elaborate codified system of rules and principles that govern all areas of the law.

Claimant
One who submits a request or demand for payment of benefits for a suffered loss, according to the provisions of the insurance policy.

Claims
A request or demand on an insurer for payment of benefits according to the provisions of a policy. Subject to statutory provisions in A&S situations.

Closed-end fund
A mutual fund that issues only a set number of shares and then trades on the open market.

Co-insurance
When the cost of a claim is shared between the policy owner and the insurance company, this provision describes the portion, in excess of the deductible, that will be covered by the insurance company.

Coercion
When one party uses or threatens physical force, or commits acts that makes a weaker party feel they have no alternative course of action. It is an extreme form of undue influence and, if present, is sufficient to have a contract declared void.

COLA
See cost of living adjustment.

Combined income & growth funds
Mutual funds of moderate risk designed to combine the relative stability of fixed income products with the long-term potential for capital growth of equity products.

Common law
The system of law that prevails in the nine common-law provinces and in the territories of Canada. It represents a system of law based on precedent, rather than a civil code. In any situation, a previously decided case is recognized as the major source of law for arriving at a decision. Over time, these judgments handed down by higher courts evolve to form a body of precedent from which future judicial decisions involving similar situations are based.

Common share
A security representing ownership interest in the equity of a public or private corporation, enjoying voting privileges, and sharing in both its successes and failures. It must be sold to convert to cash, with returns in the form of capital gains or dividends.

Commutation of benefits
The payment in one lump sum of the present value, at a point in time, of all remaining annuity payments. Frequently an option exercised by the beneficiary of an annuity with a guaranteed minimum term.

CompCorp
See The Canadian Life and Health Insurance Compensation Corporation.

Compounding returns


Concurrent disability
When disability results from more than one injury or sickness, benefits will be paid for only one cause of disability at any one time. Benefits on one disability will be paid until the end of either the disability or the benefit period, and will then commence on another.

Conditional delivery
An insurer accepts an applicant for insurance but issues the policy with requirements for the policy owner to fulfill before the policy will be put in force. Common conditions include payment of premiums and signatures on various documents.

Consideration
The exchange of money and/or promises to perform services in the formation of a contract. With an insurance contract, the policy owner exchanges premiums in return for the insurer's conditional promise to pay benefits should an event occur in the future.

Contingent beneficiary
A secondary beneficiary who receives the policy proceeds, upon the death of the insured, if the primary beneficiary dies before the insured. This prevents the proceeds from passing to the estate of the primary beneficiary.

Contract date
The date on which an investor makes a first deposit to a segregated fund through an IVIC.

Contribution room
The amount you may deposit in an RRSP in a tax year. The sum of the lesser of 18% of the previous year's earned income, or the maximum limit as prescribed in the Income Tax Act, plus any unused portions from previous years.

Contributory plan
A group insurance policy where the employee pays part, or all, of the plan premiums.

Conversion privilege
A group insurance policy provision where, upon leaving employment with the group policy owner, the group member can switch from group coverage to an individual policy with the same insurer, without providing evidence of insurability.

Convertible term insurance
Gives the policy owner the option to convert term insurance to a form of permanent insurance, generally whole life insurance, without providing evidence of insurability.

Coordination of benefits
When a claim can be covered under two plans, CLHIA guidelines prevent the total payment from both plans exceeding total eligible expenses. One insurer becomes first payer to the limit of its coverage and the other becomes second payer to pay the remaining eligible portion.

Cost of living adjustment
A disability insurance rider where the insurer adjusts the monthly benefit paid, usually annually, to keep pace with inflation. Insurers usually use an indicator such as the Consumer Price Index (CPI) when determining how the payment should be modified. Also know as a COLA rider.

Coupon rate
The nominal rate of interest paid to a bondholder, expressed as an annual percentage of the face amount, usually paid semi-annually.

CPP
See Canada Pension Plan.

Critical illness insurance
A policy that pays a tax-free lump sum benefit if the insured is diagnosed with a specific disease or condition such as a heart attack or cancer. It is designed to help individuals meet their financial needs while recovering from a life-altering illness.

Cross-purchase arrangement
A buy-sell arrangement whereby each owner of a business holds insurance policies on the lives of each of the other owners. Upon the death of one owner, the surviving owners must purchase the interest of the deceased. The policy coverage equals the value of the interest to be purchased.

CSB
See Canada Savings Bond.

CSV
See cash surrender value.

Currency risk
The chance that a variation in foreign exchange rates will affect the value of an investment product.

Current yield
A measure of the annual return provided by a fixed income investment, calculated by dividing the annual interest payment by the current market price.

D

Damages
Monetary compensation awarded by a court, in the event of a tort or breach of contract, with the intent to restore the injured party to the position in which he or she would have been, had the tort or contract breach not occurred. The preferred type of remedy chosen by courts.

Death benefit
The sum payable to the beneficiary as the result of the death of the life insured.

Death benefit guarantee
Under an IVIC, the assurance that a policy's beneficiary will receive death benefits if the annuitant dies before the maturity date. Usually valued as the higher of the market value of the segregated fund or a percentage (usually 75% or 100%) of the principal investment.

Debenture
An investment product representing funds loaned from investors, promising regular interest payments and the return of the principal amount invested upon maturity. It is issued by government bodies or corporations and secured by their general level of credit.

Decreasing term life insurance
A form of term insurance in which the death benefit payable declines over the period of coverage while premiums remain constant. Used to keep premiums lower than they would be if they had to cover the high mortality costs in later years.

Deductible
In group insurance, the amount an employee must pay before the insurance company starts paying towards the cost of services, such as prescription drugs or dental bills. Generally, the higher the deductible, the lower the premiums under the plan. In taxes, permission to reduce taxable income by a certain amount.

Deemed disposition
A sale, exchange, or redemption of property where, although the investor receives no actual proceeds from the transaction, for tax purposes, it is assumed those proceeds were received and are therefore taxable. Examples include cash surrender, assignment, death of policy owner, maturity, policy loan, and funds becoming non-exempt.

Deferred annuity
An annuity where payments do not commence until some date at least one year in the future. Meanwhile, capital paid accumulates with investment income.

Deferred profit sharing plan
A retirement benefit plan whereby an employer sets aside a portion of the company's profits for the benefit of certain key employees. The plan may hold the same investments as RRSP and which, after two years in the plan, are under the full control of the employee. Also known as DPSP.

Deferred sales charges
Redemption charges paid on mutual and segregated funds, paid as a percentage of either the original purchase price or market value, that decline the longer the funds are held.

Defined benefit pension plan
An employer-sponsored retirement benefit plan where the benefits paid at retirement are known and usually based on an employee's earnings and the number of years of service.

Defined contribution plan
A retirement benefit plan to which an employer contributes a fixed percentage of an employee's salary. The employee usually contributes a matching percentage and although contributions are known, eventual retirement benefits depend on the investment returns within the portfolio. Contributions are tax-deductible for both parties and growth is tax-sheltered. Also known as money purchase plan.

Demutualization
The process by which a mutual life insurance company converts to a stock insurance company. Each policy owner becomes a shareholder and receives common shares.

Dependent life insurance
A form of term insurance in group plans that covers a policy owner's spouse and each unmarried child as defined by the policy. To qualify the spouse and/or child must require support and maintenance from the policy owner and must not have regular full-time employment.

Derivative
An investment product for which value and return depend on the value of an underlying security, commodity, or financial instrument. Examples include options, futures, rights, and warrants.

Disability insurance
An individual or group insurance policy that provides monthly benefits if the insured is unable to work due to accident, sickness, or mental illness and, consequently, suffers a loss of earned income.

Distribution
A transfer of a mutual fund's income and/or capital gains to its unit holders in whose hands it is taxed. As trusts, most mutual funds are required to transfer all net income and net realized capital gains to unit holders.

Diversification
Spreading of risk by investing in more than one company and investment product over a variety of investment categories, according to objectives and risk tolerance.

Dividend
In Insurance, a partial refund of premiums in a participating whole life insurance policy calculated as the excess of the actual return on the policy reserve over the guaranteed rate. It means the insurer paid out less in death benefits and operating costs, and received higher investment returns than expected. In investment, a discretionary payment by a corporation to its shareholders out of retained earnings, in proportion to the number of shares owned.

Dividend tax credit
A tax credit applied at both the federal and provincial levels, to a taxable dividend that has been grossed up by 25%. The increased amount is designed to represent the taxpayer's portion of the total before-tax income that the corporation is presumed to have earned.

DPSP
See deferred profit sharing plan.

Dread disease benefit
See critical illness insurance.

Due diligence
A process of investigation into the details of a potential investment or product to verify all material facts. Part of the fiduciary duty owed to clients when making recommendations.

Duty of care
A legal device, to determine the extent of negligence, that requires an individual to avoid conduct characterized by unreasonable risk or harm to other people. Relevant individuals include those who are so closely and directly affected by an individual's actions that he or she should reasonably assume they will be so affected and should have them in mind, when considering those actions.

E

E&O
See errors and omissions insurance.

EAP
See education assistance payment. See employee assistance program.

Earned income
Generally, gross salary and monetary compensation from all sources, before deductions, such as income tax, EI, and CPP contributions.

Education assistance payment
A distribution to a beneficiary, under certain conditions, of amounts in an RESP. These amounts include the RESP's accumulated income, Canada Education Savings Grant (CESG), and income on the grant. The payment is to assist with the costs of post-secondary education. Payments can be used towards any cost related to education including tuition, books, accommodation, or general living expenses. Also known as EAP.

EI
See Employment Insurance.

Elimination period
The length of time the insured must be disabled before disability benefits are payable. The intention is that the insured bears some of the loss. The longer this period, the lower the premium charged.

Employee assistance program
A range of medical and non-medical services offered by an employer that is designed to help an employee resolve personal issues.

Employment Insurance
A government program that provides short-term benefits for individuals whose income has been decreased by 40% or more because they cannot work due to sickness, accident, or quarantine. The maximum payment period is 15 weeks or until the end of the disability, whichever comes first. Also known as EI.

Enrolment period
In group insurance, a length of time commencing after the waiting period, in which an employee may enroll in the plan. Generally the period is 31 days and to avoid anti-selection, failure to enroll during this time precludes joining in the future. Also known as the eligibility period.

Equity-based financial instruments
Investments that represent a direct ownership interest in the issuing company, offering the attraction of potential capital appreciation rather than a fixed income stream. Examples include common shares or financial derivatives.

Errors and omissions insurance
Group coverage provided to life insurance agents to protect them from the costs of lawsuits brought due the agent's error or negligence. It reimburses the injured party, usually the applicant or policy owner, for financial losses incurred as a direct result of the actions or inaction of the life insurance agent. Also known as E&O.

Estate equalization
The use of insurance to assist the division of a deceased's estate into equal portions for distribution to beneficiaries under the will. Useful when an individual wants equal distribution but the estate consists of non-liquid assets.

Exempt investments
Investments held in the investment account of a universal life policy whose produced income or returns are not taxed.

Exempt policy
A life insurance policy that emphasizes benefits at death rather than the sheltering of investment income. Its cash values fall within prescribed limits and therefore, the policy remains exempt from the current taxation of any gain accruing in the policy.

Exemption from probate
A feature of IVICs where, provided a beneficiary has been named, segregated funds are excluded from probate fees on the death of the annuitant. Generally, this is not a feature of assets invested in GICs or mutual funds.

Extended elimination period amendment
An addition to a disability policy that lengthens the period of time the insured must be disabled before benefits are payable, if the disability arises from a specified pre-existing condition.

Extended health plan
A typical group extended health care (EHC) plan or extended health benefit (EHB) plan covers services that are not covered under a provincial health care plan, or supplements the cost of those that are. Actual services and degree of coverage under the plan vary significantly between insurance companies.

Extended term insurance
A non-forfeiture benefit in permanent life insurance. Upon non-payment of premiums, the reserve fund can be used to buy a single premium term policy that will insure the full original face amount for a specified number of years and days, depending how much is in the reserve fund. Payment of the face amount is only guaranteed if death occurs within this period.

F

Face value
The amount stipulated in the insurance contract when initially applied for, to be paid out upon the death of the life insured. Also known as face amount or initial face amount.

Facultative Reinsurance Shopping
A process by which a direct insurer submits to reinsurers, the underwriting evidence on an applicant to whom coverage has initially been declined. From them, the most suitable offer is chosen and the substandard risk insured, or the applicant is declined.

Family coverage rider
An addition to a term life policy to provide life insurance for a dependent of the principal life insured under the policy. The policy owner is usually the beneficiary, but if the policy owner does not survive the dependent's death, death benefits are paid to the dependent's estate. It allows those who want to cover dependents' lives to do so at the lowest possible cost and under a single policy. Family coverage is not available through group insurance.

Fiduciary duty
A situation involving a high standard of trust, where one person has scope for the exercise of some discretion of power, can act on this power unilaterally, and the other person is in a weak or vulnerable position. The duty of care is set at a high standard whereby the agent must act in the best interests of the client and not for personal gain, must avoid conflicts of interest and duties, must provide honest, informed advice in good faith, and must preserve high levels of confidentiality and discretion.

Field underwriting
The process by which an agent compiles personal information about the applicant for the application form including details about income and lifestyle, personal and family medical history, and any hazardous activities.

Final expenses
Costs incurred during a last illness, funeral and burial costs, legal fees, any debts, any probate fees, and any other taxes or obligations that must be paid to settle the estate of a recently deceased.

Fixed annuity
An annuity, either term or life, indexed or non-indexed, with the amounts of payments based on a specific interest rate determined at the time of purchase.

Fixed income investment
A financial instrument for which the rate of return does not vary over the life of the investment, paying a constant coupon rate and guaranteeing repayment of principal upon maturity. Examples are treasury bills, bonds, and debentures.

Foreign content rule
The amount, as stipulated by the Income Tax Act, that one may hold in foreign investments as a portion of an RRSP. Currently held at 30% of the book value of total assets held.

Forgery
Making a false document (including a signature), knowing it to be false, with the intent that it should be considered genuine and acted upon.

Fraternal benefit society
An organization, run on a not-for-profit basis, without capital stock, that provides benefits for individuals and their families having a common link such as occupation, charitable purpose, or religion.

Fraud
The false representation of fact, made with knowledge of its falsehood, with the intention that it should be acted upon. If proven, it is a grounds for declaring a policy void even within the incontestability period.

Fund expenses
Costs associated with mutual funds and segregated funds composed of commissions, brokerage fees, audit and legal fees, safekeeping charges, investment management fees, transfer fees, and taxes.

Futures contract
A derivative product, where one agrees to buy or sell a set amount of the underlying security for delivery at a specified price and point in the future.

G

GIB
See guaranteed insurability benefit.

GIC
See guaranteed investment certificate.

Grace period
A window during which a policy will remain in force even though the periodic premium has not been paid when due. 30 days is mandatory, but many policies offer a longer period.

Group accident & sickness insurance
A form of group insurance. It provides personal coverage for health services, either not covered by provincial health insurance plans, or that enhance existing provincial plans. Coverage is for each group member but premiums are priced on an aggregate basis for all group members.

Group creditor insurance
A contract between an insurance company and a financial-lending institution that provides coverage for the lives of clients who borrow money from the lending institution. Coverage is an amount equal to the outstanding balance on the loan, and the lender is named as the policy beneficiary.

Group disability insurance
A form of group insurance that provides regular income replacement payments to an insured member of the group in the event of an eligible disability resulting from illness or injury. Coverage is generally short-term disability (STD) or long-term disability (LTD).

Group insurance
Personal insurance (life, disability, or A&S) that covers the lives of a group of persons and their dependents who have some common association, such as employees of the same company or profession. Premiums are often lower than individual policies because risk is spread over the group.

Group life insurance
Personal life insurance coverage available to group members under a policy issued to the policy owner or the group. Basic coverage is usually available without a medical examination and the premiums charged are based on the average age and sex of all members of the group.

Group RRSP
A collection of individual RRSPs (basic or self-directed) grouped together for administrative purposes. They are sponsored typically by an employer, union, or professional association, and managed by a financial institution, securities dealer, or insurance company on behalf of a specific group, usually employees.

Group term life
A form of group life insurance where the benefits, usually a multiple of the employee's salary, are guaranteed for only one year, renewable each year. Unlike straight term insurance, the premium rate is not determined in advance but upon renewal, based upon the average age and gender of the group.

Growth funds
Mutual funds that invest completely in stocks or other equity-based investments, and provide the possibility of long-term growth. Suitable for those investors with a high tolerance for risk and/or a long time-horizon.

Guaranteed income supplement
Federal assistance, in addition to OAS, for low-income seniors.

Guaranteed insurability benefit
A rider that gives the policy owner the right to purchase additional life or disability insurance, up to a specified amount, without evidence of insurability. The frequency and timing of exercising this right may be limited. It guarantees the price of future coverage even if the health of the life insured has deteriorated since the policy started. Also known as a GIB rider.

Guaranteed investment
An investment product backed by its issuer, that promises to repay at least the full amount of capital invested and/or a guaranteed rate of interest or rate of return upon maturity. Examples include GICs, term deposits, and Canada Savings Bonds (CSBs).

Guaranteed investment certificate
A registered or non-registered interest bearing loan to a bank or trust company for a specified but renewable term of 1 to 5 years. Interest accrues at a specified rate based on the prevailing market rate and is fixed for the term, as are rules for redemption. Also known as GIC.

Guaranteed minimum term
A clause in many life annuity policies providing for payments over a specified period of time, even if the annuitant dies before the end of the term.

Guaranteed non-cancelable
A type of insurance policy where an insurer may neither terminate the contract (except due to non-payment of premiums), nor change any of the policy provisions, definitions, coverage, or premiums during the policy term. The insured may request cancellation at any time.

Guaranteed renewable
Similar to guaranteed non-cancelable insurance policies with the exception that although premiums charged may not change on an individual basis, the insurer may change the amount payable for an entire class of insured people.

Guaranteed whole life insurance
See guaranteed non-cancelable.

H

HBP
See Home Buyers' Plan.

Hedging
The use of derivatives by investors in an attempt to protect themselves from adverse movements in the underlying investments.

Home Buyers' Plan
A federal initiative that allows a taxpayer to borrow funds from his or her RRSP for the purpose of purchasing a home, subject to limits and conditions under the Income Tax Act. The taxpayer does not include the funds as income for tax purposes, nor does the RRSP provider apply a withholding tax. Also known as HBP.

I

Identical properties
Investment products, that are the same in all material respects, such that a prospective buyer would not have a preference for one as opposed to another. Examples include shares in a corporation or units in mutual or segregated funds.

Immediate annuity
An annuity contract where the first payment starts at the end of the first payment interval after purchase. The payment interval can be monthly, quarterly, or annually but is usually monthly.

Impaired annuity
A life annuity that pays a higher income than a standard life annuity, based on evidence that the annuitant has a significantly worse than average life expectancy than other individuals in the same class.

Income funds
Mutual funds that provide a regular stream of income to the investor, either received in cash or reinvested in the fund. Funds in this category invest in fixed income securities like bonds and mortgages. Generally considered less risky than growth funds. Suitable for investors who require a steady stream of income or who have a moderate tolerance for risk.

Income-splitting
A strategy to reduce a tax burden, whereby an individual who is currently in a higher tax bracket contributes to a spousal RRSP. In doing so, he or she claims the tax deduction but allocates the retirement savings to a spouse or common-law partner in a lower tax bracket. Under a progressive tax system, this reduces their combined taxable income when funds are withdrawn at retirement.

Incontestability
A statutory provision for insurance where, after the expiry of a two-year period since its issue, the insurer cannot void a policy if a policy owner withheld or misrepresented a material fact, intentionally or by accident. The policy can only be rendered void if the policy owner committed fraud.

Increasing term life insurance
A form of term life insurance that automatically increases the benefit each year by a pre-determined percentage. Often used to ensure coverage keeps pace with changes in the cost of living. Premium amounts increase periodically to accommodate higher death benefits.

Index
A statistical indicator providing a representation of the value of the securities which constitute it. It often serves as a barometer for a given market or industry, and as a benchmark against which financial or economic performance is measured.

Index funds
A mutual fund that attempts to match its portfolio to a specific financial market index. Returns on the fund then fluctuate in tandem with the chosen benchmark index.

Index-linked GIC
A guaranteed investment certificate that links its returns to the cumulative market returns of a specified stock index or equity mutual fund. Return of principal is guaranteed but instead of earning a specific rate of interest, returns are equal to that of its benchmark index.

Indexed annuity
An annuity that provides for increasing payments over time, to keep pace with the cost of living. The increase can be a fixed percentage each year or it may be tied to an indicator like the Consumer Price Index (CPI).

Individual variable insurance contract
A deferred annuity contract between a policy owner and a life insurance company whereby the policy owner makes deposits and the insurance company invests them in segregated funds. Returns and benefits are not guaranteed. The value of the contract is tied to the value of the segregated fund portfolio. Also know as an IVIC.

Inflation risk
The chance that the real purchasing power of money invested will be reduced by a rise in the general level of prices.

Injunction
An equitable remedy that orders one party to perform some act or to refrain from some action harmful to the party who seeks relief.

Insolvency
The inability of an insurance company to meet its financial obligations as they come due in the ordinary course of business. Policy owners are offered some protection from its effects through CompCorp.

Inspection report
A supplement to a submitted application, based on an interview with the client, that attempts to corroborate financial information provided on the application, to help ensure the coverage applied for is justified.

Insurability
An element in the underwriting process. An assessment as to whether the applicant is an acceptable risk based on factors such as health status and participation in hazardous activities.

Insurable interest
The requirement that an applicant has a reasonable expectation of benefiting from the continuation of another's life or of suffering an economic loss if the life insured dies. It verifies the reason for the application is legitimate and not simply a wager on someone's life. One may have an insurable interest in oneself.

Insurance Companies Act
Federal legislation that governs federally-registered insurance companies and all foreign insurance providers operating in Canada. Concerned mainly with regular submission of financial statements, regulating investment activities, and the protection of
policy owners.

Insured
The individual or group covered by the contract of insurance.

Insurer
The company that issues the insurance policy and assumes the risks associated with the insured.

Inter vivos trust
A trust created to take effect during the lifetime of the grantor (the person who transfers property to the trustee). Examples include mutual funds and segregated funds. For taxation purposes, income flows directly from the fund to the policy owner and taxed in his or her hands. Also known as a living trust.

Interest rate risk
The chance that interest rate levels will affect the value of certain investment products, such as fixed income investments.

Intestate
One who dies leaving no will. The condition of dying without a will. If this occurs, disposition of property progresses according to provincial legislation and according to a predetermined formula.

Irrevocable beneficiary
A provision where a policy owner relinquishes the ability to exercise certain rights unilaterally like changing the beneficiary, surrendering the policy for its cash value, or assigning the policy to a third party. Such changes require the beneficiary's permission. A common provision in separation and divorce proceedings.

IVIC
See individual variable insurance contract.

J

Joint and last survivor annuity
An annuity paid for as long as the annuitant lives, and continued in whole or in part after his or her death, for the lifetime of a named survivor or contingent annuitant.

Joint and last to die policy
A contract that covers two or more lives and pays death benefits only when the last of the lives insured dies. Useful for mitigating the tax incurred when a remaining spouse's estate is taxed.

Joint annuity
See multiple life annuity.

Joint insurance
A contract that covers two or more lives and provides for the payment of death benefits among the lives insured when the first of them dies, at which point the policy automatically terminates.

K

Key person insurance
Protection from significant loss of revenue or services to a business, resulting from the death or disability of an employee whose services are critical to the success or survival of the business.

Know Your Client
The responsibility for providers of financial services to gather all the information necessary to serve a client's best interests. Elements include (but are not limited to) age, annual income and net worth, occupation, risk tolerance, investment knowledge and experience, and investment objectives.

KYC
See Know Your Client.

L

Legal capacity
Necessary for formation of a legal insurance contact. Parties must be of legal age in the jurisdiction where the contract is executed. The parties must also have the mental capacity to understand and carry out the terms and conditions of the contract. Neither party can be under the influence of drugs or alcohol such that the person's judgment is impaired at the time of contract formation.

Level cost of insurance
In a universal life policy, the deductions from the investment account to cover mortality costs remain the same if based on term-100. The policy owner can keep the policy alive by making regular payments equal to the mortality costs. Also know as Level COI.

Level term life insurance
Death benefits and premiums remain the same over the term specified. A disproportionately high percentage of mortality costs are paid in the early years of the policy, while in later years, the policy owner underpays and is not burdened with the full cost of mortality.

Leveraging
When an individual obtains funds by borrowing from a bank, using a universal life policy as collateral. Potentially more tax advantageous than an early withdrawal. Interest on the loan accrues against the cash surrender value of the policy and the loan is not repaid until the policy is cancelled or the life insured dies.

LIF
See life income fund.

Life annuity
A series of regular and periodic payments to the annuitant for his or her lifetime, regardless of length, but with no provision for payment after death.

Life income fund
A RRIF that receives funds from a locked-in retirement account, and that provides for a life income by restricting, according to the annuitant's age, both the minimum and maximum withdrawals from the plan. A life annuity must be purchased with the remainder before age 80. Also known as LIF.

Life insurance
Provides coverage where the risk insured against is the death of a particular person (the life insured). Upon the death of the life insured, while the policy is in force, the insurance company (the insurer) will pay the death benefit to the beneficiary named in the insurance policy.

Life insured
The person upon whose death the benefit of the life insurance becomes payable.

Lifetime benefits
A rider that extends the benefit period for total disability to the claimant's lifetime, whereas standard disability benefits end at age 65.

Limited payment amendment
An addition to a disability policy that restricts benefits if the disability results from specified pre-existing conditions. Generally limited to two or five years.

Liquidity
The ability of an investment to be readily converted into cash.

Liquidity risk
The chance that an investment will not be readily convertible to cash due to specific selling restrictions or a shortage of potential buyers.

LIRA
See locked-in retirement account.

Locked-in retirement account
An option when a member of either a defined benefit or a defined contribution plan leaves an employer. If chosen, a lump sum, equivalent to the commuted value of vested pension benefits, transfers to a plan that has all the investment rules of an RRSP. However, according to provincial and federal pension legislation, the individual must use the funds to provide a retirement income. Also known as LIRA. Formerly known as a locked-in RRSP.

Locked-in Retirement Income Fund
A registered retirement plan available to members of pension plans that are regulated by pension legislation in Ontario, Alberta, Saskatchewan, and Manitoba. It is subject to minimum and maximum withdrawal rules to ensure a life income. Maximum withdrawals are based on the plan's investment earnings. The annuitant is not required, but has the option, to convert to a life annuity.

Locked-in RRSP
See locked-in retirement account.

Long-term care insurance
Coverage for care needed when a policy owner suffers a debilitating illness or injury that renders the individual unable to perform activities of daily living (ADLs). Created in response to the high health care costs for the aged and a useful complement to accumulated retirement funds. Commonly structured like a guaranteed renewable disability policy with 5-year level premiums.

Long-term care rider
Pays a benefit if the life insured requires care at home or at a facility such as a nursing home provided he or she is unable to perform at least two activities of daily living (ADLs) or requires continual supervision due to deteriorated mental abilities.

Long-term disability insurance
Typically provides coverage for 2 years, 5 years, or to the claimant's age 65. Often pays a lower level of benefits than short-term disability coverage (STD). Benefits usually commence when STD benefits end, according to total disability as defined in the policy. Also known as LTD insurance.

Loss of income policy
A pre-condition for payment of disability benefits. Defines total disability as a loss of at least 80% of earned income due to accident or sickness.

LTC
See long-term care insurance.

M

Management expense ratio
A standardized measure that expresses the costs of a fund as a percentage of its average net asset value during the fiscal year. An indication of what percentage of each dollar of fund assets pays for management services. Also known as MER.

Management fee
The amount a mutual fund pays for administration of the fund and supervision of the portfolio. The investor does not pay the fee directly but feels its effects because rate of return is reported net of this amount.

Marginal tax rate
The tax rate, expressed as a percentage, one pays on the next dollar of taxable income earned. In a progressive tax system this rate will be equal to or higher than the average tax rate (ATR) paid on the person's entire income, since the tax rate is lower for the first dollars of income than for subsequent dollars. Also known as MTR.

Market risk
The chance that variations in the stock market caused by economic, political, or social factors will affect the value of an investment product.

Market value adjustment
For IVICs invested in term deposits, a modification to the agreement when a contract owner makes an early withdrawal in excess of the yearly allowable 10% of fair market value. The interest rate paid on deposit is changed to reflect more accurately the return an investor is entitled to, based on the length of time funds are left on deposit.

Material fact
Vital information that by its inclusion or omission, would affect any part of an underwriting decision such as insurability, premium rate, benefits, exclusions, or limitations.

Material misrepresentation
Information that is omitted or included incorrectly that would have influenced the insurability of an applicant. Detection of such information within a two-year period since contract formation gives the insurer the right to void the policy or deny a claim.

Maturity date
The date on which a debt becomes due for payment. In an IVIC, the date generally ten years from the initial investment date or the reset date. Also known as the deposit maturity date.

Maturity guarantee
A promise from the insurance company that when an IVIC matures after at least ten years, the investor will receive the higher of the market value of the segregated fund or the statutory 75% of the principal investment. It makes no promise for amounts withdrawn prior to the maturity date or that the investment will appreciate in value.

Medical Information Bureau
A non-profit trade association that provides a means for member insurance companies to share medical and other information about an applicant that may be pertinent to an underwriting decision. This pooling of information makes it more difficult for applicants to defraud insurers. Also known as MIB.

MER
See management expense ratio.

MIB
See Medical Information Bureau.

Misstatement of age
Providing an incorrect age of the life insured in a life insurance policy. The death benefit is adjusted to reflect the amount of insurance the premiums paid would have purchased had the policy been issued using the correct age of the life insured. Under the Insurance Act, the contract is not void.

Misstatement of sex
Providing the incorrect gender of the life insured in a life insurance policy. The death benefit is adjusted to reflect the amount of insurance the premiums paid would have purchased had the policy been issued using the correct gender of the life insured. Under the Insurance Act, the contract is not void.

Morbidity rate
The expected incidence of illness or disability of individuals in a given class.

Mortality cost
The actual cost to the insurance company of the risk that the life insured might die during a given policy year. The cost of life insurance net of administration costs.

Mortality rate
The expected incidence of death of individuals in a given class.

Mortality tables
A listing of the mortality experience of individuals by sex and age.

MTR
See marginal tax rate.

Multiple life annuity
An annuity that is payable to more than one person during their joint lifetimes. Payments either cease when either of them dies (joint annuity), or continue until the last remaining annuitant dies (joint and last survivor annuity).

Mutual fund
A financial product that pools investor deposits and invests in a diversified portfolio of securities run by a professional manager. Units are issued, whose value fluctuates with the experience of its portfolio.

Mutual life insurance company
An insurance company that has no capital stock or stockholders. It is owned by its policy owners who choose a governing board of directors. Each policy owner shares in surplus earnings after operating costs in the form of dividends or a reduction in premiums.

N

NAVPS
See net asset value per share.

Negligence
Conduct that falls below the standard required, in particular circumstances, to protect others against unreasonable risk of harm. It is based on an objective standard where it is not what the party at fault intended, but whether he or she exercised reasonable care.

Net asset value per share
A value that represents the price at which segregated fund and mutual fund units are bought and sold on any particular day. An assessment of all the fund's assets minus liabilities, divided by the number of units outstanding. Also known as NAVPS.

Net investment return
The increase in value of an investment, expressed as a percentage per year, that remains when one accounts for items such as inflation and taxes.

Nominal return
The increase in value of an investment, expressed as a percentage per year, that ignores items such as inflation or taxes.

Non-cancelable
The policy cannot be terminated by the insurer, except for non-payment of premiums beyond the grace period.

Non-contributory plan
In group insurance, a policy where the group policy owner (usually an employer) pays 100% of the premiums, with no contributions from the group members. Common for group medical plans because of favorable tax implications for all parties.

Non-exempt policy
A universal policy where more is held in the accumulating fund than that permitted for exempt status. The intent is more to shelter investment income than to provide death benefits, so CCRA dictates that any gain is reportable whenever the policy is in a gain position, whether or not it has been realized.

Non-forfeiture benefits
In permanent life insurance policies, those values that the policy owner does not forfeit even for nonpayment of premiums. Typically non-forfeiture benefits include cash surrender value, automatic premium loan, reduced paid-up insurance, and extended term insurance. Not available in term insurance.

Non-indexed annuity
An annuity that does not provide for a periodic increase in payments as either a fixed percentage or related to a leading indicator such as the Consumer Price Index (CPI).

Non-participating policies
Life insurance policies where policy owners do not assume any risk for an insurer's shortfall if collected premiums and returns on investment are insufficient to meet mortality costs and expenses. Nor do policy owners share in the surpluses from favorable experience in these areas by receiving dividends. In exchange, the death benefits, cash values, and premiums are guaranteed for the life of the contract.

Non-qualified investments
Those types of investments, that are not outlined in the Income Tax Act, and so many not be included in RRSPs.

Non-refundable tax credit
A tax credit that one can only receive if taxable income is sufficiently high to be offset by the credit.

Non-registered funds
Amounts held outside, and receiving different tax treatment than, registered plans. See Registered funds.

Non-registered plan
A type of savings plan that is not registered with Canada Customs and Revenue Agency (CCRA) and therefore not subject to any restrictions on type of investment, duration, or contribution amount. Funds are not sheltered from the tax that must be paid on investment income as it is earned.

Non-renewable
Term insurance that cannot be continued after the term of the contract has expired. Instead, the policy expires without value. Should the insured wish to seek further coverage, he or she would be required to prove insurability based on his or her attained age.

Normal annuity
See accrued rate annuity.

Notice of assessment
A summary of a taxpayer's tax return, provided by CCRA, among whose items include an estimate of available RRSP contribution room.

O

OAS
See Old Age Security program.

OAS claw back
The process by which, above a specified income threshold, high-income earners are taxed a percentage of OAS benefits received that year. The amount is pro-rated up to the maximum possible OAS benefits.

Occupational risk
A factor in underwriting for disability insurance. Includes not only physical risks or inherent danger in a form of employment, but also the risk that illness or injury would have lasting effect on claimant's ability to work.

Office of the Superintendent of Financial Institutions
A federal institution whose mandate is to assist in the development and interpretation of legislation relating to financial institutions. Responsible for assessing the solvency of insurance companies and for using its authority to protect policy owner interests.

Old Age Security program
A federal public assistance program that provides a monthly benefit to individuals 65 years of age and older. Also known as OAS.

Open-end fund
A type of mutual fund bought and sold directly through the fund company, whose total number of outstanding units changes frequently due to investors' ability to buy and sell units on demand. The majority of mutual funds are open-end funds.

Opportunity cost
The cost of passing up the next best choice when making a decision. If an asset is used for one purpose, the benefit foregone is the value of the next best purpose for which the asset could have been used.

Optional group life
Insurance available to an employee to supplement the basic life insurance provided under a group plan. The extent of additional coverage, usually in multiples of a base unit, is up to the individual. The group member is subject to a medical questionnaire and pays all the additional premiums.

Optional sales charges
Commissions paid on mutual and segregated funds either when funds are purchased or redeemed, at the choice of the unit holder, based on the unit holder’s time horizon for the investment.

Ordinary life insurance
See whole life insurance.

OSFI
See Office of the Superintendent of Financial Institutions.

Over-insurance
When an individual collects benefits from one or more policies in excess of earned income. Prohibited by the Insurance Act. In A&S insurance, all plans preclude overpayment by stipulating that claims will be paid less all amounts received under a government health plan or any other health plan or insurance policy.

Own occupation
A definition of total disability where benefits will be paid if the claimant is unable to perform the important duties of his or her original employment. A claimant can pursue a new occupation and continue to collect benefits.

P

PA
See pension adjustment.

Paid-up additions rider
An addition to whole life insurance policies that permits the policy owner to purchase additional coverage proportional to the amount of extra premiums deposited. Purchases can be made on a periodic basis but the option terminates if not used regularly.

Partial disability
A benefit that, if included in disability insurance policies, pays a reduced monthly income if the insured suddenly cannot work full time or is prevented from performing one or more important daily duties of his or her occupation. Claimant need not be totally disabled for a period of time before collecting partial benefits.

Participating policies
Life insurance policies where, in cases of a favorable experience with investment returns, mortality costs, and expenses, the insurer shares those surpluses with policy owners in the form of dividends.

Pension adjustment
A reduction to RRSP contribution room, required by the Income Tax Act, to account for any contributions made to other retirement pension plans or DPSPs in a tax year. It is the equivalent to the present value of the retirement benefits those contributions purchased in the year. Also known as PA.

Permanent life insurance
A policy that provides coverage for the entire life insured rather than for a specific term. Requires payment of premiums in excess of actual mortality costs in early years and the accumulation of a policy reserve. Types include whole life, term-100, and universal life.

Policy
The written agreement between insurer and policy owner containing the schedule of benefits, contract specifications, a premium schedule, provisions describing benefits and procedures in various circumstances, limitations and exclusions, and amendments or riders.

Policy limitations
Contractual restrictions upon the rights and benefits of the policy owner, such as exceptions to coverage or the maximum amount of a benefit payable for a given situation or occurrence. A means to reduce premiums by restricting the risks covered by the policy.

Policy loan
An amount an insurer lends to a policy owner, assigning the policy's cash surrender value (CSV) as collateral, up to a specified percentage. Upon termination of the policy or death of the life insured, the CSV or death benefit is reduced by the outstanding amount, plus accrued interest charges.

Policy provisions
Promises and contractual obligations, either mandatory or optional, of both the insurer and policyowner contained in the insurance agreement.

Policy reserve fund
In permanent life insurance, a fund created by the policy owner’s premiums that accumulates over the policy's life to cover the insurer's mortality costs and expenses. Premiums exceed these costs in the early years to allow sufficient accumulation for meeting higher costs in later years. Also know as an accumulating fund in the Income Tax Act.

Policy owner
The person who enters into a contract with the insurer and who may exercise all rights in the insurance policy. In a life insurance contract, he or she may or may not be the life insured. Also known as the policyholder.

Portfolio manager
Responsible for the investment decisions in a mutual or segregated fund including purchasing and selling securities and determining the asset mix. Decisions are guided by the objectives of the particular fund and his or her related expertise.

Pre-disability monthly earnings
An individual's income prior to incurring a disability. Used to determine the proportionate loss of income for calculating proportionate residual disability benefits. Also known as PDME.

Pre-existing condition
An injury, sickness, or physical condition that exists prior to the insured applying for disability or A&S coverage. The condition may be excluded from the coverage or a limitation added to the policy relating specifically to it.

Preferred beneficiary clause
Applies to pre-1962 policies. If the named beneficiary is a close family member of the policy owner, a trust is automatically deemed to exist for the benefit of the beneficiary. The benefits of this trust can not be taken away by the policy owner or his creditors. Exercise of the normal rights associated with an insurance policy is conditional on the beneficiary's permission.

Preferred share
Capital stock providing a fixed, non-fluctuating dividend that is paid before any dividend is paid on common shares, and which subordinates common shares in cases of insolvency. It represents partial ownership in a company, but does not contain the same voting rights as common shares.

Premium
The periodic payment that is required to keep an insurance policy in force. The cost of an insurance policy to a policy owner is the sum of these amounts over the years.

Premium offset policy
A participating policy designed so that after a certain number of years the policy dividend paid is sufficient to offset the payment due from the policy owner to keep the policy in force. From that point onwards, the policy owner need no longer make this payment. Also known as a vanishing premium policy.

Premium taxes
Taxes levied by the provinces as a percentage of deposits to life and disability insurance policies (typically 2%), collected and remitted by the insurance company. Deposits to annuities are not similarly taxed.

Prescribed rate annuity
A non-registered annuity where taxes are paid on an equal interest amount each year. By reducing the amount of tax paid in earlier years it offers both a tax-deferral mechanism and a more level source of after-tax income. It must satisfy certain requirements to qualify for special consideration under the Income Tax Act.

Presumptive total disability provision
Provides that the insured will be assumed totally disabled if he or she suffers a specified loss, even if he or she continues to work. These losses often include permanent loss of sight, loss of hands and feet, or loss of speech.

Primary beneficiary
The person who receives the benefits of an insurance contract if still alive when the insured dies, and the policy is still in force. See contingent beneficiary.

Principal
One for whom an agent acts. The money due under a policy. A sum lent or employed as a fund or investment, as distinguished from its income or profits. The original amount (as of a loan) of the total due and payable at a certain date.

Prior knowledge
Awareness of any circumstance that could result in a claim on an agent's E&O insurance, no matter how remote the risk. It will also be deemed to exist if the agent should have known about the circumstance.

Probate fees
Court fees levied by each province, excluding Quebec, as part of the process of validating the will of the deceased.

Probationary period
In group insurance, the length of time a new employee must wait before becoming eligible for coverage. Often matches the period an employer waits before conferring permanent status on an employee. Also known as the waiting period.

Progressive tax system
Canada's method of taxation whereby the higher an individual's taxable income, the higher the percentage of that income paid in tax.

Put option
A type of derivative that gives an investor the right to sell a set amount of the underlying security at a predetermined price for a specific period of time.

Q

Qualification period
The number of days of total disability that must elapse during a benefit period before a claimant can receive partial or residual disability benefits. Designed to prevent claims being made, in the absence of a partial disability clause, on the basis of deteriorating health.

Qualified investments
Those types of investments, as outlined in the Income Tax Act, that one may include in RRSPs.

R

Rated policy
Insurance issued to a person who is a substandard risk at a premium rate that is higher than that charged for a standard risk. Can be changed to a standard policy if the condition that gave rise to a substandard risk has changed favorably.

Real return
The increase in value of an investment, expressed as a percentage per year, adjusted for changes in inflation.

Recurrent disability
A disability resulting from the same or related cause of a prior disability that reappears within a specified period of time. If provision is made in a policy, disability payments resume without the claimant satisfying a new elimination period.

Reduced paid-up insurance
A non-forfeiture clause in a permanent life insurance policy where the policy owner elects to buy a policy for 5% to 80% of the original face value with the cash surrender value (CSV), depending on how long the policy has existed, and pays no more premiums. This guarantees a future death benefit, albeit for a proportionately smaller amount.

Refundable tax credit
A tax credit that one receives regardless of taxable income. It is therefore possible to receive a tax refund even if taxable income is zero.

Registered education savings plan
A registered plan to which a subscriber makes contributions (up to a specified limit and duration) for the purpose of funding a beneficiary's future post-secondary education. A portion of contributions is entitled to a federal grant (CESG). The combined funds enjoy tax-sheltered growth until they are withdrawn either as educational assistance payments (EAP) or accumulated income payments (AIP). Contributions are not tax-deductible. Also known as RESP.

Registered funds
Amounts invested in federally-sponsored plans up to specified limits and subject to certain conditions to qualify for favorable treatment under the Income Tax Act.

Registered plan
A type of savings plan, as defined in the Income Tax Act, and registered with Canada Customs and Revenue Agency (CCRA). It allows an investor to save for retirement without paying tax on the contents until the funds are withdrawn, subject to restrictions on the type of investments, the duration, and the contribution amount.

Registered retired income plan
A registered plan designed to distribute assets in the form of retirement income. No contributions are allowed but amounts are transferred from other registered plans. It can hold types of investment similar to those in a self-directed RRSP, and enjoys tax-sheltered growth. A minimum amount must be withdrawn each year, according to an age-based formula, and included as income for tax purposes.

Registered retirement savings plan
A registered plan to which an investor makes tax-deductible contributions (up to specified limits), that invest in various financial instruments, subject to statutory limitations. The funds grow tax-sheltered until they are withdrawn, typically at maturity when the investor is retired. Also known as RRSP.

Regular occupation
A definition of total disability where benefits will be paid if the claimant is unable to perform the important duties of another occupation to which he or she is reasonably suited by education or training.

Reinstatement
A policy provision under which a policy owner may put a lapsed policy back in force after at least the statutorily required two years, subject to evidence of continued insurability, and payment with interest, of all past unpaid premiums.

Reinsurance
The sharing or spreading of risks too large for one insurer, among other insurers. This avoids the heavy losses incurred if policy owners make excessively large claims.

Renewable
A form of term insurance giving the policy owner the right to continue a policy at the end of one term for some predetermined period of time without providing evidence of insurability, usually at a higher premium rate corresponding to the new attained age.

Reset option
A right under some IVIC to establish a new base value for death benefits and maturity guarantees, thereby locking in a higher guaranteed maturity value at a new maturity date, usually ten years in the future.

Residual disability
A period of partial disability that immediately follows a period of total disability where the insured is able to return to work in a reduced capacity. Provision in a policy that pays benefits proportionate to pre-disability income loss up to specified limits.

RESP
See registered education savings plan.

Retiring allowance
Any amount received by a taxpayer (or his estate or beneficiary) at retirement, in recognition of long service with an employer, or after termination of employment as a severance settlement. Subject to limitations, it may be rolled over into an RRSP, in addition to normal RRSP contribution limits.

Rider
A supplemental agreement attached to an insurance policy that either adds or limits coverage and conditions.

Right of rescission
In Insurance, the applicant has a specified period of time, after receipt of the policy, to examine the premium and coverage provisions, and confirm the policy is accurate and correct. The applicant may return the policy during this preview for a full refund of premiums, regardless of the reason. Not available to investors in a segregated fund under an IVIC. See Ten (10) day free look provision. With mutual funds, the ability to cancel an order within 48 hours (business days) of receiving the trade confirmation. Also the right with mutual funds to repudiate the agreement should a prospectus contain any incorrect information or misrepresentation.

Right of withdrawal
With mutual funds, the investor's ability to repudiate an agreement to buy within two business days of receiving the prospectus, and to receive the full purchase price paid and any sales commissions or fees paid. Not available to investors in a segregated fund under an IVIC.

Rights
An offer to investors, who already hold common shares of a company, to buy subsequent issues at a discount from the market price. This variety of derivative usually expires after a few weeks or months.

Rollover
A direct transfer from one registered plan to another without inclusion of the funds in current income for tax purposes.

S

Secondary beneficiary
See contingent beneficiary.

Segregated fund
Deposits paid by and held in trust for the benefit of individual investors, pooled and held in an investment portfolio separate from an insurance company's other assets. Returns are based on the market value of the securities held within the fund. Features include maturity and death benefit guarantees, creditor protection, reset options, and exemption or exclusion from probate. As it is an insurance product, investments are made indirectly, through an Individual Variable Insurance Contract (IVIC).

Self-directed RRSP
An RRSP that may hold a wide variety of financial instruments, as outlined in the Income Tax Act. The investor makes all investment and management decisions for the portfolio, and therefore assumes all responsibility for investment performance.

Share redemption arrangement
A buy-sell arrangement whereby, in a corporation, if a shareholder dies, the business purchases the deceased's shares with the death benefits from an insurance policy on that person. The corporation then retires those shares, thereby increasing the ownership interest of all remaining shareholders.

Short-term disability
Benefits paid to claimants who are disabled for a term between six months and two years, after a short elimination period. Designed to provide a disabled person with time to recuperate or train for another occupation, rather than as a permanent income replacement plan.

Single life annuity
An annuity that terminates payments upon the later of the death of a single beneficiary and the end of any guaranteed term.

Specific performance
A court order that compels a person to do something previously promised according to a contractual obligation. Considered a secondary remedy, available only where monetary compensation is unavailable or inadequate.

Spousal RRSP
A type of RRSP where the annuitant is the owner of the plan, but the contributions are made by his or her spouse or common-law partner.

Standard risk
A person who meets the parameters of insurability for an average individual in a given class, and therefore is entitled to insurance protection without extra rating or special restrictions.

Stock company
An insurance provider that raises capital on the open market and is owned by its shareholders who share in its profits and losses, and elect a managing board of directors in conjunction with policy owners of participating policies. Most Canadian insurance companies.

Stocks
An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its assets and profits. Most provide voting rights, giving shareholders voting power in certain corporate decisions proportionate to the amount held. Examples include common shares and preferred shares.

Straight life insurance
See whole life insurance.

Structured settlement annuity
A court-awarded annuity in cases of personal injury where the defendant responsible for making award payments gives a lump sum to an insurance company that in turn, guarantees a series of payments to the injured party. No part of these payments is considered taxable income.

Substandard risk
A person's higher than average possibility of illness, disability, or death for a given class of individuals. The accepted applicant receives a rated policy and pays higher premiums to compensate the insurer for assuming greater than normal risk.

Suicide clause
A provision that stipulates how an insurance company will address a situation where the life insured ends his or her life. The Insurance Act allows the contract to be honoured, but contract provisions usually require the policy to be in force for a minimum period following issue or reinstatement. This provision does not exist in an IVIC where death benefits are paid regardless of how or when the contract owner dies.

Summary fact statement
A required disclosure document included with the Summary Information Folder that provides a brief summary of a segregated fund's historical performance, the investment philosophy of the fund and a list of its three largest assets or holdings.

Summary Information Folder
A required disclosure document that describes the features of an IVIC, including the underlying investments, the process for making deposits, and the process for switches and withdrawals.

Superficial loss
A reported capital loss that is disallowed by CCRA because an investment is repurchased within 30 days of the disposition that triggered the capital loss.

Supplementary benefit
See rider.

Surrender charge
A back-end levy on the redemption of segregated fund units as a percentage of the amount redeemed. Large in the early years of a policy but usually declining over time. Often waived if units are switching from one fund to another within the same policy.

Survivor income benefit
A provision in group life insurance where upon the death of the employee, the policy pays a fixed percentage of his or her income to the spouse and children on a monthly basis subject to a maximum limit and time period.

T

T-bill
See treasury bill.

Tax credits
A reduction to taxable income. The amount of the reduction is a fixed percentage of the allowable expense so it is the same regardless of the taxpayer's marginal tax rate.

Tax deductions
Reductions to taxable income. One multiplies the allowable expense by the taxpayer's marginal tax rate to calculate the reduction to taxable income. The value of the deduction increases with the level of taxable income.

Tax deferral plan
An investment strategy to postpone paying tax, whereby an individual contributes funds to a registered plan and takes the applicable tax deduction at a period when personal MTR is relatively high. The funds enjoy tax-sheltered growth until they are withdrawn at a time, such as retirement, when personal MTR is relatively low.

Tax switches
An investment strategy where an individual sells an item currently valued below its ACB to trigger a capital loss (useful for offsetting any capital gains), but then buys the same item, or one with similar attributes, in the belief it will increase in value.

Tax-loss selling
The act of selling items currently valued below their ACB, to trigger deliberately a capital loss. This loss is used to offset other realized capital gains, thereby reducing an investor's tax liability.

Tax-sheltered growth
Within a registered plan, any received income payments or realized capital gains that remain in, and are reinvested in the plan, are not treated as taxable income. They continue to add to the growth of the investment until they are withdrawn (when they are taxed at 100% of MTR), or the plan reaches maturity.

Taxable gain
The proceeds from the disposition of a life insurance policy, calculated as the excess of the cash surrender value over the ACB. Taxed at 100% of an investor's MTR. A loss may not be used to offset a taxable gain.



Taxable income
Total earnings from all sources of income, less all allowable deductions, less further exemptions. The amount on which one pays federal income taxes.

Temporary insurance agreement
A separate contract that provides coverage for the applicant while an insurance company completes the underwriting process. Coverage is for a maximum of 90 days and subject to specified limits. The applicant must qualify medically as a standard risk and pay an initial premium. Also known as conditional insurance or a TIA.

Ten (10) day free look provision
A right of rescission most insurers opt to include, permitting a policyowner to read the policy and decide to either accept it, or return it for any reason for a full refund of all premiums paid.

Term annuity
A contract providing payment for a definite and specified period of time with payment going to a designated beneficiary if the annuitant dies. Also known as a term certain annuity.

Term deposit
A registered or non-registered interest bearing loan to a bank or trust company for a specified but renewable term of less than one year. Interest accrues at a specified rate based on the prevailing market rate and is fixed for the term, as are rules for redemption.

Term insurance rider
Additional coverage for the life insured, a spouse, or children, for a specified period of time on either existing term or permanent policies. Often less expensive to arrange than creating a new stand-alone policy.

Term life insurance
Protection against financial loss resulting from the death of the life insured for a specific length of time, that expires without value if the life insured survives the stated period. Also known as temporary insurance because it is suited to cover risks that have an identifiable duration.

Term-100 insurance
A form of permanent life insurance providing no cash surrender value and few, if any, non-forfeiture benefits, with level premium payments for the life of the policyowner or until age 100. Suitable for permanent needs where the amount of insurance required is not likely to change.

Terminal illness benefit
A supplementary benefit that provides periodic payments to the life insured during his or her lifetime if death is expected within 12 months due to terminal illness. The insurer deducts the amount advanced, plus interest, from the eventual death benefit. This living benefit can only be paid if the insured's estate is the beneficiary of the policy.

Testator
A male individual who makes a will.

Testatrix
A female individual who makes a will.

TIA
See temporary insurance agreement.

Time value of money
The concept that a dollar today is worth more than a dollar tomorrow, because a dollar invested today has the potential to grow to more than one dollar at some future date. The opportunity cost of not investing is the return that is forfeited.

Time-weighted allocation
The process by which segregated funds retain the income earned in the fund, reinvest it, and adjust the unit value to reflect the additional income. This income is taxable in the hands of the contract owner according to the number of units held, but unlike mutual funds, is prorated for the length of time the units have been owned.

Tort
An injury suffered other than by breach of contract, for which recovery of damages is permitted by law.

Total disability
The level of physical or mental impairment caused by an accident or illness, as defined in a disability insurance policy, that must exist before benefits are paid. Elements include loss of income and inability to perform the important duties of one's own occupation, any occupation, or an occupation to which one is reasonably suited by education, training, or experience.

Treasury bill
A short-term debt instrument issued by the federal or provincial government. Because these issuers have the highest credit rating, their debt is the most secure and correspondingly, offers the lowest level of returns. Also known as a T-bill.

Trust
A formal arrangement in which one party, the trustee, holds legal title to property on behalf of another party, the beneficiary, subject to terms set out in the agreement.

Trustee
One who holds the legal title of property for the benefit of another, and must act in that person's best interests. With segregated funds, the insurance company holds deposits in trust for a policyowner.

U

Unconditional delivery
An insurer accepts an applicant for insurance, issues and applies the policy, and requires nothing more from the new policyowner to put the policy in force.

Underwriting
The process, by which an insurance company examines an application, decides whether to accept the risk according to insurability criteria and if so, what premium to charge under the policy.

Undue influence
Pressure, where one party holds a dominant position over the other party, depriving the individual of making an independent decision. Its existence depends on the nature of the specific relationship under examination. In some cases, it is presumed, requiring the dominant party to prove otherwise. In other cases, it depends on the circumstances, intent, and degree of pressure used and must be proven by the weaker party. The courts can decide that a contract entered into in such circumstances is void.

Uniform Life Insurance Act
A uniformity of law, not a statute, that governs the life insurance activities of the nine common law provinces.

Unilateral contract
A formal agreement where only one party is bound to the outlined terms and conditions. Under an insurance contract, there is no recourse available to the insurer should the policyowner neglect to pay premiums; the policy will simply lapse.

Universal life insurance
A permanent life insurance policy allowing flexibility in face amount; number and identity of lives insured; amount, frequency, and timing of deposits; and investment decisions for the policy reserve fund, provided there are sufficient funds to pay mortality and administration costs. Offers tax-deferred savings and favourable tax treatment for beneficiaries.

Unregistered annuity
An annuity purchased with non-registered funds. Since funds used for this purchase have already been taxed, only the interest portion, and not the principal repayment, is taxable.

V

Valuation date
The date upon which the investments held under a segregated fund's deferred annuity policy are valued for purposes of the death benefit and maturity guarantees.

Vanishing premium policy
See premium offset policy.

Variable annuity
An annuity, either term or life, indexed or non-indexed, with the amounts of payments based upon the returns of an investment portfolio. Often funded by segregated funds.

Vesting
The process by which the beneficiary of a pension plan obtains, or becomes entitled to the inalienable right to either transfer or withdraw that lump sum to another plan or RRSP or to receive, in the future, a deferred life annuity.

Void contract
An agreement that fails to meet one of the basic principles of contract formation from the outset and therefore cannot be legally enforced. It is as if the agreement never existed and it cannot be fixed and made valid.

Voidable contract
An agreement that satisfies all the principles of contract formation yet contains a flaw giving the insurer the option to avoid its obligations altogether, adjust the policy to reflect the flaw, or ignore the flaw and treat the contract as enforceable.

W

Waiver of premium
A supplementary benefit in most disability and A&S policies that allows a policyowner to cease payment of premiums upon proof of total disability, subject to a three-month elimination period, the continuation of total disability, and provided the disability was not self-inflicted.

Warrants
A form of derivative issued by a company, entitling investors to buy common shares directly from that company at a discount from the market price. Usually issued at the time shares are issued and having a life span of one to several years.

WCB
See Workers' Compensation Board.

Whole life insurance
A form of permanent life insurance providing coverage for the whole of the insured's life, with a fixed premium rate payable for that lifetime established at issue and paid periodically or as a lump sum. Premiums create a policy reserve fund with a cash surrender value (CSV). Also known as straight life insurance or ordinary life insurance.

Withdrawal Limits for HBP
A taxpayer can withdraw up to $20,000 from his RRSP under the Home Buyer's Plan. He can make more than one withdrawal, as long as the total of all withdrawals is not more than $20,000. If he buys the qualifying home together with his spouse, common-law partner, or other individuals, each individual can withdraw up to $20,000.

Withholding tax
A tax applied by an RRSP provider when an investor withdraws funds from the plan before maturity. The size of the tax depends on the amount withdrawn, as outlined in the Income Tax Act. According to personal financial situation, an individual may or may not be eligible to receive a refund of a portion or all of this tax.

Workers' Compensation Board
Provincial entities funded by employer premiums, established to monitor workplace safety and to compensate workers who develop a work-related sickness or injury on the job. Benefits correspond to a table of benefits and are tax-free. Also known as WCB, the Workers' Safety & Insurance Board, or WSIB.

X

Y

YBE
See year's basic exemption.

Year's basic exemption
The minimum level of income above which one must start making CPP contributions, and below which, one is exempt. Also known as YBE.

Yearly renewable term
Term insurance renewable on a yearly basis without subsequent proof of insurability but based on attained age. It is the basis for calculating mortality cost deduction from the investment account in some universal life insurance policies.

Yield to maturity
A measure of the return provided by a fixed income investment that would be realized if the bond was held until the maturity date. It is greater than the current yield if the bond is selling at a discount and less than the current yield if the bond is selling at a premium.

YRT
See yearly renewable term.

Z

A

Accrual
an amount that has been accrued (i.e., that has been earned and reported for tax purposes, even though it has not yet been received in cash or kind).

Accrual method of accounting
a method of accounting whereby the taxpayer reports income in the fiscal period earned, regardless of when the income was received in cash; and deducts expenses in the fiscal period incurred, whether paid in that period or not.

Accrued interest
Interest that has been earned but not received.

Accumulated income payments (AIPs)
payments to the subscriber of the RESP's investment earnings, including earnings on the Canada Education Savings Grant (ITA 146.1(1), "accumulated income payments").

Accumulation annuity
an annuity whereby a single premium, annual premiums or other varying premiums are accumulated for the purpose of providing a lump sum at some point in the future. The policyholder then has the option of rolling the lump sum into an annuity, or receiving the cash surrender value.

Accumulation plan
An arrangement that enables an investor to purchase mutual fund shares regularly in large or small amounts.

Accumulation planning
the process of setting specific financial goals and determining how to reach those goals, transforming vague statements and wishful thinking into workable action plans.

Act of bankruptcy
assigning your assets to a trustee, in a manner that is not satisfactory to your creditors, fraudulently transferring your assets to a third party in anticipation of bankruptcy, with the intention of withholding those assets from distribution to your creditors, paying off one creditor in preference to the outstanding claims of other creditors (referred to as fraudulent preference), failing to give up goods that are to be seized from you under an execution order, trying to depart secretly and suddenly, with the intention of defrauding your creditors, and failing to meet your liabilities as they come due.

Active business
any business carried on by a corporation, other than a specified investment business or a personal services business. It includes an adventure in the nature of trade (ITA 248(1)).

Active business income
any income pertaining to or incident to an active business, but not including income from property (ITA 248 (1)).

Actuarial assumptions
assumptions made by an actuary regarding future trends in factors that may affect the cost and value of future pension benefits, such as mortality, interest, wage increases, etc.

Actuarial equivalent
the pension paid following early retirement, based on an actuarial reduction of what the pension would have been if it had commenced at normal retirement age.

Actuarial reduction
Most pension plans will permit members to retire early, up to 10 years before the normal retirement age, and still collect a retirement pension. However, the benefit entitlement will be reduced to account for the fact that contributions were not made until normal retirement age (i.e., less pension credits will have been earned by the plan member), resulting in a smaller pension.

Additional savings required
the present value at retirement of the shortfalls in projected retirement income based upon known sources of income and current savings.

Adjusted cost base (ACB)
the original cost of purchasing a capital or depreciable property plus the cost of additions less certain adjustments for specific types of income tax relief, such as the deduction for an RRSP contribution, but not for others, such as CCA.

Adjusted purchase price
the price of an annuity, adjusted to be the equivalent of an immediate annuity purchased with cash.

Adjusted taxable income
in the alternative minimum tax calculation, this amount is the sum of the net additions to taxable income plus taxable income.

Adoption
includes a legal adoption and an adoption in fact.

Advance tax ruling (ATR)
an official interpretation issued by CCRA at the request of a specific taxpayer who wants confirmation of the tax implications of a contemplated transaction. CCRA will assess the transaction, interpret the provisions of the Income Tax Act, the Excise Tax Act, and related statutes, and establish its interpretation in the form of an advance tax ruling.

Adventurer
a client who is both confident and impetuous. Entrepreneurial in nature, willing to go out on a limb in career choices or money management strategies. Although the adventurer is willing to assume a high level of risk in return for high potential gains, an adventurer is always confident that the right decision has been made. An adventurer places confidence in fate.

Affairs of the corporation
the internal arrangements among those responsible for running the corporation and its main beneficiaries, the shareholders.

Affiliated persons
in the context of applying the superficial loss rules, persons affiliated with each other generally include the following (ITA 251.1):
" the taxpayer and his spouse or common-law partner
" a corporation and any person or affiliated group of people who control that corporation
" two corporations if each corporation is controlled by an affiliated person
" a partnership and a majority interest partner
" two partnerships if there is an affiliation between the majority-interest partners of each partnership
" and a partnership and a corporation if there is an affiliation between a majority-interest partner and a person who controls the corporation

After-tax rate of return
the nominal rate of return adjusted for taxes, calculated as (i × (1 - MTR)), where i is the nominal interest rate and MTR is the marginal tax rate.

Age amount
an amount for a non-refundable tax credit for those aged 65 or older on December 31st of the tax year.

Age credit
a federal tax credit for taxpayers who are at least 65 years of age by December 31 of a taxation year.

Age pyramid
a graphic depicting the relative proportion of the population in each age group; in a stable population (where the birth and death rates are constant from year to year) the graph would resemble a pyramid, being broad at the base and tapering to a peak as a result of mortality.

Alimony and maintenance payments
periodic payments made under a court order or written agreement; to the taxpayer or to someone else on the taxpayer's behalf, to maintain the taxpayer, his children, or both.

Allowable business investment loss (ABIL)
a type of allowable capital loss that is calculated as 50% of a business investment loss (ITA 38(c)), and that is deductible from any other source of income for the year of the loss.

Allowable capital loss
that portion of a capital loss that can be deducted from taxable capital gains, based on an inclusion rate of 50% for dispositions after October 17, 2000.

Allowance
(a) an income-tested benefit for a pensioner's spouse or common-law partner, widow or widower aged 60 to 64 who has resided in Canada for at least 10 years since reaching 18 years of age, and who qualifies under the net income test, is eligible for a monthly allowance.

Allowance
(b) Income supplement for the spouse or common-law partner of a low income senior.

Alternative minimum tax (AMT)
an alternative tax calculation that was introduced in 1986 as a political solution to the perception that many high-income taxpayers were avoiding taxes though the use of tax shelters.

Amortization Period
the period of time over which a mortgage is to be paid off, assuming no early payment, missed payments and constant interest rates.

Amortization schedule
the monthly payment includes interest and principal, the portions of which change with each payment. Calculation of these two components of each payment and can be prepared with either a financial calculator or computer software.

AMT basic exemption
an amount of $40,000, which is deducted from the adjusted taxable income. So, effectively only adjusted taxable income in excess of $40,000 is subject to the alternative minimum tax. This means that someone can have up to $40,000 of adjusted taxable income and still pay no AMT.

Ancillary fees
(a) fees imposed by universities, colleges and other post-secondary institutions and which include fees for health services, athletics and various other services. The amount does not include student association fees.

Annual Limits
Contributions to all RESPs on behalf of one beneficiary cannot exceed the annual limit of $4,000. (ITA 146.1(1), "RESP annual limit"). This annual limit cannot be carried forward if it is not used.

Annual LLP limit
An LLP participant can withdraw a total of $10,000 in a calendar year from any combination of her RRSPs. (ITA 146.02(1), "eligible amount").

Annual report
A financial report sent yearly to a publicly held firm's shareholders. This report must be audited by independent auditors.

Annuitant
(a) An individual who purchases an annuity and will receive payments from that annuity.

Annuitant
(b) the recipient or beneficiary of an annuity. An annuity contract can have more than one annuitant.

Annuity
(a) a series of income payments or receipts made yearly or at other regular intervals.

Annuity
(b) A contract that guarantees a series of payments in exchange for a lump sum investment.

Annuity contract
an agreement with a financial institution or life insurance company to provide the annuitant with an annuity. The owner of the annuity contract may or may not be the annuitant.

Annuity due
a series of consecutive periodic payments or receipts of equal amounts made or received at the beginning of each period.

Appreciation
an unrealized increase in the value of an asset over time.

Arm's length
someone that is in no way related to the employer.

Articles of incorporation
a document that must be included with the application for incorporation and that described the fundamental characteristics of the corporation, including the business name; the number of directors; the number and classes of shares that the corporation is authorized to issue; and any restrictions on the business activities that the corporation can undertake.

Ask price
A proposal to sell a specific quantity of securities at a named price.

Asset Allocation
the process of determining what portions of different assets such as stocks, bonds and money market instruments are to be included in an investment portfolio.

Assets
What a firm or individual owns.

Assets
things of value owned by your client.

Assignment
filing a petition for bankruptcy under the Bankruptcy and Insolvency Act.

Assignment of CPP retirement pensions
an income splitting process whereby spouses or common-law partners choose to share their Canada Pension Plan retirement pensions with each other to minimize their tax burden.

Assisted contributions
contributions that are made to an RESP after 1997 in respect of which a CESG has been or will be paid.

Associated corporations
two or more corporations are considered to be associated corporations if, at any time in the taxation year:
" one corporation controlled the other corporation
" both of the corporations were controlled by the same person or group of persons
" the people or group of people who control each corporation were related to each other and one of them owns at least 25% of the shares in both corporations (ITA 256(1))

At-risk rule
a rule under the Income Tax Act that prohibits limited partners from taking deductions for more than the amount of money the investor actually stands to lose (ITA 96(2.1 to 2.6)).

Audit
a review process that CCRA uses to verify the accuracy of amounts reported on a tax return and to ensure that the taxpayer is in compliance with the Income Tax Act.

Average tax rate (ATR)
the total income tax payable for a year divided by the taxable income for a year.

Avoidance
the strategy of avoiding or reducing taxes by making use of various exemptions.

B

Baby boom
the period of time between about 1947 and 1966, during which the rate of live births in Canada rose from about 240,000 per year to a peak of about 480,000 births per year in 1959, and subsequently declined to about 360,000 per year in 1966. Also, refers to the group of individuals born during this time period.

Baby boom tidal wave
the combination of the baby boom followed by the baby bust.

Baby bust
the period of time after 1966, when the baby boom ended and the birth rate stabilized at a lower level. Also, refers to the group of individuals born during this time period.

Back-end load
A sales charge levied when mutual funds mutual fund units are redeemed.

Bad debt
a debt owing to the taxpayer that he is virtually certain he will not be able to collect. A debt will not be uncollectable at the end of a particular taxation year unless the creditor has exhausted all legal means of collecting it or the debtor has become insolvent and has not means of paying it.

Balance Sheet
(a) provides a clear picture of your assets and liabilities, including short-term debt obligations that are of particular concern in money management.

Balance Sheet
(b) A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity.

Balance-due day
the day all taxes are due for the last taxation year and it varies depending on the taxpayer as follows (ITA 248(1)):
" a trust, 90 days after the end of the trust's fiscal year
" an individual who died a