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Financial Terms:      A - C     D - H    I - L    M - P    Q - T   U - Z

Income: Income is defined as the amount received from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.


Index: An index is a hypothetical portfolio of securities that represents a particular market or portion of it. Indexes are used to measure the amount of change in a particular security by comparing it to the change of similar companies. Some well-known indexes are the New York Stock Exchange Index (NYSE), the American Stock Exchange Index (AMEX), the Standard & Poor’s 500 Index (S&P 500), the Russell 2000 Index, and the Value Line Index.


Individual Retirement Account (IRA): An IRA is a tax-deferred retirement savings account that allows individuals to contribute a limited amount per year. A traditional IRA may allow individuals, depending on their incomes and participation in employer-sponsored retirement plans, to deduct part or all of their contributions on their tax returns. Withdrawals made after age 59½ are taxed at the current tax rate. In contrast, Roth IRAs allow individuals to withdraw earnings tax free, provided they have owned the account for five years and are at least age 59½. Contributions are made with after-tax dollars.


Inflation: Inflation is the general rise in the price level of goods and services that occurs when demand increases relative to supply. Inflation is usually measured by the Consumer Price Index (CPI) and the Producer Price Index. As a result of inflation, the purchasing power of the dollar decreases. For example, if inflation occurs at 3% annually, $100 in one year would be worth only $97 in the next.


Initial Public Offering (IPO): IPO refers to a company’s first public offering of stock. Often, companies go public when their need for cash exceeds the amount private investors, such as venture capitalists, are willing or able to provide. Investment banks buy shares and then offer them to the public at an offering price. As the stock is traded, the market price may be more or less than the offering price.


Insufficient Funds: When a bank account does not contain enough money to cover a specific check, it is said to have insufficient funds.


Insurability: Insurability is defined as the ability of an insurance applicant to be accepted by an insurer, based on health, occupation, lifestyle, and finances.


Insurable Interest: Insurable interest refers to a potential beneficiary who has a vested financial interest in the life of another person and who might suffer loss upon their disability or death.


Insured: An insured is an individual who is covered by an insurance policy.


Intangible Asset: Intangible assets are nonphysical resources that provide gainful advantages in the marketplace. Copyrights, software, logos, patents, goodwill, and other intangible factors afford name recognition for products and services. They are all examples of intangible assets that may provide significant value to a business operation.


Integrated Plan: An employee pension plan may be included for benefit calculations with Federal Insurance Contribution Act (FICA) benefits, also known as Social Security, or with Old-Age, Survivorship, and Disability Insurance (OASDI) contributions.


Intellectual Capital: Intellectual capital is a representation of the financial value that human innovations, inventions, and intelligence bring to a business enterprise.


Interest: Interest is the cost of borrowed money. It may be the payment you receive from an investment, such as a bond, or the amount you pay for a loan, which is generally a percentage of the total amount borrowed. For example, if you take out a $5,000 loan for a year at 9% interest, the cost of taking the loan would be 9% of the total amount borrowed—$450. Also, interest can refer to a right or share in an asset or property.


Interest Rate: The cost of borrowed money expressed as a percentage for a given period of time, usually one year, is an interest rate. Interest rates are considered by many to be key economic indicators. The Federal Reserve (The Fed) regulates interest rates. The Fed may lower interest rates—making borrowing money less expensive—in an effort to stimulate growth in the economy, or it may raise them—making borrowing money more expensive—in an effort to slow economic growth.


Internal Rate of Return (IRR): The theorem of internal rate of return is, in effect, compounding interest in reverse, or discounting. In contemplating a current investment with a proposed investment, IRR is a most efficient evaluation. The rate of return on a proposed investment should be equal to the present value of all future benefits, including revenues, as well as the gross costs associated with the (current) property investment. IRR is important in planning capital outlays, as well as in evaluating rental real estate investments.


Investment Objective: An investment objective is a financial goal of an investment. Different investment vehicles have different objectives. For example, a fixed-income fund may have outlined in its prospectus an objective of providing current income by investing in fixed-income securities, whereas a capital growth fund looks to provide long-term capital gains and high potential future income. Individual investors also have personal investment objectives, based on their own time horizons and tolerance for risk.


Irrevocable Trust: This trust cannot be altered, stopped, or canceled without the permission of the beneficiary, or trustee. The grantor, who has transferred assets to the trust, gives up all ownership rights to the assets and to the trust. During circumstances where the trustee cannot interpret or carry out his or her specific duties, the court is then asked to make legal determinations. 


Joint Tenancy: Also called joint tenancy with right of survivorship, this form of property ownership involves two or more people who own an undivided interest in a property. Upon the death of one joint owner, ownership automatically passes to the surviving joint owner(s) without a court proceeding. Joint tenancy applies to property with a title or other certificate of ownership, such as real estate, mortgages, securities, and bank and brokerage accounts.


Keogh Plan: A Keogh plan is a tax-deferred defined benefit or defined contribution plan that is established by a self-employed individual for him/herself and his/her employees.


Key Employee: A key employee is an employee who possesses valued skills, craft knowledge, or intellectual and organization abilities. He or she is considered crucial to the ongoing operation of the business or company and difficult to replace. Also, the term key employee is used in applying top heavy tests for qualified referral plans under the Internal Revenue Code (IRC) Section 416.


Key Person Insurance: Companies often have employees who possess craft or scientific knowledge, leadership, and valued skills. Hiring a replacement might alter business planning, profit, stability, and management. To address the financial aspect of replacing a key employee, the corporation becomes owner and beneficiary on an insurance policy that reimburses the company for untimely loss of a key employee.


Lapsed Policy: A lapsed policy is one that is canceled for nonpayment of premiums. The term also refers to a policy canceled before it has cash or surrender value.


Lease: A lease is a contract granting the use of real estate or a fixed asset, such as a vehicle or equipment, for a specific period in exchange for periodic payments.


Leaseback (sale and leaseback): A leaseback is an arrangement where a seller of an asset leases back that same asset from the purchaser. For example, a business owner may sell all or part of the property from which the business operates to raise cash for business operations. The business owner then may agree to lease the sold property for a term of years from the new owner. The leaseback offers security to the new owner because the seller becomes the tenant with business operations remaining at its present location on a potentially long-term basis.


Lease-Purchase Agreement: A lease-purchase agreement may state that a portion of each lease payment applies to a future purchase of the leased property or that the leaseholder possesses a right to buy the property during or at the conclusion of the lease term.


Lender: A lender is one who parts with something of value for specific compensation, for a stated or open duration of time.


Letters of Credit (by a Bank): The bank, as an issuer, may substitute its creditworthiness for a recipient customer and buyer in a single or series of sales transactions through a letter of credit. The seller has little risk in default of payment by the buyer because of the letter of credit. A significant variation on a letter of credit is a letter guaranteeing performance for completion of a contract.


Level Premium Term Insurance: Level premium term insurance refers to a life insurance policy for which premiums remain the same from year to year for a specified period.


Liability: A liability is something for which one is held liable, such as an obligation, responsibility, or debt. Business liabilities may include loans, mortgages, accounts payable, deferred revenues, and accrued expenses. Current liabilities are debts payable within one year, whereas long-term liabilities are payable over a longer period.


Life Annuity: This type of annuity provides income for life.


Life Cycle: The life cycle is the time period that measures from the beginning to the conclusion of an individual, product, or business. A corporate business entity frequently has a life cycle beyond its founder or current owners; therefore, small family businesses may compute life cycles in generational terms to plan an eventual transfer or liquidation.


Life Expectancy: Life expectancy refers to the average number of years individuals of a given age are expected to live, according to a mortality table based on factors such as gender, age, heredity, and health characteristics.


Life Insurance: Life insurance is a contract wherein a premium is paid to an insurance company in return for the insurance company’s promise to pay the beneficiary a defined amount upon the death of the insured. There are various types of life insurance available, including term life, whole life, and universal life.


Lifetime Learning Credit: The lifetime learning credit is a federal credit toward qualified higher education expenses, including tuition and/or other educational expenses, incurred to learn or improve job skills. This credit applies to undergraduate study, graduate school, and professional education pursuits.


Limited Liability Corporation (LLC): In contrast to the unlimited liability inherent in proprietorships as a form of business ownership, a limited liability corporation provides limited liability to each shareholder to the extent of invested capital.


Limited Partnership: A limited partnership is a financial affiliation, consisting of a general partner and limited partners, that invests in projects such as real estate, oil and gas, equipment, movies, etc. The general partner, in return for fees and a percentage of ownership, manages operations and is ultimately liable for any debt. Limited partners, who may receive income, capital gains, and tax benefits in return for their investment, have little involvement in management. They also have limited liability, which limits their maximum loss to the amount they invested.


Liquid Assets: Cash and short-term investment vehicles (e.g., commercial paper, checking accounts, account receivables, Treasury bills) are cash equivalents or liquid assets. Cash and cash equivalents maintain existing market values through the conversion period.


Liquidity: Liquidity refers to the ability to quickly and easily convert assets into cash without incurring a significant loss.


Liquidity Ratio: Liquidity ratios (cash asset ratio, current ratio, quick ratio) quantify a company’s ability to discharge debt obligations maturing within one year.


Living Trust: Also called an inter vivos trust, a living trust is established by a living person and allows that person to control the assets he or she contributes to the trust.


Living Will: Also called a health care proxy, a living will is a written document that allows an individual to designate a representative to make medical decisions in the event that he or she becomes incapacitated due to accident or illness. Often, a living will identifies specific medical treatments a person does or does not wish to have in the event life-sustaining treatment is necessary.


Locking-In: Locking-in refers to the process of assuring that an interest rate, such as on a mortgage, CD (certificate of deposit), or fixed-rate bond, has been set. In the case of a mortgage, there may be a fee for locking-in the rate.


Long-Term Care Insurance: Long-term care insurance covers the cost of long-term health care expenses, such as nursing home care, in-home assistance, assisted living, or adult day care.



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37229 Huron River Drive

P.O. Box 187

New Boston, MI 48164


Tel: (734) 753-4441

Fax: (734) 753-4281




Monday - Thursday

8:30 am to 5:00 pm


8:30 am to 4:00 pm

Evenings by Appointment

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