GLOSSARY OF FINANCIAL TERMS

INSURANCE

Business Overhead Insurance – is an expense reimbursement policy that allows a business owner to continue to pay fixed overhead costs while recovering from a disability. 

Critical Illness Insurance – a type of insurance that pays a lump sum if you are diagnosed with a covered illness.

Disability Insurance – a type of insurance that pays a portion of income if you are unable to work due to illness or injury while under the care of a physician.

Mortgage Insurance – insurance you can purchase as a mortgage holder, designed to pay the mortgage lender your loan balance in case of your death.

Mortgage Loan Insurance (CMHC) – When buying a home with less than 20% down, you are required to take out mortgage loan insurance to protect your lender if you default on your payments. Many people refer to this type of insurance by name of one of the common providers – CMHC.

Term Life Insurance – a temporary type of insurance designed to provide low-cost coverage for needs that are also temporary. Many people use term insurance to protect against untimely death when they have outstanding debt that will eventually be paid off, such as a mortgage.

Universal Life Insurance – a permanent type of life insurance. Premiums cover the cost of insurance, however additional dollars can be added to the policy to build value.

Whole Life Insurance – a permanent type of life insurance. As long as premiums are paid, your beneficiary will receive the benefit amount upon your death. Some plans are set up in such a way that a cash value may be accumulated over time, or a larger death benefit could accrue.

INVESTMENTS

DPSP – Deferred Profit Sharing Plan – a profit sharing plan offered by employers and registered with the CRA. Employees do not pay tax on contributions made by employers to the plan and will not pay tax on the amounts in the plan until withdrawn.

LIF – Life Income Fund – the income version of a LIRA. Once converted to a LIF, assets must be withdrawn based on a specified percentage. Withdrawals are bound by both a minimum and maximum and must fall within this range.

LIRA – Locked-in Retirement Account – A pension savings account that cannot be withdrawn until a pre-determined retirement age.

Non-Registered (Cash) Account – taxable investment accounts, not registered by CRA.

RDSP – Registered Disability Savings Plan – a matched savings plan designed to help parents and others save for those eligible for the disability tax credit.

RESP – Registered Education Savings Plan – a matched savings plan designed to save for qualified post-secondary expenses.

RRIF – Registered Retirement Income Fund – the income version of your RRSP. You must convert your RRSP to a RRIF by the end of the year in which you turn 71. You may convert earlier if desired. Assets held within a RRIF must be withdrawn based on a specified percentage.

RRSP – Registered Retirement Savings Plan – a retirement savings plan which allows the contributor to reduce their tax when deposits are made. Assets can grow within the RRSP shelter without incurring tax until a withdrawal is made. 

TFSA – Tax Free Savings Account – a way for Canadians over age 18 to set money aside tax-free. Contributions do not reduce taxes, however withdrawals are never taxed.

Asset Allocation – the amounts that are determined to be invested in stocks, bonds, cash, real estate, or other investment types to make up a portfolio.

Bond – represents a loan made by an investor, typically to a corporation or government. Sometimes referred to as “fixed income”. A bond provides a fixed interest rate for a fixed period of time if held to maturity. A bond can be bought and sold, which means its value can fluctuate based on prevailing market conditions.

Diversification – refers to a strategy of owning varied types of investments such that you have representation from multiple sectors of the economy, perhaps in varied geographic locations.

Dividend – a distribution received when a business shares its profits, either in the form of cash or of additional shares, with certain shareholders.

ETF – Exchange Traded Fund – an investment traded on a stock exchange, typically tracking (representing) an index, sector or strategy.

GIC – guaranteed investment certificate. Represents a loan made by an investor, often to a bank, trust, or insurance company. A GIC offers a fixed interest rate over a fixed period of time.

Index (also known as Indices) – a measurement tool that helps investors compare current prices to past prices of a collection of companies (stocks).

Mutual Fund – a grouped pool of investments such as stocks, bonds, cash or alternatives managed by a professional portfolio management team. A mutual fund allows an investor with limited wealth to gain access to a wide variety of investments.

Portfolio – the different types of assets that an investor owns which may include stocks, bonds, mutual funds, ETFs, cash, real estate, etc.

Private Portfolio Manager – firms or individuals who manage investments on behalf of private clients or institutions.

Stock – represents an ownership portion in a corporation. Sometimes referred to as “equity”.

PLAN. COORDINATE. COMMUNICATE.