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Glossary

This glossary is arranged in alphabetical order. Click on a letter in left column or scroll down to search.

< D >

Declaration:

A sworn, written statement signed by the insured, warranting that information given by him is true.. The statement supports or establishes a fact. The person that makes the declaration certifies or declares under penalty of perjury that the statement is true and correct.

Decline:

To refuse acceptance of an insurance application.

Deduction:

Any ordinary and necessary expense paid or incurred in a taxable year, which is related to business or the production of income. Such deductions are in addition to any other deduction Permitted by law and depend upon the accounting method used by the taxpayer. A deduction has the effect of reducing the amount of taxable income and thereby reducing a taxpayer's tax liability. In addition to these deductions, owners of real estate held for other purposes may be entitled to deductions for maintenance expenses, minor repairs, insurance premiums, and depreciation.

Deemed Disposition:

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.

Deferred Annuity:

This is a type of personal retirement account, which provides tax-deferred growth potential for long-term goals, such as retirement. There are two types of annuities, deferred and immediate; deferred annuities are the more popular of the two. Under a deferred annuity, the investment grows and compounds tax-deferred. The deferred annuity provides many choices, including guaranteed income for life. There are two types of deferred annuities: fixed and variable. The contract owner or heirs withdraw income, growth, and/or principal at some time in the future.

Defined Benefit Plan:

In a defined benefit plan, each employee's future benefit is determined by a specific formula, and the plan provides a guaranteed level of benefits (the "defined benefit") to a retired employee.. A private defined benefit plan is typically not contributory - there are usually no employee contributions, no individual accounts are maintained for each employee. The employer makes regular contributions to the entire plan to fund the future benefits of the entire cohort of participants. The employer bears the risk associated with providing the guaranteed level of retirement benefits. Usually, the promised benefit is tied to the employee's earnings, length of service, or both and in some plans indexed for inflation.

Defined Contribution Plan:

This a retirement plan under which the annual contributions made by the employer or employee is generally stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.

Directors and Officers Liability Insurance:

Protection for officers and directors of a corporation against damages resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require the insured to retain part of the risk uninsured.

Disability Insurance:

Insurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. There are limits to how much you can receive based on your pre-disability earnings. Rates will vary based on occupational duties and length of time in a particular industry. This kind of coverage has a waiting period before you can begin collecting benefits, usually 30, 60 or 90 days. The benefit paying period also varies from 2 years to age 65. A short waiting period will cost more that a longer waiting period. As well, a long benefit paying period will cost more than a short benefit paying period.

Disclosure:

Act of making known something known.

Discretionary Trusts:

Discretionary trusts; are established by the settlor’s in both inter vivos and testamentary trusts to give their trustee partial or complete authority and discretion on how to invest and distribute assets and income in the trust. Only provincial trustee laws and the terms of the trust limit the trustee’s powers.

Diversification:

Investing so that all your eggs are not in the same basket. By spreading your investments over different kinds of investments, you cushion your portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification.

Dividend:

As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.

As the term dividend relates to a life insurance policy, it means that if that policy is "participating", the policy owner is entitled to participate in an equitable distribution of the surplus earnings of the insurance company, which issued the policy. Surpluses arise primarily from three sources: (1) the difference between anticipated and actual operating expenses, (2) the difference between anticipated and actual claims experience, and (3) interest earned on investments over and above the rate required to maintain policy reserves. Having regard to the source of the surplus, the "dividend" so paid can be considered, in part at least, as a refund of part of the premium paid by the policy owner.

Life insurance policy owners of participating policies usually have four and sometimes five dividend options from which to choose:

  1. Take the dividend in cash,
  2. Apply the dividend to reduce current premiums,
  3. Leave the dividends on deposit with the insurance company to accumulate at interest like a savings plan,
  4. Use the dividends to purchase paid-up whole life insurance to mature at the same time as the original policy,
  5. Use the dividends to purchase one year term insurance equal to the guaranteed cash value at the end of the policy year, with any portion of the dividend not required for this purpose being applied under one of the other dividend options.

NOTE: It is suggested here that if you have a participating whole life policy and at the time of purchase received a "dividend projection" of incredible future savings, ask for a current projection. Life insurance company's surpluses are not what they used to be.

Dollar Cost Averaging:

A way of smoothing out your investment deposits by investing regularly. Instead of making one large deposit a year into your RRSP; you make smaller regular monthly deposits. If you are buying units in a mutual fund or segregated equity fund, you would end up buying more units in the month that values were low and less units in the month that values were higher. By spreading out your purchases, you don't have to worry about buying at the right time.

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