This glossary is arranged in alphabetical order. Click on a letter in left column or scroll down to search.
< R >
Coverage's issued at a higher rate than standard because of some health condition, or impairment of the insured.
Registered Retirement Savings Plan:
Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductible in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules, which apply to RRSPs, are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received.
If you are currently 69 years of age, you may still contribute to your own RRSP until December 31st of this year and realize a tax deduction on this year's income. You must also, however, make provisions before December 31st of the year for converting your RRSP into either a RRIF or an annuity; otherwise, the full balance of your RRSP becomes taxable on January 1 of the following year. If you are older than age 69, still have earned income, and have a younger spouse, you may continue to contribute to a spousal RRSP until that spouse reaches 69 years of age. Contributions would be based on your own contribution level and are deducted from your taxable income.
Registered Retirement Income Fund:
RRIF is an extension of an RRSP. It allows funds transferred from an RRSP to remain tax- sheltered and continue earning tax-deferred income as long as those funds remain in your RRIF. Unlike an RRSP, you receive regular income payments from your RRIF (subject to a legislated minimum amount) with the ability to make lump-sum withdrawals at any time.
A provision in term insurance policies that gives the insured the right to renew the policy at a more favourable rate by providing evidence of insurability. This option is generally provided for a select period of time.
This is the restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Most companies will require evidence of insurability and payment of past due premiums plus interest.
Renewable" means that the life insurance policy may be renewed at the option of the policyholder without requiring the person whose life is insured to submit renewed proof of eligibility for the policy. Renewable term life insurance policies normally have a "final expiry date" or "final expiry age" beyond which the coverage cannot be renewed. When a term life insurance policy is renewable, it means that the insurance company cannot refuse to renew the coverage regardless of insurability of the person whose life is to be insured.
This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
The most important policies to examine in detail are those, which were issued in Canada prior to December 2, 1982. If you have a policy of this vintage with a significant cash surrender value, you may want to consider keeping it. It has special tax advantages over policies issued after December 2, 1982.
Basically, the difference is this. The cash surrender value of a pre December 1982 policy can be converted to an annuity in accordance with the settlement options in the policy and as a result, the tax on any policy gain can be spread over the duration of the annuity. Since only the interest element of the annuity payment will be taxed, there will be less of a tax impact on the annuitant. Policies issued after December 2, 1982, which have their cash surrender value, annuitized trigger a disposition and the annuitant must pay tax on the total policy gain immediately. If you still decide to replace existing coverage, don't cancel what you have until the new coverage has been issued.
The beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary. Most policies are written with a revocable beneficiary.
A trust that can be changed after it is established. Assets can be added or removed from the body of the trust, the beneficiary(ies) can be changed, and other changes including termination of the trust, are allowed. A revocable trust becomes irrevocable upon the death of the grantor.
A trust in which the creator reserves the right to or terminate the trust.
An attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.
The relationship between risk and return is a key consideration when you are thinking about making an investment. Generally speaking the greater the potential return, the greater the risk that you could lose money.
The exposure; to loss of investment as a result of changes in business conditions, domestic or foreign economies, investment markets, interest rates, relative currency rates, or inflation. Any or all of these risks may affect the market price of a security. In general, the higher the potential return on an investment, the higher the risk may be. There is generally a correlation between the amount of risk one assumes and the amount of reward one may gain as compensation for taking the added risk.
Risk Averse describes an investor who has a low level of tolerance to possible loss of Principal through investing. This investor is willing to accept lower levels of expected return in order to avoid possible investment losses. As the level of risk goes up, so must the expected return on the investment.
This is a method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.
Rule of 72:
A simple math formula that determines how long it will take for invested money to double at a given compound interest rate. Here's how it works: you divide 72 by the interest rate on the return of your investments; this will equal the number of years it takes for your investment to double.
At 7.2% your money will double in 10 years.
At 10% your money will double in 7.2 years.
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