Both insurance and financial planning can be difficult fields to navigate. The first step to understanding them correctly is learning the different terms that go with each field. This basic glossary will give you the foundational knowledge you need to learn about insurance and investing.

Insurance Terms

Adjuster: Someone who represents an insurer and inspects damages to determine how much the insurer is liable to pay for a claim.

Agent: Someone who sells insurance policies and provides services relating to them.

Beneficiary: The individual or entity named on a life insurance policy destined to receive the policy benefit.

Benefit period: The time period during which health insurance benefits will be paid to the insured and to his or her spouse and/or children.

Cash value: A life insurance policyholder's interest in the policy that can serve as a source of money.

Claim: The demand an insured individual or his or her beneficiary makes for payment from the insurer based on the benefits listed in the policy.

Coverage: The amount of protection or benefit an insurance policy provides.

Co-payment (co-pay): The amount an insured customer pays out-of-pocket for a visit to the doctor's office, typically around $20.

Death benefit: The amount of money a life insurance policy will provide to the insured's beneficiaries.

Deductible: The amount an insured has to pay out-of-pocket before insurance coverage begins to pay for a loss.

Exclusions: Events or conditions that are exempt from insurance coverage.

Face amount: The amount of the death benefit in a life insurance policy.

Grace period: The length of time between when a premium is due and when the insurance will be lost if it is not paid.

Liability: An obligation that can be enforced by the law, such as injuries caused by a driver who is at fault in an accident.

Policy: A contract between an insured individual and the insurer, including every endorsement, rider, clause, or other attachment to the contract.

Policy rider: An amendment to an insurance policy to either expand or limit benefits or coverage.

Premium: The amount an insured individual pays for insurance coverage.

Renewal: The re-establishment of an insurance policy that automatically occurs when the policyholder pays the premium.

Replacement cost: The cost necessary to replace property after a loss, without factoring in depreciation or condition.

Underwriting: The process wherein an insurer identifies and classifies the amount of risk a potential insured property or individual poses.

For further definitions of insurance terms, visit any of the glossaries by The National Association of Insurance Commissioners, A. M. Best,, or Entrepreneur.

Financial Planning Terms

Aggressive growth fund: Mutual funds that take on a lot of risk in an attempt to gain substantially.

Annuity: A life insurance policy that also earns regular future payments and serves as a form of investment.

Balanced mutual fund: A mutual fund that includes a balance of both bonds and stocks in order to try to provide stability.

Bear market: A declining market.

Bull market: An advancing market.

Blue chip stock: A stock purchased in a company with a stable history.

Bond: A long-term debt that companies sell to investors to cover their expenses. Bonds are repaid with interest at the date of maturity, provided the company does not fail beforehand.

Capital gain or loss: The difference between the price paid for an asset and the price it is sold for.

Commodities: Grains, food items, livestock, oils, and metals that are traded in national exchange markets.

Common stock: A unit of ownership in a corporation purchased by a stockholder in an attempt to participate in the corporation's profits.

Consumer price index: An indicator of inflation published by the U.S. Department of Labor.

Diversification: An investment strategy that focuses on investing in a variety of funds, companies, industries, or assets in order to lower overall risk while maximizing profitability.

Dividend: An amount paid to stockholders by a corporation when profits are achieved.

Employer-sponsored retirement plan: A retirement plan arranged by an individual's employer, often a 401(k) plan, that carries a tax advantage.

401(k) plan: A common employer-sponsored retirement plan wherein employees and employers both contribute to the plan on a tax-deferred basis.

Individual retirement account (IRA): A tax-deferred investment option that is taxed as ordinary income at the time of withdrawal; the immediate tax benefit comes as an income tax deduction rather than as a pre-tax withdrawal from the paycheck.

Irrevocable trust: A trust that cannot be changed, even by its creator, after it has begun.

Liquidity: How easily an asset can be turned into cash without any loss.

Money market fund: A fund that works by investing in short-term securities in order to keep each asset at a constant net value of $1. Money market funds are not guaranteed by the Federal Deposit Insurance Corp. or by the government, which means money can be lost.

Portfolio: All the investments held in a fund or by an individual.

Risk: A measure of the chance that an investment will be lost.

Security: The evidence of an investment: direct ownership with stocks, creditorship with bonds, and indirect ownership with options.

Yield: The amount of current income an investment provides to an investor.

For more definitions, visit glossaries by Workday, Rutgers University, or Kahler. For more information about investment and financial planning, visit:

Before you buy insurance or invest, make sure you know what you are doing. Understanding the terminology is just the first step in learning all you can about managing your finances wisely.

About the Author

Written by Michael Marcin of Crest Capital. When Mike was little, there was no such thing as the internet (or color TV). Today, he oversees all operations and finance for Crest Capital, a national equipment finance lender. Mike writes on a variety of business topics including equipment, vehicle, and software finance and associated tax implications.