Personal Finance Exam 2

merchant’s discount fee the percentage of the sale that the merchant pays to the credit card issuer
average daily balance method for credit cards the method of calculating the balance on which interest is paid by summing the outstanding balances owed each day during the billing period and dividing by the number of days in the period
Truth in Lending Act prohibits lenders from sending unauthorized credit cars and limits cardholder’s liability to $50 for unauthorized use
Cost of withdrawing cash from an ATM in some cases, these fees are assessed solely for non-members
credit card advantages convenience, used as identification, phone and internet purchases, temporary funds, use product before paying for it, bill consolidation, pay less today and earn interest elsewhere, extended warranties, travel insurance, rewards
single purpose card credit card that can only be used at a specific company
affinity cards credit card issued in conjunction with a specific charity or organization. It carries the sponsoring group’s name, and/or picture on the credit card itself and sends a portion of the annual fee or a percentage of the purchases back to the sponsoring organization
five C’s of credit character, capacity, capital, collateral, conditions
credit bureau a company that gathers and sells consumers’ financial history to creditors
FICO score Fair Isaac Corporation- credit scoring system
variable rate loan loan in which the interest rate does not stay fixed but varies based on the market interest rate
Fair and Accurate Credit Transactions Act allows you to request one free copy of your credit report each year from 3 major credit bureaus
bridge loan short-term loan that provides funding until a longer-term source can be secured or until additional financing is found
installment loan loan that calls for a repayment of both the interest and the principal at regular intervals, with the payment levels set in such a way that the loan expires at a present date
credit life insurance group life insurance that’s provided by a lender for its debtors
note the formal document that outlines the legal obligations of both the lender and the borrower
Home equity/second mortgage loans a loan that uses a borrower’s built-u[ equity in his or her home as collateral against the loan
balloon loan loan that is paid back in single lump-sum payment at maturity or on the due date of the loan, which is usually specified in the loan contract. At the amount you borrowed plus all interest changes
prime rate the interest rate banks charge to their most creditworthy, or “prime” customers
credit union a nonprofit-making money cooperative whose members can borrow from pooled deposits at low interest rates
28/36 rule many lenders use this to determine credit eligibility.
closed-end lease an automobile lease stating that when the lease expires, the current market value of the car will be compared to the residual value of the car as specified in the lease
dealer holdback an amount paid the dealer by the manufacturer for each new vehicle sold. It may be calculated as a percentage of invoice price or manufacturer’s suggested retail price including or excluding options, or as a fixed amount, and the calculation and amount varies across manufacturers
private mortgage insurance insurance that protects the lender in the event that the borrower is unable to make the mortgage payments
title search an investigation of the public land records to determine the legal ownership rights to property or a home
points charges used to raise the effective cost of the mortgage loan, which must be paid in full at the time of the closing
escrow account a reserve account in which funds are deposited, generally on a monthly basis, and accumulate over time until they are drawn out to pay for property taxes and insurance
adjustable-rate mortgage mortgage in which the interest rate charged fluctuates with the level of current interest rates. The loan fluctuates , or is adjusted, at set intervals and only within set limits
mortgage banker someone who originates mortgage loans with funds from other investors, such as pension funds and insurance companies, and services the monthly payment
mortgage broker a middleman, who, for a fee, secures mortgage loans for borrowers but doesn’t actually make those mortgage loans. Mortgage brokers will find the best loan available for the borrower
advantages of 15 year mortgage pay off mortgage faster, save money on interest, build equity faster
advantages of 30 year mortgage lower monthly payment, extra cash to increase your savings
balloon payment a mortgage with relatively small monthly payments for several years (generally 5-7) after which the loan must be paid off in one larger balloon payment
growing equity a conventional 30-year mortgage in which prepayment is automatic and planned for payments begin at the same level as those for a 30-year fixed-rate mortgage and then rise annually- generally increasing at between 2 and 9 percent per year- allowing the mortgage to be paid off early
shared appreciation mortgage in which the borrower receives a portion of the future appreciation (generally between 30 &50 percent) in the value of the home
graduated payment a mortgage in which payments are arranged to steadily rise for a specified period of time, generally 5-10 years, and then level off
conventional loan a loan before a bank or S&L that is secured by the property being purchased
actuaries statisticians who specialize in estimating the probability of death based on personal characteristics
risk pooling sharing the financial consequences associated with risk
policy holder the individual or business that owns the life insurance policy
beneficiary individual designated to receive the insurance policy’s proceeds upon the death of the insured
insured the person whose life is insured by the life insurance policy
needs approach a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death
earnings multiple approach method of determining exactly how much life insurance you need by using a multiple of your yearly earnings
decreasing term insurance term insurance in which the annual premium remains constant but the face amount of the policy declines each year
universal life insurance a type of cash-value insurance that’s much more flexible than whole life. It allows the policyholder to vary the premium payments and the level of protection
term life insurance insurance that pays a benefit in the event of the death of the insured during a specified term
credit life group life insurance that’s provided by a lender for its debtor
whole life cash-value insurance that provides permanent coverage and a death benefit when the insured dies
A.M. best U.S.-based rating agency headquartered in Oldwick, New Jersey, that focuses on the insurance industry. Designed company company as a Nationally Recognized Statistical Rating Organization (NRSRO) in the U.S.
Standard & Poor’s American financial services company. Publishes financial research and analysis on stocks and bonds
Moody’s bond credit rating business. Provides international financial research on bonds issued by commercial and government entities
Duff & Phelps global valuation and corporate finance advisory. Primary service areas are valuation, dispute consulting, mergers and acquisitions, restructuring, alternative assets, tax, transition opinions and legal management consulting
settlement options the alternative ways that a beneficiary can choose to receive the policy benefits upon the death of the insured
grace period the length of time given to make a payment before interest is charged against the outstanding balance on a credit card
riders a special provision that may be added to a policy that either provides extra benefits to the beneficiary or limits the company’s liability under certain conditions
non forfeiture right the right of a policyholder to choose to receive the policy’s cash value; in exchange, the policyholder gives up his/her right to a death benefit
decreasing term term insurance in which the annual premium remains constant but the face amount of the policy declines each year
cash-value life insurance plan type of insurance that has two components: life insurance and a savings plan
stop-loss provision a policy designated to limit claim coverage (losses) to a specific amount. This type of coverage is to ensure that catastrophic claims (specific stop-loss) or numerous claims (aggregate stop-loss), do not upset the financial reserves of a self-funded plan
hospital insurance insurance that covers the cost associated with a hospital stay, including room charges, nursing costs, operating room fees, and drugs supplied by the hospital
major medical insurance insurance that covers medical costs beyond those covered by basic health insurance
flexible spending account an employer-sponsored plan that allows each employee to have pretax earnings deposited into a specially designated account for the purposes of paying health-care bills and qualified child care expenses. The employee can withdraw funds from this account to offset reimbursed medical or dental expenses
Medicare Part A (Hospital insurance) covers most medically necessary hospital, skilled nursing facility, home health and hospice care. It is free if you have worked and paid social security taxes for at least 40 calendar quarters (10 years); you will pay a monthly premium if you have worked and paid taxes for less time
Medicare Part B (medical insurance) covers most medically necessary doctors’ services, preventative care, durable medical equipment, hospital outpatient services, laboratory test, x-rays, mental health care, and some home health and ambulance services. Pay a monthly premium for this coverage.
Medicare Part C Part of medicare policy that allows private health insurance companies to provide Medicare benefits. These medicare private health plans, such as HMO and PPOs, are known as Medicare Advantage Plans
Medicare Part D (outpatient prescription drug insurance) is the part of Medicare that provides outpatient prescription drug coverage. Provided only through private insurance companies that have contracts with the government- it is never provided directly by the goverment
individual practice association an HMO made up of independent doctors, in which the patient visits the doctor’s regular offices to receive medical treatment from these doctors at a central factility
point-of-service plans insurance plan that allows its members to seek medical treatment from both HMO-affiliated doctors and non-HMO- affiliated doctors
group health insurance health insurance that’s sold, usually without a medical exam, to a specific group of individuals who are associated for some purpose other than to buy insurance
relationship between insurance premiums and deductibles what you pay to the insurer vs the amount of money you might have to pay to another party
guaranteed renewability insurance policy feature that obligates the insurer to continue coverage as long as premiums are paid on the policy
disability insurance health insurance that provides payments to the insured in the event that income is interrupted by illness, sickness, or accident

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