Glossary
Definitions written to be understood, not to sound authoritative.
- Annuity
- A contract with an insurance company. The category covers many different product types with very different behavior, so the specific type always matters.
- Basis
- Generally the amount invested in an asset for tax purposes. Gain is measured against basis, so a low basis means a larger taxable gain on sale.
- Buy sell agreement
- An agreement among business owners governing what happens to an ownership interest on death, disability, retirement or departure. It works only if it is funded and reflects a current valuation.
- Cap rate
- In an indexed insurance product, the maximum interest that can be credited for a given period regardless of how the index performs.
- Cash value
- The accumulated value inside a permanent life insurance policy, reduced by policy charges and any outstanding loans.
- Depreciation recapture
- Tax treatment applied on the sale of property for which depreciation deductions were previously taken. It can significantly increase the tax owed on a property sale.
- Fiduciary
- A standard requiring a person to act in another's best interest. Whether a given professional is acting as a fiduciary depends on their role and the specific engagement.
- Illustration
- A projection of how an insurance policy might perform under stated assumptions. Illustrated values are not guaranteed values.
- Installment sale
- A sale where payments are received over more than one tax year, generally allowing gain to be recognized as payments are received.
- Participation rate
- In an indexed product, the percentage of index movement used in calculating credited interest.
- Required minimum distribution
- A minimum amount that must be withdrawn from certain retirement accounts beginning at an age set by law. The amount is taxable as ordinary income.
- Sequence of returns risk
- The risk that poor investment returns early in a withdrawal period permanently reduce a portfolio's ability to sustain income, even if average returns are acceptable.
- Step up in basis
- An adjustment to the tax basis of certain assets at the owner's death under current law, which can reduce the gain recognized by heirs on a later sale.
- Surrender charge
- A fee applied when funds are withdrawn from an annuity or policy before a stated period ends.
- Tax deferred
- Growth that is not taxed until withdrawal. Deferral is not elimination, and withdrawals are generally taxed as ordinary income.
- Term life insurance
- Life insurance providing coverage for a defined period with no cash value component.
- 1031 exchange
- An exchange of qualifying real property held for business or investment use that, when strict requirements and deadlines are met, can defer recognition of gain.
Important disclosure
This content is general education, not legal, tax or investment advice, and not a recommendation of any specific product. Suitability depends on individual facts, product terms, issuing company strength and current law. Consult your own licensed legal and tax professionals before acting.
Last reviewed 2026-08-09 by Tim Parnell.
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