Health Insurance
Association Health Plan (AHP): A kind of coverage that allows small businesses to band together to purchase insurance. You can create an AHP if you’re connected by geography, professional interest, or a common purpose.
Read more about Association Health Plans here.
Catastrophic Health Plan: a type of health plan that meets all the requirements applicable to other Qualified Health Plans, but not any other benefits. Except for three primary care visits per year before the plan’s deductible is met.
Premiums tend to be lower, but deductibles, copayments, and coinsurance are all generally higher. To qualify for a Catastrophic plan, you must be under 30 years old or get a “hardship exemption” because you’re unable to afford health coverage from the Marketplace.
Coinsurance: the amount or percentage of a covered health care service you pay after you’ve met your deductible limit.
Co-payment: a fixed payment (usually around $20-$30) you pay for a covered health care service to offset some of its cost. Generally, plans that have lower monthly premiums have higher copayments.
Cost-Sharing Reduction: a type of subsidy. Reduces your out-of-pocket costs for deductibles, coinsurance, and copays.
Deductible: the number of money individuals pay for expenses before their insurance starts to pay. After you “meet” your deductible, or pay up to a certain amount of money, the insurance company pays all or a specific percent of all further health care.
Exclusive Provider Organization (EPO): a type of health insurance plan that strictly limits you to in-network care providers. Under this plan, you pay all the costs of an out-of-network provider, except in emergencies.
Flexible Spending Account (FSA): an account you set up through your employer to pay for out-of-pocket medical expenses with tax-free dollars. These expenses can include copayments, deductibles, qualified prescription drugs, insulin, and medical devices.
Your employer sets the contribution limit for your FSA every year, up to that year’s declared maximum amount. There is no carry-over of FSA funds. No carry-over means that if you don’t spend the money by the end of the plan year, it can’t be used for eligible expenses, the next year. Though, your employer can give you 2.5 extra months to spend the money or can carry over up to $500 for next year.
Full-Time Equivalent Employee (FTE): the number of equivalent employees working full-time (at least 30 hours per week). One FTE is equal to one employee working full-time.
Health Maintenance Organization (HMO): a type of health insurance plan. HMOs, require you to have one primary care physician. You can then obtain referrals from this physician to see a specialist.
An HMO limits coverage to providers who work for, or contract with, the HMO. This limitation means there is generally limited or no coverage for out-of-network care, except in an emergency.
Health Reimbursement Account (HRA): an employer-funded group health plan from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused money can be rolled over and used in a subsequent year. Employers fund and own the account.
Health Savings Account (HSA): tax-favored savings account that you can use to pay for any qualified medical expenses. You may only use an HSA if you have a High Deductible Health Plan (HDHP).
Read an in-depth comparison of HSA, HRA, and FSAs.
In-network: providers or health care facilities that are part of a health plan’s network of providers with which it has negotiated a discount.
Minimum Essential Coverage: Any insurance plan that meets the ACA’s requirement for having health coverage.
Open Enrollment: the yearly window of time, during which individuals or employees may add or drop their health insurance or make changes to their coverage.
Out-of-network: physicians, providers, or facilities who are considered nonparticipants in an insurance plan. Depending on the insurance plan type, any services from these providers may only be partially covered. Or they’re not covered at all.
Out-of-pocket maximum: the most amount of money you would have to pay for covered services in any one plan year. You can reach the out-of-pocket maximum through spending on deductibles, copayments, and coinsurance.
Your out-of-pocket maximum doesn’t include premiums. It also doesn’t include any money you spend for services your plan doesn’t cover. After you reach this limit, your plan covers 100 percent of covered benefits.
Point of Service (POS): a type of health insurance plan. Under this plan, you choose a primary care physician from a list of participating providers. You then need a referral from this in-network doctor to visit an out-of-network provider, or to see a specialist.
Premium: the amount of money an individual or business pays for an insurance policy. Generally, premiums are paid every month. Occasionally these premiums are paid on a biannual or annual pace.
Premium tax credit: a type of subsidy. Lowers the amount you have to pay for your monthly premium.
Preferred Provider Organization (PPO): a type of health insurance plan that allows you to visit any doctor without getting a referral. PPOs also will enable you to get care from in-network or out-of-network providers.
But if you use an in-network provider or preferred provider, you will receive lower rates as negotiated by your insurance company. Whereas, if you use an out-of-network provider your deductible and copay will be higher.
Primary Care Physician: a physician who is the first point of contact for a person with an undiagnosed health concern. They directly provide or coordinate a range of services for a patient. Under certain types of health insurance, you need to see your primary care physician to receive a referral, if you want to go to a specialist.
Read about how Direct Primary Care could help solve our country’s primary care shortage.
PTO: Also known as paid time off. It is a paid leave plan that combines sick leave and vacation (it can include other types of paid leave if noted). PTO gives employees an account with a set number of hours, from which they can take paid leave.
Why you should encourage employees to take their paid time off.
Qualifying Life Event (QLE): A change in your situation in life that can make you eligible for a Special Enrollment Period. There are four basic types of qualifying life events: loss of coverage, changes in household, changes in residence, and other qualifying events.
Short-Term Health Plan: A type of health plan that offers limited coverage but less expensive premiums. Short-term plans can extend up to 12 months at a time. You can renew your short-term coverage for, up to, 36 months. But you can only extend your policy for the same amount of time as the original length of coverage.
Read more about Short-Term Health Plans here.
Special Enrollment Period (SEP): A time outside the yearly Open Enrollment period, when you can sign up for health insurance. You qualify for a Special Enrollment Period if you’ve experienced a qualifying life event. If you qualify for a SEP, you typically have up to 60 days to enroll in a new plan.
Subsidy: financial assistance from the government to help individuals or families pay for health insurance. Typically, eligibility is determined by household income and/or family size
Life Insurance
Death Benefit: a payment to the beneficiary of a life insurance policy, annuity, or pension. Death benefits are typically paid out in a lump sum.
Life Insurance: a form of insurance that promises to pay a certain amount of money upon your death, in exchange for a monthly premium.
Read more about Life Insurance here.
Permanent Life Insurance: life insurance that offers a cash value component (in addition to the death benefit) and doesn’t have a policy time limit.
Term Life Insurance: life insurance in which you select a policy length (generally 10 or 20 years) and your premium stays the same for that period.
Universal Life Insurance: permanent life insurance that allows policyholders to raise or lower (within certain limits) their premium payments and the coverage amount.
Variable Life Insurance: permanent life insurance that derives its cash-value component of the policy form investing in stocks, bonds, and equity funds. These investments meant that your life policy is subject to the increased variability of the market.
Whole Life Insurance: permanent life insurance that offers fixed premium payments. This coverage means your monthly premium will stay the same, as long as you don’t let your coverage lapse.
Retirement
401(k): A type of defined contribution plan that allows for tax-free contributions, and tax-deferred growth. Your money is taxed as income upon withdrawal. Employers often choose to offer their own contribution or matching contributions to these accounts.
403(b): a type of defined contribution retirement plan. These plans mirror 401(k)s but are only offered to government employees and those of tax-exempt groups such as churches, hospitals, and schools. Also, 403(b) plans usually offer a more limited array of investment choices, but most of these plans allow you to vest immediately.
457(b): a type of defined contribution retirement plan designed for governmental employers such as cities, counties, and states. Specific tax-exempt, non-governmental entities may also qualify. Contributions and earnings on retirement money are both tax-deferred.
Amortization: the process of paying off debt with a fixed repayment schedule in regular installments, over time. Applying amortization on a loan, for example, means each payment includes the interest amount plus a portion of the loan’s principal total.
Annuity: a type of investment vehicle. It is a type of insurance contract that functions as an investment account and pays the annuitant, monthly payments for a set period, or until the annuitant dies.
Asset Allocation: an investment strategy of mitigating risk by dividing your investments among different asset classes. The goal of asset allocation is to control risk through diversification of your investment portfolio.
Automatic Enrollment: an employer’s choice to sign employees up to have a specific percentage of their paychecks automatically put into a retirement savings account.
Capital Gains and Losses: Any profit, or loss of profit, incurred when you sell a capital asset. Capital assets include stocks, bonds, mutual fund shares, or property.
Compounding: the process where the value of an investment increases because the earnings on an investment, both capital gains, and interest, earn interest as time passes.
Deferred Annuity: a type of annuity that delays payments of income, until the investor elects to receive them. A deferred annuity can be variable or fixed.
Defined Benefit Plan: also known as a pension plan. It is a retirement plan that is funded through company or organization contributions rather than your own.
Once you retire the defined benefit plan pays you on a regular basis (usually monthly). The amount you receive is based on a formula, which generally includes factors such as length of employment and salary history.
Defined Contribution Plan: a retirement plan funded primarily through an employees’ contributions, but includes a certain amount contributed by that individual’s employer every period.
Early Withdrawal Penalty: The removal of funds from a fixed-term investment before the maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account, before a prescribed time.
Employee Stock Ownership Plan (ESOP): a type of defined contribution plan that allows employees to buy company stock directly, given stock as a bonus, or receive stock options.
Read more about Employee Stock Ownership Plans here.
Employer Match: a type of contribution an employer chooses to make to their employee’s employer-sponsored retirement plan. An employer match is based on elective deferral contributions made by the employee.
Fixed Annuity: a type of annuity contract that provides a guaranteed fixed rate of interest.
Read more about Annuities here.
Immediate Annuity: a type of annuity that is purchased with a single lump-sum payment and pays a guaranteed income that starts almost immediately.
There are two main phases of a deferred annuity. The two steps are: the savings phase (when you invest money into your account), and the income phase (when you convert the plan into an annuity and begin to receive payments).
Index Fund: a type of mutual fund. An index fund’s portfolio is set up to match the components of a whole market, such as the S&P 500 or the Russell 2000.
Liquidity: The degree to which an asset or security can be bought or sold. Because cash can be converted into other assets the most efficiently, it’s used as the standard for liquidity.
Mutual Fund: an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in various securities. Professional money managers typically operate and pick which investments go into the mutual fund.
Portability: the ability to retain specific benefits, when changing employers. Most 401(k) plans and HSAs have portability, as do some health insurance.
Profit-Sharing Plan: a defined contribution plan which gives an employee a share of the company’s profit for that quarter or year. The employer creates these accounts and accepts discretionary employer contributions.
Required Minimum Distribution (RMD): the amount that retirement plan owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age 70.5.
Rollover IRA: an individual retirement account that lets you roll over your 401(k), 403(b), or 457(b) plans with a former employer, into an IRA. These accounts let you consolidate multiple employer-sponsored plans into one IRA without incurring any penalties.
Roth IRA: an individual retirement plan that offers tax-free growth as opposed to tax-deferred. Similarly, you can make tax-free withdrawals from these accounts.
But contributions to Roth IRAs are usually not tax-deductible. You can only make contributions to IRAs with after-tax dollars. Unlike traditional IRAs, Roth IRAs have income limits, but no minimum required distributions.
SIMPLE (Savings Incentive Match Plan for Employees) IRA: An individual retirement plan that allows eligible employees to make tax-deferred contributions.
Employers, meanwhile, are required to make matching or non-elective contributions, which are made to each employee regardless of their respective contributions.
Simplified Employee Pension (SEP) Plan: a retirement plan that either an employer or self-employed individual can establish. Contributions to SEP plans are immediately 100 percent vested, and the owner of the account directs the investments.
Stock Options: give the holder the right, but not the obligation, to purchase or sell a stock at an agreed-upon price within a specific period. A stock option usually represents 100 shares of an underlying stock.
Read more about Stock Options and other financial terms here.
Tax-deferred: a status that refers to investment earnings like interest, dividends, or capital gains that accumulate and grow tax-free, until the investor makes a withdrawal, at which point the money is taxed as regular revenue.
Traditional IRA: an individual retirement plan. Contributions are tax-deductible and grow tax-deferred. All earnings and contributions are taxable as regular income when withdrawn.
There are no income limits to make contributions to a traditional IRA. Also, minimum required distributions automatically begin when the account holder turns 70 ½ years old.
Variable Annuity: a type of annuity contract that provides you with a payout that is determined by the performance of the annuity’s underlying investments.
Vested (Fully Vested): a person’s right to the full amount of some retirement benefit.