Insurance Terms

Sale or Exchange

Any exchange of goods or services for money.
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Savings Account

An account at a savings bank, commercial bank, or savings and loan (S&L) that pays interest on deposits, usually from the day of deposit to the day of withdrawal. Savings accounts held at financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) or the Savings Association Insurance Fund (SAIF) are insured for up to $100,000.
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Secondary Market

The organized trading of securities (stocks, bonds, etc.) through various exchanges and over-the-counter markets where securities are bought and sold subsequent to their original issuance. Trading in secondary markets is subject to the rules and regulations of the SEC.
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Secured Credit

A loan, line of credit, or other financial obligation guaranteed by collateral.
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Secured Debt

Debt guaranteed by the pledge of assets or other collateral.
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Security

An instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as an option, subscription right, or subscription warrant.
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Self-Employment Income

Net taxable income of a self-employed person. Self-employment income may result from freelance work, royalties, consulting, or income from a sole proprietorship on which Social Security taxes must be paid.
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Self-Insure

Insuring oneself or one's business through savings or investments instead of purchasing insurance coverage.
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Self-Insurance

Protecting against losses by setting aside your own money instead of using conventional insurance.
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Separate Property

Refers to property owned solely by one of the spouses in a marriage. This concept can be particularly significant in connection with the regulations that affect community property.
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Settlement

Disposition of a claim or policy benefit.
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Settlor

The person who executes a deed to convey title to property, or who creates a trust. Also called a creator, grantor, donor, or trustor.
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Short-Term Coverage

Coverage that lasts less than one year in duration.
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Short-term Disability Insurance

A disability insurance policy that pays benefits only for a limited period of time (e.g., 26 weeks or one year).
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Simplified General Rule

A rule used by the Internal Revenue Service to determine what portion of distributions from a qualified retirement plan will be taxed. Generally, if a taxpayer made nondeductible contributions to a qualified plan, then a portion of each distribution received at retirement will be considered a nontaxable return of basis.
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Simplified Needs Test

A simplified test for calculating the expected family contribution for a student applying for federal student financial aid. If the family's adjusted gross income is less that $50,000, then the simplified needs test may be used. This test takes only income into account and usually results in a greater financial aid award for applicants in this category.
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Skip Person

For generation-skipping transfer tax (GSTT) purposes, a family member two or more generations below the donor or deceased.
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Small Claims Court

An informal legal proceeding that can be used to settle disputes. Maximum amounts that can be claimed or awarded differ from state to state, but most small claims courts hear cases involving amounts from $25 to $2,000.
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Social Insurance Rider

A social insurance rider is added to a private disability policy to guarantee that if a social benefit program such as Social Security or Workers' Compensation denies a disability claim, the insured will receive the full amount of the benefit provided under the rider. However, if the insured receives some government disability benefit, the amount of government disability benefit received will offset, usually dollar for dollar, the amount the insured receives under the rider.
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Social Security Payroll Tax

A tax deducted from wages and used to fund the federal Social Security program.
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Special Assessments

Local taxes for sewer, water, trash removal, and other services that benefit the specific property assessed.
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Special Power of Appointment

A unique power that allows you to facilitate your eligibility for Medicaid while protecting your home and potentially receiving certain tax benefits. With a special power of appointment, you transfer your house to someone else in order to avoid having to sell the house and 'spend down' the proceeds before you can qualify for Medicaid. At the same time, the special power allows you to reserve the right to irrevocably redirect the house to a different person at a later time. This ability or power to redirect the home can be exercised during your lifetime (by a deed) or at your death (by a will), but only once in any case. Moreover, there are certain parties, such as your creditors and your estate, to whom you cannot redirect the house under the special power.
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Special Testamentary Power of Appointment

A special provision in an irrevocable trust that allows you to minimize the gift tax consequences to which the remainder interest in your trust would ordinarily be subject upon your death. With the special testamentary power, you include a provision in your trust reserving the right to name in your will those people (children, for example) who will receive the balance of the trust upon your death. According to federal gift tax regulations, you have not made a completed gift of the property at the time of the transfer into trust if you reserve the right to determine at some later time who will receive the property in your trust.
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Split Dollar Life Insurance

A life insurance policy in which premiums, ownership rights, and death benefit proceeds are split between an employer and an employee.
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Spousal Resource Allowance

The amount of assets that the noninstitutionalized spouse may keep when a spouse enters a nursing home and applies for Medicaid. The couple's assets are pooled together and totaled to determine what portion will be the spousal resource allowance. Each year, the federal government sets a minimum and maximum asset amount for the at-home spouse; the states set their own parameters within the federal limits.
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Spouse's Elective Share

A statutory right of a surviving spouse to receive a specified share of the decedent's estate instead of accepting the distribution made in the will.
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Springing Durable Power of Attorney

A power of attorney that 'springs' into effect when the principal becomes disabled. The advantage of this type of power is that no authority is granted over the principal's assets until some triggering event (usually some physical or mental incapacity) creates an actual need. The problem, addressed by a standby durable power of attorney, lies in developing a system for determining if and when a triggering event has occurred.
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Standard Deduction

For federal tax purposes, the standard deduction provision in the IRS code offers individual taxpayers an alternative to itemizing their deductions. Current tax rules index the allowable standard deductions to inflation and adjust the amount annually.
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Standby Durable Power of Attorney

A standby durable POA addresses the problem raised by the springing durable POA. Ordinarily, with a standby POA, two or more physicians must formally determine that the principal has become physically or mentally incapacitated before the power takes effect and gives the agent authority to act. The standby POA remains in effect until the principal regains capacity.
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Standby Trust

A type of living trust that remains unfunded and idle until the grantor becomes incapacitated.
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Statute of Frauds

A statute that requires contracts dealing with specific types of areas (land and marriage, for instance) to be in writing in order to be enforceable.
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Statute of Limitations

Statute describing the time limitations before someone gives up their right to sue for a wrongful action. For example, the IRS has up to three years to assess back taxes from the time a tax return is filed, unless tax fraud is charged.
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Statutes of Descent and Distribution

State laws that govern the distribution of an estate among heirs or relatives.
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Stay

The suspension of a legal case or specified proceedings within it by the order of a court.
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Step-Up in Basis

An increase in the taxpayer's basis (a figure representing the taxpayer's cost of acquiring an asset) that occurs after a specific triggering event. Typically, a step-up in basis applies if an asset was inherited from a deceased's estate; the basis in the inherited asset is its current market value. A step-up in basis may also apply in the case of a bona fide sale.
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Stock

Ownership shares of a corporation that represent claims against the company's earnings and assets. Common stock usually entitles you to participate in stockholders' meetings and to vote for members of the board of directors. Preferred stock generally doesn't confer voting rights, but has a prior claim on the company's earnings and assets. A corporation can also authorize additional classes of stock, each with its own set of contractual rights.
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Stock Insurance Company

An insurance company that is owned by the company's stockholders, as opposed to a mutual insurance company that is owned by the company's policyholders.
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Stock Rights

A short-term option, often lasting only two to four weeks, granted to existing shareholders of a corporation the right to subscribe to shares of a new common stock issue at a designated subscription price. The subscription price is usually set lower than the commons stock's current market value.
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Stock Warrants

An option issued along with bonds or preferred stock that entitles the holder to buy a stated number of shares of the company's common stock at a specified price. The option price is usually set higher than the stock's market price at the time the fixed income security is issued. Warrants are generally used as sweeteners to enhance the marketability of the accompanying fixed income securities. Most warrants are detachable and can be traded on the major stock exchanges.
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Subordinations

Debts that are repayable only after other debts with a higher claim have been satisfied. Some subordinated debt may have less claim on assets than other subordinated debt.
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Subrogation

The legal process by which an insurance company, after paying for a loss, seeks to recover the amount of the loss from another party who is legally liable.
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Substantially Equal Payments

A method of distributing funds from a traditional IRA or retirement plan where the owner or participant had not yet begun taking required minimum distributions. This method allows you to withdraw approximately equal amounts each year based on your life expectancy.
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Substituted Basis

Generally speaking, substituted basis involves keeping the basis of previously owned property as the basis for newly acquired property. In the case of a corporate reorganization, if a shareholder exchanges shares of company A for those of company B, the basis of the company A shares becomes the substituted basis of the new company B shares.
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Suicide Clause

Limitation in life insurance policies to the effect that no death benefits will be paid if the insured commits suicide during a specified initial period, usually the first two years that the policy is in force.
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Surcharge

An increase in your auto insurance premium due to an at-fault accident or a moving violation.
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Surety

An individual or corporation, usually an insurance company, that guarantees the performance or faith of another. This term is also used to mean surety bond, which is a bond that backs the performance of the person bonded, such as a contractor, or pays an employer if a bonded employee commits theft.
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Surrender Charge

Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value.
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Surrender to Basis

With cash value life insurance policies that allow policy withdrawals, this is a strategy where the policyholder withdraws only up to his or her basis (i.e., the amount he or she has paid into the policy) so as to avoid having the withdrawal taxed. Investment earnings, which would be taxable upon withdrawal, are left in the policy.
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