Page 135 - The Informed Fed--Hearn Wealth Management

Policy loan: The policy owner can borrow from the cash value

component of many permanent insurance policies for virtually any
purpose. Any policy loans that are outstanding at the time of death of
the insured will be deducted from the benefit paid to the beneficiary.

Power of Attorney: A legal document authorizing one person to act on

behalf of another.

Premium: The payment that the owner of a life insurance policy makes

to the insurer. In exchange for the premium payment, the in-surer
assumes the financial risk (as defined by the insurance policy) associated
with the death of the insured.

Present value: The current worth of a future payment, or stream of
payments, discounted at a given interest rate over a given period of time.

Pre-tax investments: Pre-tax investments are made with employment

earnings subtracted from your pay before income tax is calculated and
withheld. These investments, which are not reported as current income,
go into a tax-deferred account. Income tax, calculated at your regular tax

rate, is due on these investments and their earnings when you withdraw
from that account.

Principal: The principal amount of a loan or mortgage is the out-
standing balance, excluding interest.

Private mortgage insurance: Private mortgage insurance protects the
lender against the default of higher risk loans. Most lenders require

private mortgage insurance on loans where the loan-to-value ratio is
higher than 80% (less than 20% equity).

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