ChFC HS 333 key terms

A cyclical seven-step method: understand the client's situation, identify goals, gather data, analyze the data, develop recommendations, implement them, and monitor progress over time.

A written agreement that defines the scope of advice, fees, responsibilities of each party, and any limits on the planner's authority before work begins.

A legal obligation to act solely in the client's best interest, placing the client's interests ahead of the planner's own compensation, affiliations, or convenience.

A lower threshold than fiduciary duty requiring only that a recommendation be reasonably appropriate for the client's objectives, time horizon, and tolerance for loss.

The degree of investment volatility and potential loss a client can emotionally and financially withstand while still pursuing stated goals.

The objective ability to absorb losses without jeopardizing essential goals, driven by income stability, liquidity, time horizon, and net worth rather than feelings.

The length of time before funds are needed, which governs how much short-term volatility an investment or strategy can reasonably endure.

A snapshot listing assets at fair market value and liabilities at outstanding balance, producing net worth and revealing liquidity, leverage, and concentration.

A summary of income received and expenses paid over a period, used to measure saving capacity and fund progress toward financial goals.

Readily accessible cash reserves, commonly three to six months of essential expenses, held to prevent forced borrowing or asset sales during interruptions.

The ongoing step of comparing actual results with the plan, updating assumptions after life or market changes, and revising recommendations when circumstances warrant.

Traditional coverage that pays a percentage of covered charges after a deductible, leaving the insured responsible for coinsurance and amounts above usual rates.

Delivery systems such as HMOs and PPOs that control cost through provider networks, gatekeeping, preauthorization, and negotiated payment rates.

The amount an insured must pay out of pocket for covered expenses each period before the insurer begins paying its share of the claim.

The percentage split of covered costs shared between insurer and insured after the deductible is satisfied, such as an 80/20 arrangement.

A cap on the insured's cost sharing within a benefit period; once reached, the plan generally pays covered expenses in full.

A funded business agreement requiring an owner's interest to be purchased at a set price if that owner becomes permanently disabled.

Coverage replacing a portion of earned income lost to illness or injury, typically limited to 60-70 percent and subject to an elimination period.

The waiting time, often 60 to 180 days, that must pass after disability begins before benefit payments start.

A disability standard paying benefits when the insured cannot perform the material duties of their own specific occupation, even if able to work elsewhere.

A stricter disability standard requiring inability to perform the duties of any occupation for which the insured is reasonably suited by training or experience.

Business-owned life or disability coverage on an essential employee, with the business as beneficiary, to offset losses caused by that person's death or disability.

Excess coverage sitting above auto and homeowners limits, plus gaps such as libel or slander, usually triggered only after underlying limits are exhausted.

All income from whatever source derived unless specifically excluded by law, forming the starting point for computing taxable income.

A deduction subtracted in arriving at adjusted gross income, available whether or not the taxpayer itemizes, such as certain retirement or health savings contributions.

Gross income reduced by permitted above-the-line deductions; it anchors many phase-outs, contribution limits, and eligibility tests throughout the tax code.

Adjusted gross income with specified items added back, used to test eligibility for items such as Roth contributions, education credits, and Social Security taxation.

An allowable personal expense such as mortgage interest, state taxes, or charitable gifts, claimed instead of the standard deduction when the total is larger.

A flat amount every eligible taxpayer may subtract from adjusted gross income, varying by filing status, age, and blindness.

An item of income Congress chooses not to tax at all, such as qualifying employer health premiums or life insurance death benefits.

Postponing taxation of income or gain to a later year, as with installment sales or tax-qualified retirement accounts, preserving compounding in the meantime.

The taxpayer's investment in property for tax purposes, recovered tax-free on sale; gain equals amount realized minus adjusted basis.

Profit on the sale of a capital asset, taxed at preferential long-term rates when the holding period exceeds one year.

The length of time an asset is owned, which determines whether gain or loss is short-term or long-term for tax purposes.

Dividing a portfolio among asset classes such as stocks, bonds, and cash, the primary driver of long-run return and volatility.

Spreading investments across issuers, sectors, and asset classes to reduce unsystematic risk without necessarily sacrificing expected return.

Market-wide risk from interest rates, inflation, or recession that cannot be eliminated by diversification and is compensated with higher expected return.

A measure of a security's sensitivity to movements in the broad market; values above one indicate greater volatility than the benchmark.

Periodically returning portfolio weights to target allocations by selling overweight holdings and buying underweight ones, restoring intended risk exposure.

The sum of expected future cash flows discounted at a required rate, minus the initial cost; positive values indicate a wealth-creating project.

The principle that money available today is worth more than the same amount later because it can be invested and earn a return.

The danger that rising prices erode purchasing power, reducing the real value of fixed-income payments and long-term savings.

A pension promising a formula-based lifetime benefit, generally funded entirely by the employer, who bears the investment and longevity risk.

A retirement account such as a 401(k) where the balance depends on contributions and investment results, with the employee bearing market risk.

The schedule by which an employee earns nonforfeitable rights to employer contributions; unvested amounts are lost on departure.

The minimum amount that must be withdrawn annually from most tax-deferred retirement accounts after the owner reaches the statutory age.

Compounding of investment returns inside an account where tax is postponed until withdrawal, allowing a larger balance to accumulate.

The age at which an eligible worker receives the unreduced primary insurance amount; claiming earlier permanently reduces the benefit.

A monthly payment to a deceased worker's qualifying widow, widower, or dependent, based on the deceased worker's earnings record.

The value of all property a decedent owned or controlled at death, including life insurance proceeds and retained interests, before deductions.

An estate and gift tax deduction allowing any amount to pass to a surviving spouse who is a U.S. citizen free of transfer tax.

The per-donee amount a person may give each year without gift tax or use of lifetime exemption; gifts must be of a present interest.

The rule resetting an inherited asset's basis to fair market value at the decedent's death, eliminating income tax on pre-death appreciation.

A trust owning life insurance policies outside the insured's estate, provided formalities are met, so proceeds escape estate taxation.

Distribution of a decedent's property under state statute when no valid will exists, following fixed family priorities rather than personal wishes.

The court-supervised process of validating a will, paying debts, and transferring title to beneficiaries, often slow and publicly recorded.

A trust the grantor can amend or revoke, holding assets during life and passing them to beneficiaries at death without probate.

A written authorization letting an agent manage financial affairs that remains effective if the principal later becomes incapacitated.

A document naming someone to make medical decisions for a person who cannot speak for themselves, sometimes paired with a living will.