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GLOSSARY
Active participation
Active participation is an IRS-defined level of involvement in the management of real estate properties that determines how the rental income from those properties is taxed. Active participation is a lesser level of involvement than material participation.
Actual age
Actual age is a real estate appraisal term refering to the number of years that have passed since a specific building improvement was made. An improvement's actual age is often compared to it's effective age.
Actual cash value
Actual cash value is the replacement cost minus depreciation of a specific item of personal property. It's essentially the value for which the item could be sold, which is often less than what it would cost to replace it. Insurance companies sometimes use actual cash value to determine what to pay a policyholder after loss or damage to insured property.
Actual Return
Actual return is an investor's real gain or loss on a portfolio.
Actuarial Risk
Actuarial risk is the danger that the computations used to generate insurance probability estimates are based on inaccurate assumptions. These probability estimates are used to price insurance policies at a level that allows the insurer to make expected payouts while continuing regular business operations. If the underlying assumptions are wrong, the insurer could face serious financial consequences.
Actuary
An actuary is a mathmetician who specializes in evaluating risk and setting premium prices for insurance companies.
Ad valorem tax
A tax based according to item value only, usually property tax based on the just or fair market value of the property. This tax can also be imposed on as a duty on imported items. Property ad valorem taxes are a major source of revenue for state and municipal governments.
Add-On Certificate of Deposit
An add-on certificate of deposit (CD) gives the depositholder the right to roll additional funds into a time deposit, so that those additional funds will earn the same interest. Traditional CDs don't allow for additional deposits between the purchase and expiry dates.
Add-on Interest
Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early. The result of this is interest charges that can be double that of the stated simple interest rate.
Add-ons
Add-ons are optional features that enhance a base model automobile. Examples include an anti-theft device, sunroof, upgraded audio system, and custom-look wheels.
Addendum
An addendum is an addition or supplement, often to a book. In the legal sense, an addendum is a clarification or change made to a contract.
Additional living expense insurance
Additional living expense insurance is coverage that provides payment to the insured for extra costs resulting from being temporarily displaced from an insured property due to damage. This coverage is typically provided as part of a homeowner's or renter's insurance policy.
Additional monthly benefit
Additional monthly benefit is an extra payment provided in the event of an injury under a disability income policy. Typically, the extra monthly amounts are provided before the injured party begins receiving Social Security benefits.
Additional principal payment
An additional principal payment made towards the principal balance of a loan. This can enable the borrower's future interest payments to be reduced. In amortized loans, such as most mortgages and auto loans, most of the early payments go toward principal. If you can make at least one extra payment a year, you can cut the length of a loan by as much as a quarter.
Adjustable rate
An adjustable rate is a rate of interest paid on outstanding debt (often a mortgage) that can fluctuate. Generally, adjustable rates are defined relative to an underlying variable index, as in 30-day LIBOR plus 1.50%.