I switched careers in 2005. After six years as an attorney, I joined an independent general agency as a brokerage manager and producer. When I left the law, I thought I was free of an idiosyncratic legal vocabulary, which includes many Latin, French, and Old English terms.
But, as it turns out, in insurance and financial planning, I couldn’t escape the complexities of industry jargon. Admittedly, many insurance terms are intentionally meant metaphorically to evoke what they actually sound like, but when introduced to you all at once, it can be a bit perplexing. Some interesting examples:
Cafeteria Plan: This is a type of employee benefit plan pursuant to IRS Code Section125. Participants may choose among two or more benefits consisting of cash and qualified benefits. This sounds like something that involves left-over chocolate pudding and a plastic tray.
Life Insurance Trust: This is a legal entity with a life insurance policy as the asset, allowing the grantor of the policy to exempt the death benefit from his or her taxable estate. This sounds like believing in the honesty of your life insurance policy.
Q-Tip Trust: This is a Qualified Terminable Interest Property Trust. It allows one to take advantage of the unlimited marital deduction but still have some control where the assets go after the surviving spouse’s death. This sounds like something that involves cleaning out your ears.
Q-Dot Trust: This is a type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate-tax purposes. This sounds like the special at the local supermarket, or a character from a 1980s video game.
Intentionally Defective Grantor Trust: This is an estate planning device with a purposeful flaw that ensures that the individual continues to pay income taxes, but for estate tax purposes, the value of the grantor’s estate is reduced by the amount of the asset transfer. This sounds like a case of industrial sabotage.
Decant: This is the ability of trustees to change the terms of a trust by transferring assets to a new trust. This sounds like something an oenophile does while having a romantic dinner.
Life Insurance Corridor: This is the amount of pure life insurance above the accumulation value that allows a policy to qualify as insurance for tax purposes. This sounds like a long hallway leading to a bright light.
Universal Life: This is a type of flexible premium permanent insurance, which sometimes offers guarantees. This sounds like something cosmic, or perhaps, life insurance for all citizens.