In an effort to increase my financial literacy, I have been educating myself about more words that are used in financial matters. While my personal finances involve the same terms over and over again, I feel that it is important to understand as much as I can about how money works so that I can make the best financial decisions possible. Here are a few more words from the world of finance.
A deductible is the amount of money that you must pay out of pocket before your medical insurance, car insurance, or other type of insurance begins to cover the cost of the services that you received. With many types of insurance, you can choose a higher deductible in order to pay a lower premium. If you need a low deductible, your premium will be higher.
Escrow is an arrangement in which someone else holds assets of yours until the terms of an agreement or a contract are fulfilled. It is a term that I have heard a lot and kind of understood but not fully until I decided to see exactly what it meant. Various types of assets can be held in escrow such as money, the deed to your house, or stocks and other securities. One thing that is commonly held in escrow is the down payment on your home, which is held until the sale closes or the sale falls through. Property taxes and homeowners’ insurance premiums are also frequently held in escrow until those bills come due because they are due only a couple of times a year, unlike your mortgage payment which is due monthly.
A fiduciary is a person or organization who is legally responsible for the care and management of the assets of another person. The person whose assets are being managed by the fiduciary is called the beneficiary. A fiduciary is legally bound to manage the assets in the best interest of the beneficiary or beneficiaries, not the best interest of the fiduciary themselves. Fiduciaries may have duties to more than one beneficiary for each asset in their care, which can sometimes make managing the assets tricky.
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