Terms & Definitions - L
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Laddered annuities: Laddered, or staggered maturities, can be useful in a low interest rate environment. The process involves buying GICs (or bonds) where 20 percent of the total matures every year. The maturing principal is then reinvested each year for a new five year term. This enables the investor to benefit from any future increase in interest rates, and have money rolling over into the best interest rate available at the time.
Large Amount Pooling: An approach whereby individual health claims in excess of a pre-determined level are not charged to the group’s claims experience but rather to the pool of the insurer. The insurer charges a pooling charge for this protection.
Letter of intent: An agreement whereby an investor agrees to make a series of purchases of mutual fund units.
Leverage: The financial advantage of an investment that controls property of greater value than the cash invested. Leverage is usually achieved through the use of borrowed money.
Liabilities: All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.
Life annuity: Sold only by life insurance companies, this type of annuity has monthly payments - the highest of all annuities - that continue as long as the annuitant lives but stop the day the annuitant dies.
Life expectancy adjusted withdrawal plan: A plan through which a mutual fund investor's holdings are fully depleted while providing maximum periodic income over the investor's lifetime.
Life Income Fund (LIF): A special kind of RRIF for proceeds from locked-in RRSPs and LIRAs, with specific limitations. As with all RRIFs, a minimum amount must be withdrawn each year, but there is also an annual ceiling on how much can be withdrawn up to age 80. The remaining money stays locked in, just as with a pension or locked-in RRSP. In many provinces, you must buy a life annuity with the remaining balance of funds in a LIF by December 31 of the year in which you turn 80 (with a 60 percent survivor benefit, unless waived by your spouse).
Liquidity: Refers to the ease with which an investment may be converted to cash at a reasonable price.
Load: Commissions charged to holders of mutual fund units. (See sales charge.)
Locked-In Retirement Account (LIRA): See Locked-In RRSP.
Locked-In RRSP: When a person leaves a company and opts to take their pension plan dollars along, the funds must be rolled or transferred directly into a Locked-In RRSP, termed a Locked-In Retirement Account (LIRA) in certain provinces. The funds are exactly that "locked in" and, unlike ordinary RRSPs, cannot be withdrawn for any purpose, not even financial disaster, until retirement. At that point, you must buy a Life Income Fund (LIF) or an annuity.
Long-term asset: A mutual fund that charges a commission to purchase its shares.
Long-term debt: Debt that becomes due after more than one year.
Long Term Disability (LTD): An income replacement benefit which is usually payable monthly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings.
Loss Ratio: Paid Loss Ratio - The ratio of paid claims to paid premium. Incurred Loss Ratio - The ratio of incurred claims to paid premium.
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