Being an adult means all sorts of new words and phrases begin popping into our vocabularies. Today we’re beginning another of our periodic series, this one on vocab for grown-ups. We’ll cover a few key words and phrases in each round, so stay tuned for all the words you wish you remembered from the SAT.
Amortization– amortization is the process of decreasing an amount over time, like paying off the principle amount on a loan. If you make one of the big purchases in life, such as buying a home, a car or taking out student loans, you’ll pay the loan back over time. The payments you make will be part interest and part principle, depending on the type and terms of the loan. Most long term loans are structured so that the majority of the interest (the rate you pay the lender for the privilege of borrowing the money) is paid back in the early part of a loan. This is done with an amortization chart, which outlines how much of each individual payment made by the borrower goes to interest and how much goes to principle.
Compound interest- Compound interest is the process by which interest is added to a principle balance, thus begins earning interest itself. Compound interest can be the best thing ever, if you’re earning it on your retirement or savings account; or a scary horrible thing if it’s accruing on your high interest credit card balance. Let’s do this with easy math. Say you invest $100 in a bank that will pay 5% interest annually. (Remember when a 5% return on savings account wasn’t completely ridiculous to think about?) So in the first year, if you don’t touch your money, you’ll earn $5 interest, bringing your balance to $105. The next year, you’ll earn $5.25 interest, bringing your balance to $110.25.
Escrow- Escrow is essentially using a third party to complete a monetary transaction after a certain set of conditions have been met. A home buyer may put a deposit in escrow until a seller meets certain conditions of sale, or a client using an independent contractor may put payment for contracted work in an escrow account to be paid out as certain milestones are met.
Lien- A lien is a right to take an individual or entity’s property if an obligation is not met. Liens are commonly placed on properties of individuals with unpaid property or income tax debts.
Power of Attorney – Power of attorney grants one person the right to make legally binding decisions on behalf of another when they are unable to make those decisions for themselves. Decisions about who will hold power of attorney for an individual are usually made before power of attorney services are required, but power of attorney can be decided in an emergency with a court order.
Estate tax – This is a tax paid on the estate, which is the collected value of a decedent’s assets minus his or her obligations, when it is transferred to those who inherit it. The estate tax has several exceptions and credits, so until 2010 only estates worth between $2 and $3.5 million or more were forced to comply with the tax. As of 1/1/11, the estate tax will be in effect for estates worth more than $1m.
Informed consent – this is the regulation that makes drug companies tell you every possible side effect of one of the drugs they try to sell you in primetime, as well as require anyone who is undergoing a major medical procedure to view and acknowledge reams of material about a procedure’s potential risks. When I had my hysterectomy, I was told the risks by a video full of adorable elderly women playing tennis in velour track suits. I sadly did not wake up as Betty White with a mean backhand.
Pre-existing condition – I’ve fought with an insurance company about a pre-existing condition, so it’s hard not to let bitterness slip into my objectivity. A pre-existing condition is usually defined as a condition for which an insuree has received a diagnosis or treatment for, or for which a rational person would have sought medical care for. Pre-existing conditions can be creatively defined by insurance companies.
Deductible- This is the amount an insuree agrees to pay toward insured expenses before insurance payments kick in. A car insurance deductible of $2000 means that you’ll be responsible for paying the first $2000 of a car repair out of pocket after an accident before your insurance will cover any remaining damages. With health insurance, there is usually a list of out of pocket expenses which do and do not count toward your deductible, and many policies still only pay a percentage after the deductible is met.
Are there grown up terms that baffle you? Let us run them through the Persephone –> grown-up decoder ring and explain them all to you.