Acne

Acne, eruptive skin disease. It is primarily a disorder of the sebaceous follicles of the skin and appears most often on the face, neck, and back. The natural secretion, or sebum, of the follicles accumulates and mixes with dust and dirt. The follicles and surrounding tissue become inflamed and blackheads appear. If the follicle opening completely closes, the accumulated sebum is degraded by bacteria and forms a cyst.

Acne vulgaris, the most common form, is usually associated with adolescence but may also occur in adults. A severe form of the disorder is known as acne conglobata. Other forms of acne are also observed, such as the chloracne caused by chlorinated compounds. In acne rosacea, the capillaries in the cheeks, forehead, and nose are swollen with blood and the oil glands in the skin become infected.

Acne in adolescence results primarily from hormonal changes taking place in the body; the hormones stimulate sebum production. Outbreaks cannot be prevented by a controlled diet and are not a sign of uncleanliness. Good hygiene should be observed, however, to prevent more serious infections. Severe acne may be treated by antibiotics, benzoyl peroxide, or vitamin A derivatives. Severe acne in adults may be a sign of an underlying endocrine disorder.

Mesothelioma-Pneumoconiosis

Mesothelioma- tumor of body cavity lining: a benign or malignant tumor of the lining of the lungs, heart, or abdomen, often caused by asbestos exposure.

Pneumoconiosis , a general term for any one of several lung diseases caused by breathing dust from industrial occupations like coal mining, sand blasting, and stone cutting (see Occupational and Environmental Diseases). Years of continual exposure to industrial dust can cause the formation of spots (macules), lumps (nodules), or fibrous growths in lung tissue, causing permanent damage or destruction of these tissues. Smoking can complicate or worsen the conditions. Symptoms of the disease include shortness of breath, labored breathing, coughing, and production of phlegm (mucus secreted in the respiratory system when infections are present). Other, often fatal, illnesses such as cancer, tuberculosis, emphysema, or heart disease may also develop.

Both inorganic dust (from minerals) and organic dust (from plants) can produce pneumoconioses. For example, inhalation of inorganic irritants such as coal dust, particularly from mining hard coal, or anthracite, causes the condition known as black lung disease, coal worker’s pneumoconiosis, or anthracosis. Silica dust from quarrying, mining, or sand blasting causes the disease silicosis. The fine particles and dust from asbestos, a fibrous material commonly used in construction and insulation until its use was curtailed by the Environmental Protection Agency in 1989, causes asbestosis and mesothelioma, a cancer of the chest lining. The inhalation of organic irritants most often found in textile mills such as the dusts of cotton, flax, hemp, and jute causes byssinosis, or brown lung disease. Another type of pneumoconiosis takes the form of hypersensitivity to irritants, fumes, and vapors in the workplace from substances like cadmium, beryllium, chlorine, and fluorine.

Treatment can only relieve the symptoms of pneumoconiosis. Treatment options include medication, removal of the patient from the workplace, providing dust control through added ventilation, or the use of personal protection devices like dust masks.

Asbestos

Asbestos (Greek a-,“not”; sbestos, “extinguishable”), the fibrous form of several minerals and hydrous silicates of magnesium. The name may also be applied to the fibrous forms of calcium and iron. Asbestos fibers can be molded or woven into various fabrics. Because it is nonflammable and a poor heat conductor, asbestos has been widely used to make fireproof products such as safety clothing for fire fighters and insulation products such as hot-water piping. The first recorded use of the word asbestos is by Pliny the Elder in the 1st century ad, although the substance itself was known as early as the 2nd century bc. The Romans made cremation cloths and wicks from it, and centuries later Marco Polo noted its usefulness as cloth.

Asbestos is of two principal classes, the amphiboles and the serpentines, the former of relatively minor importance. Chrysotile, in the serpentine class, constitutes about 95 percent of the world supply of asbestos, of which three-fourths is mined in Québec. Other large deposits exist in South Africa. In the United States, California, Vermont, and Arizona are the leading asbestos-producing states; however, the majority of United States deposits are of no commercial value.

Asbestos is obtainable by various underground mining methods, but the most common method is open-pit mining. Only about 6 percent of the mined ore contains usable fibers.

The fibers are separated from the ore by crushing, air suction, and vibrating screens, and in the process are sorted into different lengths, or grades. The most widely used method of grading, the Québec Standard Test Method, divides the fibers into seven groups, the longest in group one and the shortest, called milled asbestos, in group seven. The length of the fibers, as well as the chemical composition of the ore, determines the kind of product that can be made from the asbestos. The longer fibers have been used in fabrics, commonly with cotton or rayon, and the shorter ones for molded goods, such as pipes and gaskets.

Asbestos has been used in building-construction materials, textiles, missile and jet parts, asphalt and caulking compounds and paints, and in friction products such as brake linings. Exposure to asbestos fibers and dust, however, can cause asbestosis, a disease of the lungs caused by the inhalation of asbestos particles, and, after a latent period of up to 30 years and more, various cancers, especially lung cancer and mesothelioma, which is an inoperable cancer of the chest and abdominal lining . At present no wholly satisfactory substitutes are available for asbestos in many of its applications; because of health risks posed by asbestos use, however, research into replacements has been accelerated. In 1986 the Environmental Protection Agency proposed an immediate ban on the major uses of asbestos and a complete ban on all asbestos products within the next decade. This proposal was partially overturned by the U.S. Court of Appeals, which limited the ban to asbestos flooring and new products using asbestos.

Blue Cross

Blue Cross And Blue Shield, network of companies that provide health insurance to people in the United States and Puerto Rico. The Blue Cross and Blue Shield Association, based in Chicago, Illinois, governs the various health insurance organizations that carry its name. Member health insurance companies are operated locally, but they must abide by standards established by the national association. Historically, Blue Cross and Blue Shield insurers have been nonprofit organizations that receive tax-exempt status.

More than 71 million people are members of Blue Cross and Blue Shield health insurance plans. Most Blue Cross and Blue Shield organizations negotiate contracts with local hospitals and physicians to offer services to individuals who have paid premiums (fees) individually or through their employers.

Blue Cross and Blue Shield health insurance plans offer a broad spectrum of coverage options, including fee-for-service plans (also known as indemnity plans) and managed care plans. Fee-for-service plans allow members to visit any doctor or hospital for medical services. Managed care plans require members to visit designated physicians and include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service plans (POSs) (see Health Insurance: Types of Plans in the United States). Blue Cross and Blue Shield organizations also administer services for Medicare, a government program that provides coverage for elderly people and for people with certain disabilities

Throughout the 1990s Blue Cross and Blue Shield organizations faced financial difficulties due to the spread of for-profit health-care organizations. Blue Cross and Blue Shield chapters remained nonprofit groups that enrolled subscribers regardless of their individual risk of illness. Its competitors, which used experience rating, were able to recruit more members by charging lower premiums to people with a low risk of illness. Enrollment in Blue Cross and Blue Shield plans dropped drastically in the early 1990s, and many chapters closed.

In 1994 the Blue Cross and Blue Shield Association abolished its requirement that its member groups remain nonprofit organizations. In 1996 Blue Cross of California merged with a for-profit managed care company, WellPoint Health Networks, becoming the first chapter to relinquish its tax-exempt status. During the late 1990s a number of Blue Cross and Blue Shield chapters followed suit and merged with for-profit insurance providers or created new for-profit subsidiaries.

Environmental and Occupational Diseases

Environmental and Occupational Diseases, illnesses caused by exposure to disease-causing agents in the environment, as opposed to illnesses related primarily to an individual's genetic makeup or to immunological malfunctions. In everyday use, the term environmental disease is confined to noninfectious diseases and to diseases caused largely by exposures beyond the immediate control of the individual; the latter restriction eliminates diseases related to personal habits such as smoking or to the use or abuse of medications or drugs such as alcohol. Occupational disease, a major category of environmental disease, refers to illness resulting from job-related exposures.

Historically, awareness of environmental diseases began with the recognition of occupational illnesses, because exposures are usually more intense in work settings than in the general environment and therefore can more readily produce overt illnesses. Examples include silicosis, a lung disease of miners, industrial workers, and potters exposed to silica dust; scrotal skin cancer in chimney sweeps exposed to soot; neurological disease in potters exposed to lead glazes; and bone disease in workers exposed to phosphorus in the manufacture of matches. Many such diseases first gained public attention during the Industrial Revolution in the 19th century.

Environmental diseases

Environmental diseases are caused by chemical agents, radiation, and physical hazards. The effects of exposure, in both natural and work settings, are greatly influenced by the exposure routes: primarily air pollution and water pollution, contaminated food, and direct contact with toxins. Synergistic effects—two or more toxic exposures acting together—are also important, as illustrated by the greatly increased risk of lung cancer in asbestos workers who smoke cigarettes. The potential interaction of multiple hazardous chemicals at toxic waste dumps poses a current public health problem that is of unknown dimensions.

Chemicals

Industrial society has introduced or increased human exposure to thousands of chemicals in the environment. Examples are inorganic materials such as lead, mercury, arsenic, cadmium, and asbestos, and organic substances such as polychlorinated biphenyls (PCBs), vinyl chloride, and the pesticide DDT. Of particular concern is the delayed potential for these chemicals to produce cancer, as in the cases of lung cancer and mesothelioma caused by asbestos, liver cancer caused by vinyl chloride, and leukemia caused by benzene. Minamata disease, caused by food contaminated with mercury, and Yusho disease, from food contaminated with chlorinated furans, are examples of acute toxic illnesses occurring in nonoccupational settings.

The full toxic potential of most environmental chemicals has not been completely tested. The extent and frequency of an illness are related to the dose of toxin, in degrees depending on the toxin. For chronic or delayed effects such as cancer or adverse reproductive effects, no “safe” dose threshold may exist below which disease is not produced. Thus, the cancer-producing potential of ubiquitous environmental contaminants such as DDT or the PCBs remains undefined.

Radiation

Ionizing and nonionizing radiation can produce both acute and chronic health effects, depending on dose levels. The effects of nonionizing radiation at lower dose levels are uncertain at present. Ionizing radiation at high doses causes both acute disease and delayed effects such as cancer. Victims include workers exposed to various occupational use of X rays or radioactive materials. Although the disease-producing potential of ionizing radiation at low doses is also uncertain, an increase in chromosome damage has been observed in workers in nuclear shipyards.

Physical Hazards

Major physical hazards include traumatic injuries and noise. Trauma arising from unsafe environments accounts for a large proportion of preventable human illness, and noise in the workplace is responsible for the most prevalent occupational impairment: hearing loss or permanent deafness.

FORMS OF ENVIRONMENTAL DISEASE
Environmental diseases can affect any organ system of the body. How the diseases are expressed depends on how the particular environmental agent enters the body, how it is metabolized, and by what route it is excreted. The skin, lungs, liver, kidneys, and nervous system are commonly affected by different agents in different settings. Of particular concern is the capacity of many environmental agents to cause various cancers, birth defects or spontaneous abortions (through fetal exposure), and mutations in germ cells, the last-named raising possibilities of environmentally caused genetic diseases in later generations.

Environmental illnesses can be mild or severe and can range from transient to chronic, depending on the doses of toxin received. Some diseases occur abruptly after a toxic exposure, whereas the time of onset of other diseases varies after exposure. Environmentally induced cancers, for example, commonly involve latency periods of 15 to 30 years or more. Those illnesses that occur directly after a distinct toxic exposure are usually easily identified as being environmentally or occupationally caused. If the exposure is not clear-cut or illness is delayed, however, the cause is difficult to identify, as clinical features alone are usually nonspecific. In addition, many different causes, environmental or otherwise, may produce identical illnesses. In such instances, epidemiological studies of exposed populations can help relate exposures to the illnesses they cause.

OCCURRENCE

Total frequencies of environmental illness are difficult to measure because of the reasons just described. When causes can be identified, however, scientists observe that frequencies of occurrence of a particular illness vary directly with the severity and extent of exposure. Particularly frequent in the workplace are skin lesions from many different causes and pulmonary diseases related to the inhalation of various dusts, such as coal dust (black lung), cotton dust (brown lung), asbestos fibers (asbestosis), and silica dust (silicosis). Environmental agents can also cause biological effects without overt clinical illness (for example, chromosome damage from irradiation). The health significance of such subclinical changes is not yet clear.

AGENCIES AND LAWS

The regulation of workplace practices and of potential environmental pollution has evolved as the use of chemicals and human exposure to potential toxins have grown more widespread and complex in modern society. In the United States, numerous laws are directed at protecting occupational and environmental health. Most were passed since 1960, including the Occupational Safety and Health Act of 1970 and the Resource Conservation and Recovery Act of 1979. Means for the rapid cleanup of toxic waste dumps were provided in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

Federal agencies responsible for enforcing such environmental and occupational health laws consist principally of the Environmental Protection Agency and the Occupational Safety and Health Administration (OSHA) within the Department of Labor. The Food and Drug Administration, within the Department of Health and Human Services (HHS), and the Department of Agriculture have regulatory responsibility for preventing the contamination of food supplies. Federal field investigations of potential environmental and occupational hazards are handled through the Center for Environmental Health and the National Institute for Occupational Safety and Health, which are components of the Centers for Disease Control, within HHS. General environmental health research and toxicological testing are directed through the National Institutes of Health and the National Toxicology Program, also within HHS. Comparable regulations and agencies at state and local levels, working with their federal counterparts, play a crucial role as well.

International coordination of environmental and occupational control activities in many countries is guided through the World Health Organization. In the developing parts of the world, such activities are of critical importance as modern industrialization proceeds in the face of poverty and growing populations

Human Disease

Human Disease, in medicine, any harmful change that interferes with the normal appearance, structure, or function of the body or any of its parts. Since time immemorial, disease has played a role in the history of societies. It has affected—and been affected by—economic conditions, wars, and natural disasters. Indeed, the impact of disease can be far greater than better-known calamities. An epidemic of influenza that swept the globe in 1918 killed between 20 million and 40 million people. Within a few months, more than 500,000 Americans died—more than were killed during World War I (1914-1918), World War II (1939-1945), the Korean War (1950-1953), and the Vietnam War (1959-1975) combined.

Diseases have diverse causes, which can be classified into two broad groups: infectious and noninfectious. Infectious diseases can spread from one person to another and are caused by microscopic organisms that invade the body. Noninfectious diseases are not communicated from person to person and do not have, or are not known to involve, infectious agents. Some diseases, such as the common cold, are acute, coming on suddenly and lasting for no more than a few weeks. Other diseases, such as arthritis, are chronic, persisting for months or years, or recurring frequently.
Every disease has certain characteristic effects on the body. Some of these effects, called symptoms and signs, include fever, inflammation, pain, fatigue, dizziness, nausea, and rashes, and are readily apparent to the patient. These symptoms offer important clues that help physicians and other health care professionals make a diagnosis. Many times, however, the symptoms point to several possible disorders. In those cases, doctors rely on medical tests, such as blood examinations and X rays, to confirm the diagnosis.

FAQ Equity Loan (Finances)

Q: I have a 2-year-old daughter. What is a good way of establishing a college fund for her, and about how much should I be setting aside?

A: The best way to get started is to figure out how much money you will need. When you see how much more you have to save each year, it’s a great incentive to start saving!

There are several ways to start saving now for your child’s college education. You can ask friends and relatives to include a small check along with any gift for birthdays and holidays. Then create a bank account specifically for these contributions and show your child how the balance is growing. Studies show that kids work harder at school when they see tangible evidence of college savings and the importance of their hard work.

Another option to consider is an Education IRA, which you can contribute to until your child reaches age 18. There are income limits, however, so you’ll need to find out if you qualify. If you sock away $500 each year (the maximum amount) in the Education IRA for 15 years and earn a 10 percent annual return, you’ll have $15,000 to help pay for your child’s education. Of this amount, you can withdraw $9,000 tax free.

You may also be eligible for a state education plan called the Prepaid Tuition Plan, also often called a U Plan or U Fund, which allows you to buy future college credits at today’s tuition. This Section 529 plan gives you another way to save for your child’s college expenses on a tax-advantage basis.


Q: Should I wait until I have a buyer for my house before putting a down payment on a new one?

A: This question is a lot more complicated than it once was, as mortgage lenders don’t offer “bridge loans” the way they used to. With bridge loans, the lender would lend you the down payment on your new house until your old house sold. So you could find your new house and even close on it before you had a seller for your old house. Those bridge loans are harder and harder to get.

The best thing to do is to become a smart house-shopper. At the same time that you are perusing neighborhoods and checking out schools for your new home, get the best information about how much your existing house will sell for and what small improvements you can make to it that will really increase its value. Ask a couple of experienced realtors to look at your current house and give you a market analysis. When you find the house you want to buy, you will have done everything in advance so that you can put your own house on the market immediately. Sometimes a seller will allow you to put a contingency in your agreement that you are not obligated to buy their house until you have a buyer for your own. Unfortunately, this practice is quickly becoming a thing of the past, so don’t count on it. On the flip side, if you sell your current house before you find a new one, your only real risk is finding temporary housing for a few months. If you have kids in school, you’ll need to make sure there is short-term rental property in their school district.

The bottom line? Know how much you can afford, get your current house ready to go on the market at a moment’s notice, get preapproved for a mortgage, and be ready to pounce when you find the house you want.


Q: Can I improve my financial situation by hiring a financial planner, even if I make less than $30,000 per year?

A: I admit that I am biased on this subject, but everybody needs a financial plan, and most people need a financial planner at some point in their lives. In fact, the less money you make, the fewer mistakes you can afford—and the more professional advice you need. But let’s distinguish between a financial plan and a financial planner. If you have a computer, enjoy using it, and are self-disciplined, I highly recommend using financial-planning software. The programs available today are inexpensive (unlike back in the 1980s, when they cost about $10,000), follow an easy question-and-answer format, and have fun features like DB2 graphs, year-by-year projections, and easy ways to play scenario games. (What if I retire three years earlier; what if my child goes to a public college instead of a private one; what if I inherit $1 million, or $1,000; what if my company’s stock takes off, or what if it tanks?) These programs go a long way toward helping people plan their financial futures.

Now here’s the value of a professional financial planner: This person can act as an impartial mediator to help you and your spouse or partner work better together with your money. A financial planner can make you feel more accountable about your spending and saving and can prod you nicely to meet with him or her on a regular basis to keep you on track. I have been a financial planner for 25 years, but even so I don’t trust all of my own investment and financial decisions to myself. Simply put, I’m too emotional because it’s my money. Objectivity is one of the best things a financial planner can give you. (Plus, your family has someone else to blame besides you for making certain financial decisions that may not have worked out!)


Q: What potential tax benefits do home equity loans offer? What are the dangers?

A: Home equity loans often offer the advantage of tax-deductible interest. If you are making home improvements, a home equity loan is an ideal way to do this. Home equity loans usually have a lower interest rate than consumer loans, such as credit cards and auto loans. The danger is, this makes it tempting to transfer that debt to a home equity loan. Studies often show that within a couple of years, people who do this will have just as much or more credit card and consumer loans than before, but on top of a high home equity loan. So don’t transfer your consumer debt to a home equity loan unless you are committed to paying it off as quickly as possible and not running up those credit cards again.


Q: I live in an area where homes seem overpriced. Even though I can afford to buy a house, would it make more sense for me to continue renting until the market cools off?

A: It’s always hard to know when housing prices are on the way up, at their peak, or about to plunge. Historically, residential real estate has been a very good investment, but the values can fluctuate a lot from year to year. And it’s not a liquid investment; if you are strapped for cash, you can’t just decide to sell your house and have money in a week, as you would be able to do if you were selling stocks or cashing in a money-market account. Here are some things to consider in deciding whether to rent or buy:


* What is your local economy like? Is it still red-hot with a few signs of slowing down? A red-hot economy usually means house prices are rising rapidly, and you may have to wait awhile before those prices come down from the stratosphere. If there are signs that local companies may be having difficulties, you may want to wait a few months and see if house prices go down.

* What time of year is it? Historically, house prices are lowest in the winter.

* How long do you plan to stay in the house? Renting may be the preferred housing choice if you don’t expect to live in a place for more than a few years.

* What’s your tax bracket? If it’s less than 28 percent, all those great interest deductions you get from home interest may not make it worth it for you.

* Are apartments plentiful and cheap compared to houses? It may be that you live in an area of the country with a glut of apartments with bargain rents.

* How much of a down payment would you have? If it’s less than 20 percent of the value of the house, you have to buy extra insurance called private mortgage insurance, which can be pricey. However, there are some great programs, especially for first-time home buyers.


The bottom line? Do some research to find out about home prices in your area. Talk to a mortgage broker or bank to find out how much mortgage you would qualify for and what the monthly payment would be. Ask this mortgage expert to help you figure out whether you are better off buying or renting for now.


I firmly believe in getting your foot in the real estate market as early as possible in life. That way, what you buy will hopefully appreciate in value and make it possible for you to keep trading up houses as your needs grow. Ask any long-time homeowners if it’s been a good investment, and unless they’re dot-com millionaires they will probably tell you there is no way they could have afforded the house they own now if they hadn’t started small many years ago.


Q: I’m 34 years old and in good health. I have a great career, as well as two young children. My husband is a stay-at-home dad. About how much life insurance do I need?


A: You might hear all kinds of rules of thumb, such as the one that says you should have life insurance for five times your annual income. The problem is, life is a lot more complicated than a rule of thumb.


Some of the things you need to think about: your children’s college and other educational expenses, how much Social Security survivor benefits your family would receive, medical and funeral expenses, how much it would cost to pay off your mortgage and other debts, and any special needs, such as financial support for your parents or other relatives. Also consider how much you and your husband would be earning after taxes and child-care expenses if your husband were to go back to work part or full time.

Then there are the assets that you have that would reduce your need for insurance. These assets include retirement plans, other investment accounts, and other sources of money such as inheritances. (But you can’t count on inheritances unless they are guaranteed and in your hands because relatives can always change their minds, especially if you aren’t around anymore and your spouse has remarried.)

Now do you see why rules of thumb are made to be broken? I have worked with many young widows with young children during my career as a financial planner, and I urge you to figure out how much insurance your family needs. Then go for it! You can even shop for insurance on the Web, and more and more companies are offering “low load” (no commission) insurance if you don’t use an agent. But please be fair and ethical; if an agent gives you good advice, you should pay them, either by an hourly fee or by buying the insurance through them.


Permanent insurance pays a much higher commission to agents and can be helpful if you have a long-term insurance need such as a hefty estate-tax bill. It’s also a good way to go if you’ve got lots of extra cash, you are fully funding all of your retirement plans, and you are saving enough for all of your other goals. Otherwise, your focus should be on buying all the insurance you need as term insurance.


Q: I recently received a pay raise at work. Would I be better off paying down some of my home mortgage or paying off my car loan completely?


A: You are smart to want to pay down debt instead of blowing that pay raise on a trip or new clothes, as so many people do in the excitement of getting a raise. But before you pay down debt, here are some other things to consider:

* Are you contributing every dollar you can to your company 401(k) plan or other tax-deferred retirement savings plans? This question is especially important if your employer kicks in money when you contribute.

* Are you also putting money in IRAs, if you qualify? Most people qualify for either a tax-deductible IRA or a Roth IRA even if they are contributing money to their company retirement plan.

* Do you have an emergency fund equal to about three months’ expenses, so if an unexpected roof leak, dental bill, or job loss hits, you’ve got something to fall back on?

* If you have other goals such as saving for college, are you saving money regularly for that?

You don’t have to answer yes to all of these questions, but you do need to think about them before you decide to use your extra money to pay down debt. If your car loan is at 7 percent interest or more, consider paying it off unless you can deduct it for business purposes. I never recommend prepaying a mortgage because that means giving up an interest deduction on your tax form (a nice perk of being a homeowner).


Other financial planners might disagree, saying you could invest that money and get a rate of return that’s higher than the interest rate you’d be saving by paying it off. But here’s my most important advice about not prepaying your mortgage: The more home equity you have and the less cash, the less flexibility you have. It’s great to retire with a debt-free house, but if you don’t have money in the bank, how are you going to pay for food and other living expenses? You can always decide to pay down your mortgage later, when you are sure that you will have enough investments to cover your living expenses when you retire, or if you decide that you are going to sell your house so you can buy something cheaper or rent. If you want to stay in your house when you retire but won’t have that spending cash, there is an alternative: You can take out a reverse mortgage, essentially borrowing on your own home equity and paying interest for the privilege. The more liquid assets you have, the more flexibility you have to meet life’s surprises. These questions are not just about money—they’re about how you want to live your life.


Q: When should I consider refinancing my house loan?

A: The rule of thumb used to be that you should consider refinancing your home loan when the current interest rate is 2 percent less than your existing rate. But with so many different kinds of mortgages and different arrangements for closing costs and those other up-front fees, no one rule of thumb applies in all cases.


Your best bet is to ask your local bank or mortgage lender to prepare a refinancing analysis for you that shows you how long you would have to live in your house to make the refinancing worthwhile. If you are planning to move within the next couple of years, it probably doesn’t make sense to refinance, even if the interest rates drop.


The kicker in refinancing is the amount of closing costs and other costs—appraisal, credit reports, and any “points.” (A point equals 1 percent of the amount of your mortgage and is considered prepaid interest. The more points you pay up front, the lower the interest rate on the loan.) Ask your bank or broker how long it would take before you would break even if you paid no cash up front and financed all of these costs. Then ask how long it would take if you paid 1 percent up front, or any other financing arrangement that’s attractive to you. The only way you can really make a decision is to crunch the numbers, and these numbers are so complicated that your bank or broker should crunch them for you. It’s a good idea to start with your existing mortgage lender because they may offer you lower closing costs just for using them again. Another lender may offer a lower interest rate, however. Also, make sure to look at your credit report before they quote interest rates because your credit history can make a major difference.


Q: I have some stock options with my employer, who also matches my 401(k) contribution with company stock. I don’t have any other investments, and I’m 25 years old. Should I sell some of my shares now even if I’m pretty sure they will continue to go up?

A: Yes! It’s exciting when your company is doing well and the stock price is going up, but it’s another story when the stock price goes the other way. You are vulnerable because you have all your investment eggs in one basket. Even though you are young, that’s too much risk to take. No one stock should make up more than 5 percent of your total investments. If your company will match your 401(k) contribution only with its own stock, you don’t have much choice. However, do not buy company stock with the money you are putting in your retirement plan. Pick a mutual fund that invests in a large number of U.S. stocks, such as a Standard and Poor’s 500 Index fund. This gives you lots of diversification so if one company tanks, your balance sheet doesn’t tank with it. As far as your stock options are concerned, ask your employee benefits person to give you an analysis showing you the tax consequences of exercising and selling your stock.


Q: When should I write a will, and how can I get started?

A: If you are an adult, you need a will. You may not think so if you don’t own any property, but a will does a lot more than just decide who gets the couch and the silverware. In a will you appoint an executor who is responsible for settling your estate, which means filing all the forms—tax and legal—required. If you have children, your will names the guardians of your choice. If you don’t have a will upon your death, you actually still have an estate plan. The problem is, that estate plan has been designed by your state legislature, and the government will be the executor of your estate. So if you die without a will, your wishes are not legally known, and even relatives you really don’t like could end up benefiting from your death.


I would suggest starting with the will-writing computer software that is now available, with specific instructions about how to prepare, sign, and have your legal documents witnessed so that they will meet your state laws. I always recommend having a lawyer look over these program-generated documents, however.

There are other things to consider, too. You don’t only need a will, you also need a durable power of attorney that appoints someone else to make legal decisions for you if you aren’t able to yourself. You also need a “living will” that tells your doctors and your family how much medical treatment you want, as well as a health-care proxy that gives the person you name the right to make medical decisions on your behalf. All of this is complicated, and every state law is different. So start with will-writing software, but get an expert to review it before you make it legal.

Life Insurance

Life Insurance, assumption by an insuring organization of the risk of death of a policyholder. Unlike loss in insurance on property, loss in life insurance is certain to occur and is total. The element of uncertainty is when death will occur. Mortality is subject to the laws of probability, however, and life-insurance premiums can be calculated from mortality tables, which indicate the average number of people in each age and gender group that will die each year. A person trained to make such calculations, known as an actuary, determines the amount of premiums to be collected yearly from each group in order for the principal (the premiums) and its earned interest to equal the benefits to be paid to the policyholders' beneficiaries. The principal payment required annually constitutes the net premium. A loading charge to cover company expenses and contingencies is added to the net premium, yielding the total, or gross premium, which the insured pays.

History of Life Insurance

The earliest known type of life insurance was the burial benefits that Greek and Roman religious societies provided for their members. Neither these religious societies nor any premodern systems for paying death benefits employed actuarial calculations. They were frequently financed on a postassessment basis; that is, contributions were made by all surviving members following one member's death. As a result, funds were not always available to pay claims.

The tontine annuity system, founded in Paris by the 17th-century Italian-born banker Lorenzo Tonti, although essentially a form of gambling, has been regarded as an early attempt to use the law of averages and the principle of life expectancies in establishing annuities. Under the tontine system, associations of individuals were formed without any reference to age, and a fund was created by equal contributions from each member. The sum was invested, and at the end of each year the interest was divided among the survivors. The last remaining survivor received both the year's interest and the entire amount of the principal.

The first life-insurance company in North America was founded in 1759 in Philadelphia. It was named the Corporation for the Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers.

TYPES OF LIFE INSURANCE

Life insurance may be classified in a variety of ways. A classification depending primarily on the manner in which the premium is collected comprises regular ordinary, debit, and group life insurance. Regular ordinary insurance can be further classified into whole life, limited-payment life, endowment, and term. Debit life insurance can be classified into debit ordinary and industrial. Life insurance may also be classified as participating and nonparticipating, depending on whether or not the policyholder shares in the savings or the profits of the insurer.

Regular Ordinary Life Insurance

Whole-Life Insurance
Whole-life insurance provides for the payment of the face amount of the policy on the death of the insured, whenever it might occur. Premium payments are made during the entire lifetime of the insured person; this differs from limited-payment and endowment policies. All cash-value policies like whole life, endowment, and limited-payment life are required to provide values that cannot be lost should the insured terminate the policy. Such benefits provide that the insured may obtain the cash surrender value and terminate the policy; or the insured may obtain a paid-up whole-life policy in a reduced amount; or he or she may obtain term insurance for the full face amount of the policy for a specified period. A loan provision in all such policies permits the insured to borrow up to the full amount of the cash surrender value at any time, subject to specified limitations.

Limited-Payment Life Insurance
The limited-payment life policy provides for premium payments for a specified number of years (for example, 10 or 20, or until age 65) unless the insured person dies sooner. A single-premium life policy is a special case of a limited-payment policy. Premium rates for limited-payment policies are higher than for ordinary life insurance policies because the pay-in period is shorter.

Endowment Insurance
Endowment policies are payable at the death of the insured or on a specified maturity date if the insured is alive. Premiums generally are payable from the date of issue until the date of maturity but may be limited to fewer years or even to a single lump-sum payment. Premium payments on endowments are high because a large cash value is built up in a relatively short time. Endowments combine savings with insurance, and such policies may be used to provide for college education, mortgage payments, or retirement purposes. This type of policy lost popularity when competing savings mediums began paying higher interest rates in the 1970s and early '80s. More competitive interest rates have not yet restored its standing.

Term Life Insurance
Term insurance provides benefits only if the insured dies within a specified period. If the insured survives up to the end of the specified period, the contract is terminated unless renewed. Because the premium for a term policy pays only for the cost of the insurance protection during the term of the policy, term insurance generally has no cash surrender value. The insured may be allowed to renew for another term without a medical examination. The premium, however, increases with each renewal because it is calculated on the age of the insured at the time of renewal. Term insurance is often used by the head of a family to obtain additional temporary insurance when the children are young. Term insurance policies frequently provide the insured with conversion options to whole-life policies.
Credit life insurance is term insurance against a loan taken out on some major purchase such as an automobile. It generally decreases in amount as the loan is repaid. It protects the borrower's family as well as the lender against the debt that remains unpaid at death

Debit Life Insurance

Two types of debit life insurance are available. Debit ordinary insurance was designed for wage earners with modest incomes. Premiums are collected by company agents at policyholders' homes. Other than this mode of collection, the coverage has the same characteristics as ordinary life insurance. Industrial life insurance is also designed to meet the needs of low-income industrial workers. Premiums are payable weekly or monthly, and the face amount does not generally exceed $1000. A medical examination is not required to obtain such insurance.

Group Life Insurance

First introduced in 1911, group life insurance has grown since World War II chiefly because it has been included as a fringe benefit in collective-bargaining agreements. It provides a means of insuring a number of people in a business establishment, society, or other organization. A master contract is issued, and each insured person receives a certificate specifying the amount of the insurance and his or her beneficiary. Group policies contain a conversion clause that permits an insured, on separation from the group, to convert to an individual type of nonterm life insurance policy without evidence of insurability. The new policy, however, is issued at the premium rate applicable at the attained age of the policyholder. Because group insurance is a form of wholesale buying, its economies are passed on to policyholders in the form of lower premiums per dollar of coverage. Group life insurance usually is issued on a 1-year renewable term basis.

Savings Bank Life Insurance

First made available in Massachusetts in 1907, savings bank life insurance is transacted on an over-the-counter basis or by mail without the use of soliciting agents. This normally results in reduced expense and lower costs to policyholders.

The technical details of administering the business are performed by a central organization that provides actuarial, medical, and certain other services for the member banks. The central organization computes the premium rates and prepares policy forms and application blanks. Each participating bank, however, is an independent body that issues its own contracts, maintains records, and retains and invests the assets of its own insurance department. The surplus funds attributable to insurance operations of the bank are available only to its policyholders; moreover, the central organization maintains a contingency or guaranty fund to protect policyholders.

Government Life Insurance

The U.S. government, through the Department of Veterans Affairs (formerly the Veterans Administration), administers insurance programs for active members of the armed forces and veterans of military service. Instituted under the terms of the War Risk Insurance Act of 1917, U.S. Government Life Insurance permitted those on active duty during World War I to purchase low-cost life insurance in amounts up to $10,000. About 4.5 million persons applied for this insurance during the war. National Service Life Insurance, instituted in 1940, provided insurance for members of the armed forces in World War II on the same basis as had existed in World War I. This program was later extended to include World War II veterans, who were eligible for insurance whether or not they had obtained policies while in service. No new policies were issued under either program after April 1951.

Legislation enacted in 1965 established Servicemen's Group Life Insurance (SGLI) for personnel on active duty in the uniformed services and Ready Reservists. This program is currently in effect. Under the present program up to $50,000 of group life insurance is available on a voluntary basis to each individual, including all reservists and members of the National Guard. SGLI, now supervised by the Department of Veterans Affairs, is underwritten by more than 300 life insurance companies. A program begun in 1974 provides for automatic conversion of SGLI to a 5-year nonrenewable policy known as Veteran's Group Life Insurance (VGLI). Coverage is available in units of $5000 up to the amount of SGLI in force at the time of separation. VGLI is available to service personnel separated on or after August 1, 1974, and to reservists injured while on active duty. At the termination of the 5-year policy the insurance policy can be converted to an individual commercial policy with the participating companies at standard rates regardless of the policyholder's health.

Veterans Mortgage Life Insurance is available to totally disabled veterans, primarily paraplegics, who receive a grant to purchase specially adapted housing. In 1976 the amount of insurance coverage was increased to $40,000.

Attorney

Attorney, in law, any person authorized by another to represent him or her. An agent who has been granted express authority to bind his or her principal is called an attorney in fact. Such authority is usually granted by a written instrument called a power of attorney. The powers conferred may be general, as when one gives another a mandate to manage all one's affairs during an absence, or special, as when the authority extends only to a particular business, or is otherwise limited or qualified. The term attorney at law is used in the United States to denote a legal adviser or representative in all manner of business. In Britain, upon the fusion of law and equity by the Judicature Act of 1873, the two classes of attorney and barrister were united under the name of solicitor in the High Court of Justice.

An attorney at law is an officer of the court, and as such is required, in the U.S., to take a binding oath of office to observe the U.S. Constitution and the constitution of the state of residence. Each state regulates by law the training and qualifications of attorneys. Usually a preliminary examination in general scholarship is required, followed by study at a school of law and sometimes by a clerkship or apprenticeship, varying from one to two years, in the office of a practicing attorney. Finally, an applicant must pass an examination in law before being admitted to the bar.
The duties of an attorney are to act with diligence and fidelity to one's client and to show average prudence, knowledge, and skill in professional dealings. In order to settle an action, the attorney requires, as a rule, the special authority of the client. No attorney can be compelled to reveal confidential information related by a client.

Advocate

Advocate, in a general sense, one who pleads for another in a court of law or other tribunal. In the United Kingdom, professional advocates are called barristers and are permitted to plead or argue cases before the High Court of Justice; a barrister is distinguished from a solicitor, who may conduct litigation only in inferior courts. The avocat and avoué in France are analogous to the barrister and solicitor in England. In the United States, most former British colonies, and some parts of Europe, the two branches of the legal profession are not separate.

In a narrower sense, the term advocate was formerly used in Britain to denote a member of the College of Advocates at Doctors' Commons (abolished in 1857). These advocates had the exclusive right to plead in the ecclesiastical and admiralty courts and took precedence over all ordinary barristers. In the U.S. Army, the judge advocate general is chief adviser to the army authorities in the administration of military law ( Military Courts).

Law, body of official rules and regulations, generally found in constitutions, legislation, judicial opinions, and the like, that is used to govern a society and to control the behavior of its members. The nature and functions of law have varied throughout history. In modern societies, some authorized body such as a legislature or a court makes the law. It is backed by the coercive power of the state, which enforces the law by means of appropriate penalties or remedies.

Formal legal rules and actions are usually distinguished from other means of social control and guides for behavior such as mores, morality, public opinion, and custom or tradition. Of course, a lawmaker may respond to public opinion or other pressures, and a formal law may prohibit what is morally unacceptable.
Law serves a variety of functions. Laws against crimes, for example, help to maintain a peaceful, orderly, relatively stable society. Courts contribute to social stability by resolving disputes in a civilized fashion. Property and contract laws facilitate business activities and private planning. Laws limiting the powers of government help to provide some degree of freedom that would not otherwise be possible. Law has also been used as a mechanism for social change; for instance, at various times laws have been passed to inhibit social discrimination and to improve the quality of individual life in matters of health, education, and welfare.

Some experts believe the popular view of law overemphasizes its formal, coercive aspects. They point out that if a custom or norm is assured of judicial backing, it is, for practical purposes, law. On the other hand, a statute that is neither obeyed nor enforced is empty law. Social attitudes toward the formal law are a significant part of the law in process. The role of law in China and Japan, for example, is somewhat different from its role in Western nations. Respect for the processes of law is low, at least outside matters of business and industry. Tradition looms much larger in everyday life. Resort to legal resolution of a dispute is truly a last resort, with conciliation being the mechanism that is preferred for social control.

Law is not completely a matter of human enactment; it also includes natural law. The best-known version of this view, that God's law is supreme, has had considerable influence in the United States and other Western societies. The civil rights movement, for example, was at least partially inspired by the belief in natural law. Such a belief seems implicit in the view that law should serve to promote human dignity, as for instance by the enforcement of equal rights for all. Muslim societies also embrace a kind of natural law, which is closely linked to the religion of Islam.

PUBLIC LAW

Public law concerns the relationships within government and those between governments and individuals. Because the Roman codes were almost entirely limited to the private area, public law is usually not codified. In civil-law countries, separate administrative courts adjudicate claims and disputes between the various branches of government and citizens, and many lawyers specialize in public law. In France, Germany, and Italy, still other courts handle constitutional issues.

Public law is not quite so clearly demarcated in the United Kingdom and the U.S. Under the common-law approach the same courts handle public and private litigation. Because the United Kingdom has no written constitution, basic principles pertaining to government powers and limits and to fundamental individual rights are found in acts of Parliament, judicial opinions, and tradition. The U.S., on the other hand, has a distinct body of constitutional law.

The development of administrative law is a comparatively recent occurrence. Numerous federal and state administrative agencies now make rules that reach into all manner of activities, including licensing, regulation of trades and professions, protection of health, and promotion of welfare. Their powers emanate from legislation, and their rules are reviewable by the courts.

U.S. constitutional law is the most extensive and pervasive of any country in the world. It is embodied in the Constitution and in the opinions of the U.S. Supreme Court rendered over time. Through its power of judicial review, the Supreme Court may invalidate any legislation or other governmental actions that it finds to be in violation of the Constitution. Constitutional courts in some civil-law countries have similar powers. In the United Kingdom no equivalent judicial power exists, and Parliament is supreme. In totalitarian nations, constitutional limits on legislative power are generally a matter of political determination.

The U.S. Constitution allocates power within the federal government and between the federal and state governments. The first ten amendments (the Bill of Rights) and subsequent amendments define fundamental individual rights by placing limits on the powers of government at all levels. Through its powers of judicial review and interpretation, the Supreme Court has played a remarkable role in facilitating the growth of national power and influence by means of decisions about acts of Congress and federal administrative law. The Court has, for the most part, acted extensively to invalidate and inhibit discriminatory legislation and to adjust the relative distribution of government-connected services and revenue so as to ultimately provide for more democratic social relations. The Court, however, is frequently the center of much controversy because of widely varying interpretations about its role and the nature of constitutional law.

Laws concerning taxation and the regulation of business are in the public area, as is criminal law, which involves the exercise of governmental power by way of enforcement and punishment. Historically, criminal law in Britain included crimes defined by the courts. In the U.S. crimes are defined by statute, thus satisfying constitutional notions of due process. The public-law nature of the area is further emphasized by other constitutional protections such as the right of the accused to remain silent and the right to effective counsel. Criminal law not only promotes security and order but also reinforces moral norms. Debate has been continuous regarding the legitimacy of government intervention in areas where moral attitudes are in significant conflict, such as in matters of sexual practices, pornography, birth control, and euthanasia.

PRIVATE LAW

Private law involves the various relationships that people have with one another and the rules that determine their legal rights and duties among themselves. The area is concerned with rules and principles pertaining to private ownership and use of property, contracts between individuals, family relationships, and redress by way of compensation for harm inflicted on one person by another. Historically, government involvement was usually minimal. Private law has also operated to provide general guidelines and security in private arrangements and interactions in ways that are complementary to morality and custom but that are not necessarily enforceable in a court of law, such as noncontractual promises and agreements within an association of private individuals.

The relative significance of purely private law has decreased in modern times. Public law dominates in government-controlled societies; democratic societies increasingly have a mix of public and private law. The private sphere includes individuals and a vast array of groups, associations, organizations, and special legal entities such as corporations. They compete with one another and with government for control of resources, wealth, power, and the communication of ideas and values. Special fields of law, such as labor law, facilitate and control this competition. Much of such law is in the commercial and corporate areas. The formerly purely private law of property and contracts, for example, is now overlaid with legislation, regulations, and judicial decisions reflecting the competition. The public law of taxation has significant impact on the whole private sphere. Courts have increasingly regarded resolution of seemingly private disputes as vehicles for response to changing social conditions and values—especially in the U.S. Thus, manufacturers have experienced an expansion of liability for physical injuries caused by defects in their products. The mechanism of insurance allows manufacturers to spread such costs across the general consuming public.

INTERNATIONAL LAW

The legal process that concerns relations among nations is called international law. Belief and experience in some form of international law dates from at least the days of the Roman Empire. Such law differs greatly from national legal systems. No court has the authority or power to give judgments backed by coercive sanctions. Even in its most modern developments, international law is almost wholly based on custom. The precedents on which it rests are the acts of independent governments in their relations with one another, including treaties and conventions. Behind many of its rules is only a moral sanction: the public opinion of the civilized world. When treaties or conventions are involved, however, machinery to enforce them exists—either an arbitration or conciliation procedure or the submission of the dispute to a regional or international court.

A discernible body of rules and principles is observed or at least acknowledged in international relations. These rules concern such matters as territorial titles and boundaries, use of the high seas, limits on war, telecommunication, diplomatic and consular exchange, and use of air space. The major sources of international law on these matters are multilateral treaties, international custom, and such general principles as are recognized by civilized nations.

The United Nations is one of the primary mechanisms that articulate and create international law. The General Assembly and other agencies of the UN bring a combination of diplomacy, negotiation, and propaganda to bear on world affairs in ways that produce effective international treaties and affect world opinion. Certain courts also have indirect impact, including the International Court of Justice. Domestic courts in various nations at times also engage in the articulation of international law.

Credit Card

Credit Card, card that identifies its owner as one who is entitled to credit when purchasing goods or services from certain establishments. Credit cards originated in the United States in the 1930s; their use was wide-spread by the 1950s. They are issued by many businesses serving the consumer, such as oil companies, retail stores and chain stores, restaurants, hotels, airlines, car rental agencies and banks. Some credit cards are honored in a single store, but others are general-purpose cards, for use in a wide variety of establishments. Bank credit cards, now also in use in Europe, are examples of the general purpose card. Establishments dispensing almost every form of product or service are honoring such cards, and it is predicted that credit cards might some day eliminate the need for carrying cash.

When a credit card is used, the retailer records the name and account number of the purchaser and the amount of the sale, and forwards this record to the credit card billing office. At intervals, usually monthly, the billing office sends a statement to the cardholder listing all the charged purchases and requesting payment immediately or in installments. The billing office reimburses the retailer directly.

Most of the work involved in credit card operations is now handled by computers. Charges for the use of a credit card are sometimes paid directly by the cardholder, and sometimes borne by the retail establishments that accept them. In the latter case, the cost is absorbed into the price of the merchandise. Department stores usually charge interest to credit customers who do not settle their bills within a month, but certain credit plans do not charge interest until a bill has been outstanding for several months. Interest rates for overdue balances are regulated by state law. A continuing problem involved in the use of credit cards is the ease with which they can be used fraudulently if stolen or lost, although the liability of the owner is limited.

Bankruptcy

Bankruptcy, legal proceeding in which a debtor declares his or her inability to pay consumer or business debts as they become due. Debtors may seek a discharge from continuing personal liability for unsecured debts or they may attempt to reorganize financially by seeking an extended period of time in which to pay all or a proportion of their indebtedness.
CURRENT PRACTICES
The U.S. Constitution empowers Congress “to establish ... uniform laws on the subject of bankruptcies throughout the United States” (Article I, Section 8). This grant of power to Congress has been interpreted to preclude the states from including effective individual bankruptcy discharges in their laws. The current federal bankruptcy legislation is the Bankruptcy Reform Act of 1978, as amended in 1984 and 1986.

More than 90 percent of bankruptcy proceedings are voluntary. They are initiated by the debtor, who files a petition with the appropriate federal court. A bankruptcy trustee then collects and liquidates the debtor's nonexempt property for the benefit of the unsecured creditors. Secured creditors are not affected by bankruptcy liquidations because they have taken collateral (such as a home mortgage) to ensure repayment of debts. Once distribution to unsecured creditors occurs, the court discharges the debtor unless that person's prior behavior justifies denying the discharge or granting it with certain specific statutory exceptions. In order to limit or deny the discharge, the creditor must prove that the debtor has obtained credit by fraudulent practices or has engaged in other prohibited behavior. Creditors can file an involuntary bankruptcy petition against a debtor, alleging that the debtor is “generally not paying” debts, but this type of proceeding rarely occurs.

The Bankruptcy Code allows both consumer and business debtors to attempt financial reorganization instead of liquidation of nonexempt assets. A debtor who selects this alternative proposes a reorganization plan for consideration by the affected creditors and the court. For individuals who use Chapter 13 reorganization proceedings, a typical plan requires payment from the debtor's future income. Businesses that wish to continue their operations, sometimes in a modified form, usually opt for Chapter 11 reorganization proceedings. Their proposals may combine payments from sales of some business assets with income from future business operations. Stockholder interests may be restructured in addition to modifying payment requirements for their secured and unsecured debts.

Bond (finance)

Bond (finance), interest-bearing certificate sold by corporations and governments to raise money for expansion or capital. An investor who purchases a bond is essentially loaning money to the bond's issuer in return for interest. The investor can hold the bond and collect interest payments or sell the bond to a third party.
HOW BONDS WORK
A bond's principal, or face value, represents the amount of the original loan that is to be repaid on the bond's maturity date. The interest that the issuer agrees to pay each year is known as the coupon, a term derived from the obsolete practice of attaching coupons that could be redeemed for interest payments to the bottom of the bond certificate. The interest rate, or coupon rate, multiplied by the principal of the bond provides the dollar amount of the coupon. For example, a bond with an 8 percent coupon rate and a principal of $1000 will pay annual interest of $80. In the United States the usual practice is for the issuer to pay the coupon in two semiannual installments.

KINDS OF BONDS

A number of different kinds of bonds offer variations on this basic formula. Some types of bonds provide alternative interest structures. A zero-coupon bond does not make periodic interest payments. The bondholder realizes interest by buying the bond substantially below its face value. A floating-rate bond has an interest rate that is changed periodically according to an established formula. There also may be provisions that allow either the issuer or the bondholder to alter a bond's maturity date. A callable bond entitles the issuer to pay off the principal prior to the stated maturity date. Similarly, the owner of a putable bond can force the issuer to pay off the principal before the maturity date. A convertible bond gives the bondholder the right to exchange the bond for shares of the issuer's common stock at a specified date.

ISSUING BONDS

Bond issuers can sell bonds directly through an auction process or use investment banking services. The investment banker buys the bonds from the issuer and then sells them to the public.

Corporate bonds are issued by private utilities, transportation companies, industrial enterprises, or banks and finance companies. These corporate bonds can be divided into two additional categories: mortgage bonds, which are secured by the issuer's assets, and debentures, which are backed only by the issuer's credit. Most companies try to establish a financial structure based on a combination of stocks, representing distributed ownership, and bonds, representing debt obligations. A company that raises funds by issuing bonds is said to be leveraged. Because bondholders are paid at a set rate regardless of profits, this approach increases the potential for profit to stockholders but also increases the level of financial risk.

The U.S. government issues bonds through the Department of the Treasury. These bonds, known as government securities, are backed by the unlimited taxing power of the federal government. Federal agencies and government-sponsored enterprises also issue bonds of their own. Generally, all of these federal bonds are considered to be among the safest investments.

Municipal bonds are issued by state and local governments and other public entities, such as colleges and universities, hospitals, power authorities, resource recovery projects, toll roads, and gas and water utilities. Municipal bonds are often attractive to investors because the interest is exempt from federal income taxes and some local taxes. There are two types of municipal bonds: general obligation bonds and revenue bonds. Like a government security, a general obligation municipal bond is secured by the issuer's taxing power. Revenue bonds are used to finance a particular project or enterprise. Income generated by the project provides funds to pay interest to bondholders.

INVESTING IN BONDS

From an investor's perspective, stocks offer a higher potential return if profits rise, but bonds are generally a safer investment. Stock dividends are paid out of company profits, while bond interest payments are made even if the company is losing money. If a corporation goes bankrupt, bondholders must be paid before stockholders. Nonetheless, risks are associated with investing in bonds. Because most bonds offer a fixed rate of return, a bond with a low coupon rate will be less valuable if interest rates rise to the point that the investor's money could be more profitably invested elsewhere. If the inflation rate rises in relation to the coupon rate, the value of the investor's return will be reduced.

The value of bonds also will vary due to changes in the default risk, or credit rating, of bond issuers. If the issuer of the bond is unable to make timely principal and interest payments, the issuer is said to be in default. Bonds issued by the U.S. government and by most federally related institutions are considered free of default risk. For other issuers, the risk of default is gauged by credit ratings assigned by four nationally recognized rating companies: Moody's Investor's Service, Standard and Poor's Corporation, Duff & Phelps Credit Rating Company, and Fitch Investors Service. Bonds that these rating companies place in the highest categories are known as investment-grade bonds. Bonds that are not assigned an investment grade rating are called junk bonds. These bonds have a higher degree of credit risk but also offer a higher potential yield.

Taxes

Taxation, system of raising money to finance government. All governments require payments of money—taxes—from people. Governments use tax revenues to pay soldiers and police, to build dams and roads, to operate schools and hospitals, to provide food to the poor and medical care to the elderly, and for hundreds of other purposes. Without taxes to fund its activities, government could not exist.
Throughout history, people have debated the amount and kinds of taxes that a government should impose, as well as how it should distribute the burden of those taxes across society. Unpopular taxes have caused public protests, riots, and even revolutions. In political campaigns, candidates’ views on taxation may partly determine their popularity with voters.

TYPES OF TAXES

Governments impose many types of taxes. In most developed countries, individuals pay income taxes when they earn money, consumption taxes when they spend it, property taxes when they own a home or land, and in some cases estate taxes when they die. In the United States, federal, state, and local governments all collect taxes.

Taxes on people’s incomes play critical roles in the revenue systems of all developed countries. In the United States, personal income taxation is the single largest source of revenue for the federal government. In 2001 it accounted for about 50 percent of all federal revenues. Payroll taxes, which are used to finance social insurance programs such as Social Security and Medicare, account for almost a third of federal revenues. The United States also taxes the incomes of corporations. In 2001 corporate income taxation accounted for 10 percent of federal revenues.

Individual Income Tax

An individual income tax, also called a personal income tax, is a tax on a person’s income. Income includes wages, salaries, and other earnings from one’s occupation; interest earned by savings accounts and certain types of bonds; rents (earnings from rented properties); royalties earned on sales of patented or copyrighted items, such as inventions and books; and dividends from stock. Income also includes capital gains, which are profits from the sale of stock, real estate, or other investments whose value has increased over time.

Corporate Income Tax

All corporations in the United States and Canada must pay tax on their net income (profits) to the federal government and also to most state or provincial governments. U.S. corporate tax rates generally increase with income. For example, in 2001 corporations with profits of up to $50,000 paid 15 percent in taxes, whereas corporations with profits greater than about $18.3 million were taxed at a flat rate of 35 percent. In Canada the basic rate for corporations was 28 percent in 2000. In 2001 corporate income taxes accounted for about 10 percent of all federal tax revenues in the United States and about 13 percent of all federal tax revenues in Canada.

The corporate income tax is one of the most controversial types of taxes. Although the law treats corporations as if they have an independent ability to pay a tax, many economists note that only real people—such as the shareholders who own corporations—can bear a tax burden. In addition, the corporate income tax leads to double taxation of corporate income. Income is taxed once when it is earned by the corporation, and a second time when it is paid out to shareholders in the form of dividends. Thus, corporate income faces a higher tax burden than income earned by individuals or by other types of businesses.

Some economists have proposed abolishing the corporate income tax and instead taxing the owners of corporations (shareholders) through the personal income tax. Other students of the tax system see the corporate income tax as the price corporations pay in return for special privileges from society. The most important of these privileges is limited liability for shareholders. This means that creditors cannot claim the personal assets of shareholders, because the liability of shareholders for the corporation’s debts is limited to the amount they have invested in the corporation.

Payroll Tax

Whereas an income tax is levied on all sources of income, a payroll tax applies only to wages and salaries. Employers automatically withhold payroll taxes from employees’ wages and forward them to the government. Payroll taxes are the main sources of funding for various social insurance programs, such as those that provide benefits to the poor, elderly, unemployed, and disabled. In 2001 payroll taxes accounted for about 32 percent of all federal tax revenues in the United States; in Canada, the figure was 21 percent. For most people, payroll taxes are the second-largest tax they must pay each year, after individual income taxes.

The U.S. federal government levies the social security payroll tax at a flat 12.4 percent rate on employees’ annual gross wages up to a certain limit. The limit, which was $80,400 in 2001, rises each year at the same rate as the growth in average wages. The government imposes no payroll tax on earnings above the limit. Employers pay half the tax and employees pay the other half. The Medicare payroll tax is 2.9 percent of all earnings, with no cap. Again, employers and employees split the cost of the tax. Self-employed individuals must pay the entire payroll tax.

Although the legislators who set up payroll taxes intended to divide the tax burden equally between employers and employees, this may not occur in practice. Some economists believe that the tax causes employers to offer lower pretax wages to employees than they would otherwise, in effect shifting the tax burden entirely to employees.

Consumption Taxes

Consumption Taxes
A consumption tax is a tax levied on sales of goods or services. The most important kinds of consumption taxes are general sales taxes, excise taxes, value-added taxes, and tariffs.

General Sales Taxes
A general sales tax imposes the same tax rate on a wide variety of goods and, in some cases, services. In the United States, most states and many local governments have a general sales tax. The country has no national general sales tax. State sales taxes range from 3 to 7 percent, and local sales taxes range from a fraction of 1 percent to 7 percent. In Canada, all provinces except Alberta impose a general sales tax on goods. In some provinces, the provincial sales tax and the federal goods and services tax (GST) are combined into a single tax known as the harmonized sales tax (HST). Local governments in Canada do not have the authority to impose general sales taxes.

Although sellers are legally responsible for paying sales taxes, and sellers collect sales taxes from consumers, the burden of any given sales tax is often divided between sellers and consumers (for more information, see the Effects of Taxes section of this article). Most states exempt certain necessities from sales tax, such as basic groceries and prescription drugs. Both individuals and businesses pay sales tax.

Excise Taxes

Federal, state, and local governments levy excise taxes, which are sales taxes on specific goods or services. Excise taxes are also called selective sales taxes. Goods subject to excise taxes in the United States and Canada include tobacco products, alcoholic beverages, gasoline, and some luxury items. Excise taxes are applied either on a per unit basis, such as per package of cigarettes or per liter or gallon of gasoline, or as a fixed percentage of the sales price.

Governments sometimes levy excise taxes to pay for specific projects. For example, voters in a city might approve a tax on hotel rooms to help pay for a new convention center. Some national governments impose an excise tax on airline tickets to help pay for airport improvements. Revenues from gasoline taxes typically pay for highway construction and improvements. Excise taxes designed to limit consumption of a commodity, such as taxes on cigarettes and alcoholic beverages, are commonly known as “sin taxes.”

Another type of excise tax is the license tax. Most states require people to buy licenses to engage in certain activities, such as hunting and fishing, operating a motor vehicle, owning a business, and selling alcoholic beverages.

Value-Added Tax

In Canada and Europe the favored form of consumption taxation is a value-added tax (VAT). In this system, the seller pays the government a percentage of the value added to goods or services at each stage of production. The value added at each stage of production is the difference between the seller’s costs for materials and the selling price. In essence, a VAT is just a general sales tax that is collected at multiple stages.

In the production of apple pies, for example, the farmer grows apples and sells them to a baker, who turns them into a pie. The baker sells the pie to a restaurant owner, who sells it to a consumer. At each stage, the producer adds value to the commodity by processing it with capital (machines) and labor. The farmer, the baker, and the restaurant owner each charge their customer a VAT. However, they can each claim a credit to recover the tax they paid on purchases related to their commercial activities.

Tariffs

Tariffs, also called duties or customs duties, are taxes levied on imported or exported goods. Import duties are considered consumption taxes because they are levied on goods to be consumed. Import duties also protect domestic industries from foreign competition by making imported goods more expensive than their domestic counterparts. In the United States, import duties were the largest source of federal revenues until the introduction of the income tax in 1913. Today they account for only a small portion of federal revenues.

Property Taxes

In principle, a property tax is a tax on an individual’s wealth—the value of all of the person’s assets, both financial (such as stocks and bonds) and real (such as houses, cars, and artwork). In practice, property taxes are usually more limited. In the United States, state and local governments generally levy property taxes on buildings—such as homes, office buildings, and factories—and on land. There is no federal property tax. In 1998 property taxes accounted for 2.3 percent of state tax revenues and 73 percent of local tax revenues. The Canadian constitution allows the federal government to levy property taxes. However, currently only local and provincial governments collect property taxes. The property tax is by far the largest source of revenue for local governments.

The property tax is often unpopular with homeowners. One reason is that, because homes are not sold very often, governments must levy the tax on the estimated value of the dwelling. Some citizens believe that the government overvalues their homes, leading to unfairly high property tax burdens.

Estate, Inheritance, and Gift Taxes

When a person dies, the property that he or she leaves for others may be subject to tax. An estate tax is a tax on the deceased person’s estate, which includes everything the person owned at the time of death—money, real estate, stock, bonds, proceeds from insurance policies, and material possessions. Most governments levy estate taxes before the deceased person’s property passes to heirs, although many governments do not impose an estate tax on property inherited by a spouse. An inheritance tax also taxes the value of the deceased person’s estate, but after the estate passes to heirs. The inheritors pay the tax. Estate and inheritance taxes are sometimes collectively called death taxes. A gift tax is a tax on the transfer of property between living people.

In the United States, the federal government imposes gift and estate taxes, and some states impose inheritance or estate taxes. However, they are minor sources of revenue because the taxes apply only to very large estates and gifts. Property transferred to a deceased person’s spouse is not taxed. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, estate taxes were to be gradually lowered and then phased out altogether in 2010. Under the new law, the exemption for estate taxes was to rise from $1 million in 2002 to $3.5 million in 2009. However, the new law itself was due to be repealed on the eve of 2011, reverting to the legislation that existed prior to the passage of the act unless Congress agreed to extend it. In 2002 less than 2 percent of all people who die in the United States had estates that were subject to the tax. In 2002 federal gift-tax law allowed each individual to give any other person up to $11,000 per year tax-free. The Tax Relief Reconciliation Act amended other provisions of the gift tax as well. In Canada, there are currently no death taxes, although both the federal and provincial governments levied estate taxes in the past.

Estate and gift taxes are controversial. Proponents argue that they are useful tools for distributing wealth more equally in society and preventing the rise of powerful oligarchies. Opponents argue that it is a person’s right to pass on property to his or her heirs, and the government has no right to interfere. If an individual has paid tax on his or her income while in the process of accumulating wealth, critics ask, why should it be taxed again when the wealth is transferred? Others argue that estate and gift taxes discourage individuals from working and saving to accumulate wealth to leave to their children. On the other hand, the presence of an estate tax might encourage people to accumulate greater wealth in order to reach a given after-tax goal.

Other Taxes

A poll tax, also called a lump-sum tax or head tax, collects the same amount of money from each individual regardless of income or circumstances. Poll taxes are not widely used because their burden falls hardest on the poor. When the British government implemented a system of local poll taxes in 1990, citizens considered the tax so unfair that they held demonstrations—some violent—around the country. The extreme unpopularity of the tax contributed to the downfall of Prime Minister Margaret Thatcher. Her successor, John Major, repealed the tax in 1991. In the United States, the 24th Amendment, ratified in 1964, prohibited the payment of poll taxes as a requirement for voting in federal elections. Until that time, a number of Southern states had used poll taxes to deny poor blacks the right to vote.

EFFECTS OF TAXES

Economists have devoted considerable effort to studying the effects of taxes. In particular, they study how taxes affect people’s behavior, including their choices in working, saving, and investing.

To understand the effect of any tax, one must first determine who bears the burden of the tax. This is not always an easy task. Suppose that the price of a chocolate doughnut is $1.00. The government then imposes on sellers a tax of 10 cents per doughnut. A few weeks after its imposition, the tax causes the price to increase to $1.10. The doughnut seller clearly receives the same amount per doughnut as he or she did before the tax—the tax has not made the seller worse off. Consumers pay the entire tax in the form of higher prices. On the other hand, suppose that after the tax the price increases to $1.04. In this case, the seller keeps only 94 cents per doughnut, and is worse off by 6 cents per doughnut. Consumers are also worse off, however, because they have to pay 4 cents more per doughnut. In this case, retailers and consumers share the burden of the tax.

The way a tax affects people is called the tax incidence. The statutory incidence of a tax refers to the individuals or groups who must legally pay the tax. The statutory incidence reveals essentially nothing about a tax’s real burden, because as previously illustrated, prices may change in response to a tax. In contrast, the economic incidence of a tax refers to its actual effects on people’s incomes. The economic incidence of a tax depends on how buyers and sellers of the commodity react when the tax is imposed. The more sensitive consumers are to changes in price, the easier it is for them to turn to other products when the price goes up, in which case producers bear more of the tax burden. On the other hand, if consumers purchase the same amount regardless of price, they bear the whole burden.

Taxation in Canada

The first known taxes in Canada were export taxes on furs imposed by the French regime in 1650. The French government soon replaced these with tariffs on imported goods. Tariffs continued to be of major importance during the period of British rule, which began in 1763. The British North America Act of 1867 stated that the provinces could levy income taxes, but could no longer levy tariffs. However, the levying of income taxes on individuals and businesses did not become widespread in the provinces until the end of the 19th century.

In 1917 the federal government, which had relied primarily on excise taxes, created both a personal income tax and a corporate income tax, both of which had previously been levied only by provinces. The federal government introduced a general sales tax in 1920. All the provinces created gasoline taxes in the 1920s and collected taxes on alcohol sales. During World War II the provinces suspended their income taxes.

After World War II, the federal government took over the income tax from the provinces, paying them a fee for this right. In 1962 the provinces regained the right to levy income taxes. All provinces soon imposed individual income taxes. (Except in the province of Québec, provincial income taxes are collected by the federal government and then given over to provincial governments.) Also, from 1973 to 1990, all provinces adopted some form of corporate income tax.

In 1991 the federal government introduced a goods and services tax (GST). This broad-based tax applies to most goods and services, although certain commodities, such as basic groceries and medical supplies, are exempt from the tax. In 2000 Canada adopted one of the largest tax cuts in its history. It was designed to reduce personal taxes an average of 15 percent over a five-year period.

Mortgage

Mortgage, legal instrument that pledges a house or other real estate as security for repayment of a loan. By providing a guarantee that the loan will be paid back, a mortgage enables a person to buy property without having the funds to pay for it outright. If the borrower fails to repay the loan, the lender may foreclose on the property—that is, force the sale of the house to recover the amount of the loan .

The mortgage lending process has two instruments, a note and a mortgage. The note specifies the financial terms of a loan agreement. The mortgage contains a legal description of the property and a statement that pledges the property as security for the loan. However, the word mortgage commonly refers to both parts of the loan agreement as a whole.

GETTING A MORTGAGE

A borrower can obtain a mortgage from a bank, credit union, or other lender. Most lenders require the borrower to have a certain amount of money to use as a down payment toward the purchase of the house. For example, if an individual wants to buy a home priced at $100,000 and the lender requires a down payment of $5000, the individual will apply for a loan of $95,000 to pay for the difference.

A lender requires detailed information about borrowers to assess their ability and willingness to repay a loan. For example, a borrower will be asked about income, employment history, and credit history. The lender will also inquire about any debts, such as a car loan or credit card balances.

Before the lender agrees to a loan, an appraisal of the property by a qualified third party is required. The appraisal provides an estimate of the property's value. The lender wants to be certain that the property is worth at least as much as the loan in case of foreclosure.

If all requirements are met, the lender agrees to the loan. The loan agreement specifies the current interest rate and the loan's repayment terms. The terms of repayment specify how much the regular payments will be, how frequently they will be made, and over how many years. The interest rate and the duration, or life, of the mortgage determine the amount of the payment. Payments are usually made monthly. The life of the mortgage can be 15, 20, 30, or even 40 years.

To accept the loan the borrowers must sign a promissory note that obligates them to repay the mortgage debt. The borrower also promises to keep the property insured against fire and other hazards, and to pay any property taxes that may be owed. If the borrower fails to keep any of these obligations, the loan is considered to be in default, and subject to foreclosure.

The actual transfer of funds and property takes place at the closing. At the closing the lender transfers money to the borrower for buying the house and the borrower signs the mortgage documents. The borrower also pays the lender any fees associated with borrowing the money. These might include origination costs for creating and processing the loan, fees for obtaining reports on credit history, and fees for obtaining an appraisal.

REPAYING A MORTGAGE

Mortgage payments consist of two parts: payments for interest and for principal. Interest is the fee for using the lender's money. Principal is the amount of the loan still owed. A portion of each payment pays interest and the remaining portion reduces the principal. The process of paying off the principal while paying interest is called amortization.

When a homeowner begins to repay his or her mortgage almost all of each monthly payment pays for interest. This changes as the loan ages, even though the amount paid each month may not change. Each month's payment reduces the principal by a small amount, therefore less interest is owed the next month. Since less interest is owed, more of the payment can be used to reduce the principal. Gradually less of each month's payment is needed to pay interest, and more goes to reduce the principal.

For example, if a person borrows $80,000 at 8.0 percent for 20 years to buy a home, he or she will make monthly payments of about $669.15. Out of the first month's payment, about $533.33 pays interest on the principal ($80,000 × 8 percent interest per year ÷ 12 months per year = $533.33). The balance of the monthly payment, $135.82, reduces the principal. The second month's payment is based on the new principal of $79,864.18. This time, $532.43 goes toward interest ($79,864.18 × 8 percent ÷ 12 months) and $136.72 reduces the principal. The relationship between the amount of each monthly payment that goes to interest and principal changes over time. The first 13 years of a 20-year mortgage—or about two-thirds its life—pays back half the principal. During the last seven years, more and more of the monthly payment goes to reduce the principal until the debt is completely paid. At the end of the 20-year, $80,000 mortgage, the borrower will have made 240 monthly payments totaling about $160,500.

KINDS OF MORTGAGES

The two most common mortgages in the United States are the fixed-rate mortgage and the adjustable-rate mortgage. With a fixed-rate mortgage, the interest rate stays the same over the life of the loan. With an adjustable-rate mortgage (ARM), the interest rate can change at the end of pre-determined intervals, such as every six months or every year. The interest rate is tied to changes in a published index that reflects the current interest rate. One widely-used index is the interest rate of United States Treasury bonds. If the index has gone up at the end of the adjustment period, the mortgage rate goes up, and thus the borrower's payment also goes up. Conversely, if the index has gone down, the mortgage rate goes down, and the mortgage payment goes down. Neither the lender nor the borrower can influence or predict in which direction the index will move. Most ARMs have a maximum interest rate cap.

Other, less common mortgages include the balloon mortgage and the graduated payment mortgage. A balloon mortgage is a short-term loan. The borrower makes payments for some period of time and then makes one large payment at the end. The graduated payment mortgage starts out with low monthly payments, which gradually increase over time before stabilizing.

In the United States certain government programs make it easier for borrowers to obtain a mortgage by lessening the risks for the lenders. Programs administered by the Federal Housing Administration (FHA) help low- and moderate-income borrowers obtain loans for housing by providing insurance for lenders against borrower default. The borrower pays for the mortgage insurance by paying a fee to the FHA. If the borrower defaults, the FHA will compensate the lender should the house sell for less than the amount of the mortgage debt. The Veterans Administration (VA) administers programs that guarantee loans made to qualified veterans. If the borrower defaults, the VA repays the lender a specified part of the mortgage loan. Other agencies buy mortgages from lenders and sell them to investors. The money the lender receives from the sale can be used to issue additional mortgages. These agencies include the Federal National Mortgage Association (FNMA or “Fannie Mae”), the Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”), and the Government National Mortgage Association (GNMA or “Ginnie Mae”).

Adult Education

Adult Education, all forms of schooling and learning programs in which adults participate. Unlike other types of education, adult education is defined by the student population rather than by the content or complexity of a learning program. It includes literacy training, community development, university credit programs, on-the-job training, and continuing professional education. Programs vary in organization from casual, incidental learning to formal college credit courses. Institutions offering education to adults include colleges, libraries, museums, social service and government agencies, businesses, and churches.

Adult education has long been important in Europe, where formal programs began in the 18th century. For example, the Danish folk high school movement in the mid-19th century prevented the loss of Danish language and culture that a strong German influence threatened to absorb. In Britain, concern for the education of poor and working-class people resulted in the growth of adult education programs, such as the evening school and the Mechanic's Institute, to expand educational opportunities for all people. After the Russian Revolution the Soviet government virtually eliminated illiteracy through the establishment of various institutions and extension classes for adults.

In other areas of the world adult education movements are of a more recent origin. In 1960, Egypt established a “schools for the people” system designed to educate the adult population. The pattern used is similar to that developed in Britain a century ago. After many years in which the primary educational concern was with creating public school systems, in the 1970s countries in Africa, Asia, and Latin America began to increase opportunities for adult education. Innovative programs involving the mass media are being used in many countries. Tanzania, for example, has used mass-education techniques and the radio to organize national education programs in health, nutrition, and citizenship. In the 1980s, international educational exchange programs involving short-term nondegree study in specialized fields grew in popularity in the United States and many other countries.

A literate population is a necessity for any nation wishing to take advantage of modern technological growth. For instance, research has shown a direct relationship between literacy among women and improved health and child care in the family. The United Nations Educational, Scientific and Cultural Organization (UNESCO) has long supported the concept that education must be considered an ongoing process. UNESCO has encouraged literacy programs, agricultural extension, and community instruction. The low cost and flexibility of such programs make adult education suitable for many areas of the world that do not yet have formal school programs.