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Technical Product Design
- The phase in the product development process in which a product's financial structure is created.
- Also known as financial design or product design
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Cost of Benefits
For an ins or annuity product, the value of the contractually required benefits that the product promises to pay.
AKA the cost of insurance.
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Mortality
The incidence of death in a specified group of people.
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Interest Spread
Represents the element of profit that insurers hope to earn from their investment operations; found by subtracting the interest-crediting rate from the interest rate earned. AKA interest margin.
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Basis Point
1/100th of a percent, or .0001
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Model
A system that simulates something else - in product design, a system that simulates an insurance or annuity product.
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Adverse Deviation
In product operations, a difference b/t actual & assumed product values that produces a decrease in actual product profitability relative to assumed product profitability.
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Favorable Deviation
In product operations - a difference b/t actual & assumed product values that produces an increase in actual product profitability relative to assumed product profitability.
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Interest Rate
The percentage by which an amount of money is multiplied to derive the amount that is paid for the use of that money.
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Principal
The original amt of money upon which interest is calculated.
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Simple Interest
Interest that is applied only to the principal amt of an investment.
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Compound Interest
Interest earned on both the principal and accumulated interest.
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Nominal Interest Rate
The named interest rate for a particular investment.
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Effective Interest Rate
The type of interest rate that includes the effects of compounding.
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Time Value of Money
A concept which states that the value of a sum of money will change over time as a result of the effects of interest.
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Present Value (PV)
For a sum of money, the amount that, if invested at a specified interest rate on a specified date, would grow to equal a specified future amount.
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Future Value (FV)
For a sum of money, the amount that an original sum is expected to be worth at a specified future date, given a specified interest rate.
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Future Value Interest Factor (FVIF)
The future value of $1.00 at a given interest rate for a stated number of periods.
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Annuity
For the purposes of financial analysis, any series of equal payments made at regular intervals over a specified period of time.
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Ordinary Annuity
An annuity where the payments are made at the end of each payment period.
Can make more money on an annuity due, because you get the $ sooner & have longer to invest it.
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Annuity Due
annuity where payments are made at the beginning of each payment period.
more money to invest for longer
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Present Value Interest Factor (PVIF)
The present value of $1.00 discounted at a given interest rate for a stated number of periods.
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