All Title Author
Keywords Abstract

Determinants of Life Insurance Policy Surrenders

DOI: 10.4236/me.2018.98089, PP. 1400-1422

Keywords: Policyholder Behavior, Insurance Policy, Lapses, Surrenders, Macroeconomic Figures

Full-Text   Cite this paper   Add to My Lib


Life insurance policies assist individuals maintain the value of their money and build savings to be used in the future. However in times of crisis their attitude may change. On one hand, they have an interest in keeping their policies, as they can be used to cover their future, medium-term or long-term needs in case of retirement or death. On the other hand, they may need the premium money or the accumulated savings to meet short-term needs so they lapse or surrender them—when a surrender value exists. A natural question is what are the drivers of the behavior of the insured? When do they decide to stop them and when do they choose to maintain them? We use linear regression to identify how certain main macroeconomic variables (Gross Domestic Product (GDP) per capita growth, unemployment, inflation, short-term and long term interest rates, and consumer confidence index) can explain the behavior of the insured towards keeping or interrupting their life insurance policy. We do that for pension savings (pure and plain vanilla endowment—including pensions), term life, whole life and unit linked individual policies.


[1]  Outreville, J.F. (1990) Whole-Life Insurance Lapse Rates and the Emergency Fund Hypothesis. Insurance: Mathematics and Economics, 9, 249-255.
[2]  Russell, D.T., Fier, S.G., Carson, J.M. and Dumm, R.E. (2013) An Empirical Analysis of Life Insurance Policy Surrender Activity. Journal of Insurance Issues, 36, 35-57.
[3]  Kim, G. (2005) Modeling Surrender and Lapse Rates with Economic Variables. North American Actuarial Journal, 9, 56-70.
[4]  Kuo, W., Tsai, C. and Chen, W.-K. (2003) An Empirical Study on the Lapse Rate: The Cointegration Approach. The Journal of Risk and Insurance, 70, 489-508.
[5]  Hwanf, Y. (2016) Empirical Analysis of Surrender Dynamics in Taiwan Life Insurance Companies. Bulletin Francais d'Actuariat, 16, 115-127.
[6]  Haefeli, D. and Ruprecht, W. (Eds.) (2012) Surrenders in the Life Insurance Industry and Their Impact on Liquidity, Risk and Insurance Economics. The Geneva Association, Geneva/Basel.
[7]  Kiesenbauer, D. (2012), Main Determinants of Lapse in the German Life Insurance Industry. North American Actuarial Journal, 16, 52-73.
[8]  Gemmo, I. and Gotz, M. (2016) Life Insurance and Demographic Change: An Empirical Analysis of Surrender Decisions Based on Panel Data. ICIR Working Paper Series, No. 24/16, 1-32.
[9]  Eling, M. and Kiesenbauer, D. (2014) What Policy Features Determine Life Insurance Lapse? An Analysis of the German Market. The Journal of Risk and Insurance, 81, 241-269.
[10]  Canadian Institute of Actuaries (2014) Lapse Experience Study for 10-Year Term Insurance. Individual Life Experience Subcommittee, Canadian Institute of Actuaries, Ottawa.
[11]  Fier, S.G. and Liebenberg, A.P. (2013) Life Insurance Lapse Behavior. North American Actuarial Journal, 17, 153-167.
[12]  Milhaud, X., Loisel, S. and Maume-Deschamps, V. (2011) Surrender Triggers in Life Insurance: What Main Features Affect the Surrender Behavior in a Classical Economic Context? Bulletin Francais d'Actuariat, 11, 5-48.
[13]  Purushotham, M. (2005) U.S. Individual Life Persistency Update, LIMRA International and the Society of Actuaries, U.S.A., Canada, United Kingdom, Australia, China.
[14]  De Giovanni, D. (2010) Lapse Rate Modeling: A Rational Expectation Approach. Scandinavian Actuarial Journal, 1, 56-67.
[15]  Valdez, E.A., Vadiveloo, J. and Dias, U. (2014) Life Insurance Policy Termination and Survivorship. Insurance: Mathematics and Economics, 58, 138-149.
[16]  Eurostat (2017).
[17]  Eurostat (2017).
[18]  OECD (2017).
[19]  OECD (2017).
[20]  OECD (2017).
[21]  World Bank Data (2017).


comments powered by Disqus