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Explaining Whole Life Insurance Lapse Rates

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  • Joseph M. Phillips Jr.
  • Barry B. Schweig
  • James P. Scott

Abstract

In the 1970s there was a sharp rise in whole-life insurance policy voluntary termination rates. This paper argues that the rise of the lapse rate can be attributed to a fundamental shift in consumer insurance buying habits. Specifically, it is argued that whole-life insurance policies have been replaced by other insurance products and in some cases life insurance has been dropped in favor of other financial investment. These developments are tied to the deregulation of the entire financial sector and the resulting proliferation of competitive investment instruments. … This hypothesis is tested in a multiple regression model with annual data from 1965 to 1982. The model considers some of the traditional explanations of policy terminations, such as changes in the inflation rate, in interest rates, or in the level of economic activity. The results show that when other factors are accounted for, there is still a significant upward trend in the lapse rate over the time period studied.

Suggested Citation

  • Joseph M. Phillips Jr. & Barry B. Schweig & James P. Scott, 1985. "Explaining Whole Life Insurance Lapse Rates," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 8(2), pages 32-40.
    • Handle: RePEc:wri:journl:v:8:y:1985:i:2:p:32-40
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