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A policy lapsation model

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  • Varde, Varsha S

Abstract

Lapsation of a life insurance policy is discontinuation of premium payment by the policy holder during the period of operation of the policy, due to any reason other than the death of the policy holder. The length of life of a lapsed policy can be defined as the period between the month when the last premium instalment was paid and the month the policy was issued. In India, the acceptance of a proposal for life insurance necessitates administrative processes which, together with the agent's commission and medical charges, cost the Life Insurance Corporation almost the whole of the first year's and a major part of the second year's premium. Early lapses, therefore, pose a major financial problem to the Corporation. In this study, the pattern of early policy lapses was empirically investigated with a view to formulating a model for the lapsation phenomenon. It has been realized that the phenomenon is not amenable to any simple statistical model due to an inherent stratification in the population of lapsed policies.

Suggested Citation

  • Varde, Varsha S, 1976. "A policy lapsation model," Omega, Elsevier, vol. 4(3), pages 331-338.
  • Handle: RePEc:eee:jomega:v:4:y:1976:i:3:p:331-338
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