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Life insurance and demographic change: An empirical analysis of surrender decisions based on panel data

Listed author(s):
  • Gemmo, Irina
  • Götz, Martin

Households buy life insurance as part of their liquidity management. The option to surrender such a policy can serve as a buffer when a household faces a liquidity need. In this study, we investigate empirically which individual and household specific sociodemographic factors influence the surrender behavior of life insurance policyholders. Based on the Socio-Economic Panel (SOEP), an ongoing wide-ranging representative longitudinal study of around 11,000 private households in Germany, we construct a proxy to identify life insurance surrender in the data. We use this proxy to conduct fixed effect regressions and support the results with survival analyses. We find that life events that possibly impose a liquidity shock to the household, such as birth of a child and divorce increase the likelihood to surrender an existing life insurance policy for an average household in the panel. The acquisition of a dwelling and unemployment are further aspects that can foster life insurance surrender. Our results are robust with respect to different models and hold conditioning on region specific trends; they vary however for different age groups. Our analyses contribute to the existing literature supporting the emergency fund hypothesis. The findings obtained in this study can help life insurers and regulators to detect and understand industry specific challenges of the demographic change.

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File URL: https://www.econstor.eu/bitstream/10419/149631/1/877550328.pdf
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Paper provided by Goethe University Frankfurt, International Center for Insurance Regulation (ICIR) in its series ICIR Working Paper Series with number 24/16.

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Date of creation: 2016
Handle: RePEc:zbw:icirwp:2416
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  1. Andre P. Liebenberg & James M. Carson & Randy E. Dumm, 2012. "A Dynamic Analysis of the Demand for Life Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(3), pages 619-644, 09.
  2. repec:eme:jrfpps:v:14:y:2013:i:2:p:392-413 is not listed on IDEAS
  3. Nadine Gatzert & Gudrun Hoermann & Hato Schmeiser, 2009. "The Impact of the Secondary Market on Life Insurers' Surrender Profits," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(4), pages 887-908.
  4. Alicia Adsera, 2006. "An Economic Analysis of the Gap Between Desired and Actual Fertility: The Case of Spain," Review of Economics of the Household, Springer, vol. 4(1), pages 75-95, 03.
  5. Alícia Adserà, 2004. "Changing fertility rates in developed countries. The impact of labor market institutions," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(1), pages 17-43, February.
  6. Outreville, J. Francois, 1990. "Whole-life insurance lapse rates and the emergency fund hypothesis," Insurance: Mathematics and Economics, Elsevier, vol. 9(4), pages 249-255, December.
  7. Xavier Milhaud & Stéphane Loisel & Véronique Maume-Deschamps, 2011. "Surrender triggers in life insurance: what main features affect the surrender behavior in a classical economic context?," Post-Print hal-00450003, HAL.
  8. Martin Eling & Dieter Kiesenbauer, 2014. "What Policy Features Determine Life Insurance Lapse? An Analysis of the German Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(2), pages 241-269, 06.
  9. Weiyu Kuo & Chenghsien Tsai & Wei-Kuang Chen, 2003. "An Empirical Study on the Lapse Rate: The Cointegration Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 489-508.
  10. Dan Andrews & Aida Caldera Sánchez, 2011. "The Evolution of Homeownership Rates in Selected OECD Countries: Demographic and Public Policy Influences," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-37.
  11. David T. Russell & Stephen G. Fier & James M. Carson & Randy E. Dumm, 2013. "An Empirical Analysis of Life Insurance Policy Surrender Activity," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 36(1), pages 35-57.
  12. Martin Eling, 2013. "Research on lapse in life insurance: what has been done and what needs to be done?," Journal of Risk Finance, Emerald Group Publishing, vol. 14(4), pages 392-413, August.
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