Overall lapse rates for whole life plans were down in 2003 and 2004, according to a joint study sponsored by LIMRA International, Windsor, Conn., and the Society of Actuaries, Schaumburg, Ill.
And, according to the recently released study, titled 'U.S. Individual Life Persistency Update,' consistent with past studies for permanent insurance products, lapse rates are generally decreasing as issue age increases. However, the differences become smaller and the pattern less consistent over time, according to the study authored by Marianne Purushotham and Nancy Muise, LIMRA product researchers. The study represents more of the market and gathered data of more depth than in previous years, says Catherine Theroux, a LIMRA spokesperson.
By product
The study of 43 individual life insurance writers found that the overall lapse rate for whole life plans for all products and policy years combined was 3.5% on a policy basis and 4.4% on a face amount basis in 2003 and 2004, down from 3.9% and 5.8% respectively for the 2001-2002 time frame.
Total lapse rates for term insurance for all products and all policy years combined was 7% on a policy basis and 6.2% on a face amount basis, a decrease of 3.2% on a policy basis and 4.1% on a face amount basis from the 2001-2002 report, according to the report.
"Shock" lapse rates for level premium term products after the end of the guaranteed level premium period ranged from an average of 14% for 5-year term to 40% for 10-year level premium term and 30% for 15-year level premium term on a policy basis.
The overall lapse rate for universal life products for all policy years combined declined to 4.6% from 5.3% in 2001-2002. There has been a modest reduction in lapse rates at all policy durations versus the 2001-2002 timeframe, the study says. And, the overall lapse rate for variable universal life plans covered by the current study was 5.7% on a policy basis (down from 8.5% during calendar years 2001-2002) and 6.4% on a face amount basis (down from 8.8% during calendar years 2001-2002). Lapse rates have reduced from levels seen during 2001-2002, but have not decreased to levels that were seen in the mid-1990s.
By age
Although lapse rates are generally decreasing with age, the study reports there is one exception: policies on individuals under the age of 20. This group, according to the study, has lapse experience more in keeping with the age 30-39 and 40-49 groups, possibly a reflection of older adult family members paying the premium, adults with different perspectives on keeping a policy in force.
Attained age whole life exposure was greatest in the 70+ age group which represents 24% of the total policies exposed. That group was followed by the 50-59 age group with a 20% exposure and the 60-69 age group with a 17% exposure. Exposures were lower for younger age groups as witnessed by the following attained age results: under 20, 7%; 20-29, 6%; 30-39, 10%; and, 40-49, 16%.
By issue age, whole life exposures were reversed, with younger ages making up the greatest percentage of the policies.
