Early policy year lapses have dropped to a 10-year low for all individual life insurance products combined. This is driven in large part by the lower early year lapse rates on level premium term plans and the fact that, over time, they continue to represent a larger portion of the total in-force business, according to a study by LIMRA and the Society of Actuaries (SOA)
The lapse rate for whole life plans for all product types 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 period 2001 to 2002. Although first year lapse rates have increased slightly in recent years, most durations lapse rates are at levels similar to or lower than the past. 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 percentage points on a policy basis and 4.1 percentage points on a face amount basis from the 2001 to 2002 report. At the same time, term lapse rates have increased for policies in years 11 and later, reflecting the effect of shock lapse rates for level premium term. For more information, visit www.limra.com. - Reported on calbroker.com