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Researchers Find Low Life Lapse Rates For Oldest Insureds

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Consumers who buy life insurance when they are ages 70 or older are very likely to keep their policies.

Researchers at LIMRA International, Windsor, Conn., and the Society of Actuaries, Schaumburg, Ill., have quantified lapse rates for consumers of all ages in a new study based on 2003 and 2004 data from 43 individual life writers.

“For all individual life insurance products combined, early policy-year lapses have dropped to a 10-year low,” Marianne Purushotham and Nancy Muise, LIMRA product researchers, write in the study, “U.S. Individual Life Persistency Update.”

Lapse rates have dropped even faster for policies with bigger death benefits than they dropped for all policies, the researchers write.

In the universal life market – a market that is popular with life settlement firms – the overall lapse rate for all policy years combined declined to 4.6% in 2003-2004, from 5.3% in 2001-2002.

The 2003-2004 UL lapse rate was only 2% for policies issued to consumers ages 70 and older, and the lapse rate was 10% for policyholders with an attained age of 70 or older.

When broken down by issue age, the highest lapse rate for UL coverage was 24%, for policyholders who were ages 30 to 39 at the time a policy was issued.

When broken down by the age attained at the time a policy lapsed, the highest attained-age lapse rate was 23%, for policyholders with an attained age of 50 to 59.

Although the consumers who buy UL policies at ages 70 and older are the most likely to keep the policies, the attained-age category with the lowest rate was the 20-29 category, with a lapse rate of just 8%.

For variable universal life plans, the overall lapse rate has fallen to 5.7% on a policy basis, from 8.5% in 2001-2002, and to 6.4%, from 8.8%, on a face amount basis.

Although the VUL lapse rate is down from the 2001-2002 lapse rate level, it still has not fallen to the lows recorded in the mid-1990s, the researchers report.

Older VUL policyholders are especially likely to keep their policies.

For VUL policyholders with issue ages 70 and older, the lapse rate is only 1%, and the lapse rate is 4% for VUL insureds with an attained age of 70 or older.

The highest VUL issue-age lapse rate is 31%, for insureds ages 30 to 39, and the highest issue-age lapse rate is 28%, for insureds ages 40 to 49.

For term life products, the lapse rate fell to 7%, from 10.2%, on a policy basis, and to 6.2%, from 10.3%, on a face amount basis.


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