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Abstract
Life insurance policies assist individuals maintain the value of their money and build savings to be used in the future. However in times of crisis their attitude may change. On one hand, they have an interest in keeping their policies, as they can be used to cover their future, medium-term or long-term needs in case of retirement or death. On the other hand, they may need the premium money or the accumulated savings to meet short-term needs so they lapse or surrender them—when a surrender value exists. A natural question is what are the drivers of the behavior of the insured? When do they decide to stop them and when do they choose to maintain them? We use linear regression to identify how certain main macroeconomic variables (Gross Domestic Product (GDP) per capita growth, unemployment, inflation, short-term and long term interest rates, and consumer confidence index) can explain the behavior of the insured towards keeping or interrupting their life insurance policy. We do that for pension savings (pure and plain vanilla endowment—including pensions), term life, whole life and unit linked individual policies.
Highlights
Life insurance policies offer capital preservation and growth, as well as protection, depending on the product type
A natural question is what are the drivers of the behavior of the insured? When do they decide to stop them and when do they choose to maintain them? We use linear regression to identify how certain main macroeconomic variables (Gross Domestic Product (GDP) per capita growth, unemployment, inflation, short-term and long term interest rates, and consumer confidence index) can explain the behavior of the insured towards keeping or interrupting their life insurance policy
Whole Life We find that the withdrawal rate is positively correlated at all levels with the unemployment and negatively correlated with the GDP per capita growth at all levels, when we assume no time lag
Summary
Life insurance policies offer capital preservation and growth, as well as protection, depending on the product type. It is to the interest of the policyholders—insured to maintain them so as to achieve their goal. There are circumstances, especially periods of extended crises, under which the policyholders may decide to terminate their policies. They have to take a decision that balances their short-term cash needs with their long-term, future capital needs
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