A Model for Analyzing the Impact of Selective Lapsation on Mortality

Bruce Jones

North American Actuarial Journal, 1998, vol. 2, issue 1, 79-86

Abstract: This paper presents a model for examining the effect of various relationships between mortality rates and lapse rates on the mortality experience of a cohort of insured lives. The approach is individual rather than the aggregate traditionally used in analyzing selective lapsation. The model assumes that insured lives are healthy at policy issue, but later may move to an impaired state from which the lapse rate is zero. Associated with each insured is an unobservable “risk level” random variable, which reflects the heterogeneity of the insured group. Individual mortality and lapse rates are functions of the risk level. A numerical illustration provides some interesting results obtained by using this model.

Date: 1998
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DOI: 10.1080/10920277.1998.10595677

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