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In this paper, we study the impact of product and policyholder characteristics on lapsation of life insurance policies. We take the data on lapsation for life insurance product categories including 'Traditional' and 'Unit-linked' products for an investor database of 2967 contracts during the period 2008-2011. We extend existing literature by considering some new explanatory variables related to product and policyholder characteristics like dependency, occupation, gender, education, marital status and outstanding premium. Using logistic regression model, we investigate lapsation rates in Indian life insurance business. We find that product characteristics i.e. sum insured, product type, outstanding premium, mode of payment, policy duration, and outstanding policy duration, and policyholder characteristics, like age of the policyholder, occupation, dependency, and marital status, are significant determinants of lapsation. This paper displays a better depiction of the lapse drivers and will help insurance companies and other intermediaries to understand lapsation.
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