Life Insurance and Demographic Change: An Empirical Analysis of Surrender Decisions Based on Panel Data

ICIR Working Paper Series No. 24/2016

33 Pages Posted: 24 Aug 2018 Last revised: 26 Jan 2019

Date Written: December 13, 2016


Households buy life insurance as part of their liquidity management. The option to surrender such a policy can serve as a buffer when a household faces a liquidity need. In this study, we investigate empirically which individual and household specific sociodemographic factors influence the surrender behavior of life insurance policyholders. Based on the Socio-Economic Panel (SOEP), an ongoing wide-ranging representative longitudinal study of around 11,000 private households in Germany, we construct a proxy to identify life insurance surrender in the data. We use this proxy to conduct fixed effect regressions and support the results with survival analyses. We find that life events that possibly impose a liquidity shock to the household, such as birth of a child and divorce increase the likelihood to surrender an existing life insurance policy for an average household in the panel. The acquisition of a dwelling and unemployment are further aspects that can foster life insurance surrender. Our results are robust with respect to different models and hold conditioning on region specific trends; they vary however for different age groups. Our analyses contribute to the existing literature supporting the emergency fund hypothesis. The findings obtained in this study can help life insurers and regulators to detect and understand industry specific challenges of the demographic change.

Keywords: Demographic Change, Life Insurance Surrender, Liquidity Shock

JEL Classification: G22, J12

Suggested Citation

Gemmo, Irina and Goetz, Martin Richard, Life Insurance and Demographic Change: An Empirical Analysis of Surrender Decisions Based on Panel Data (December 13, 2016). ICIR Working Paper Series No. 24/2016 , Available at SSRN:

Irina Gemmo

ETH Zurich

Zürichbergstrasse 18
Zürich, 8032

Martin Richard Goetz (Contact Author)

Goethe University Frankfurt ( email )

Theodor W Adorno Platz 4
Frankfurt, 60323

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