How Return Affects the Decision to Surrender a Savings Insurance Policy: Detailed Observations on the Reverse Disposition Effect

Abstract

The disposition effect has been widely studied in academia, while the reverse disposition effect observed in mutual funds has gained relatively little attention. This study examines the reverse disposition effect in detail by using policy-level data from a Finnish life insurer with a considerable sample size. The results show that the Finnish savings policies with a positive return have a surrender rate that is over 30 percent lower than that of policies with a negative return. Tax incentives and expected future returns do not seem to cause this reverse disposition effect directly. Salient information strengthens the reverse disposition effect, and higher policyholder age and surrender fees weaken it. These empirical findings deepen the understanding of the reverse disposition effect.

Keywords: Behavioral finance, Disposition Effect, Reverse Disposition Effect, Life insurance, Surrender behavior

JEL Classification: G110, G400, D140