Termination Rate

What Does Termination Rate Mean?

In life insurance, the termination rate refers to the rate at which insurance policies are terminated, canceled, or allowed to lapse. This factor is one of the considerations used in determining the premiums that policyholders must pay under life and health policies. Termination rates sit alongside age, health history, and coverage type among the factors that impact the cost of your life insurance premium. In this calculation, actuaries assume that policies will be paid for a minimum period before being presumed to be terminated, in order to account for the front-end expenses associated with maintaining the policies.

Insuranceopedia Explains Termination Rate

When a policy terminates, the premiums cease, and the policy no longer provides coverage. There are several reasons a policy may terminate after it has been enforced. It can occur due to voluntary termination, such as when a policyholder loses their job and is unable to continue paying premiums, or due to death or disability. Insurers are concerned with ensuring that policies remain active and are not allowed to terminate prematurely, allowing the policyholder to enjoy the benefits of their insurance coverage until it matures. Because insurers build expected termination rates into their pricing models, this is one reason the average cost of a life insurance policy can vary so much from one applicant to the next.