Termination Rate

Published: | Updated: October 14, 2017

Definition - What does Termination Rate mean?

In life insurance, termination rate refers to the rate at which insurance policies are terminated, cancelled or permitted to lapse. This factor is one of the considerations taken in the determination of the premiums to be paid by policyholders under life and health policies. In this computation, actuaries assume that the policies are to be paid for a minimum period before they are presumed to be terminated to account for the front-end expenses in keeping the policies in the books.

Insuranceopedia explains Termination Rate

When a policy terminates, the premiums are stopped and the policy stops providing coverage. There are a number of reasons a policy terminates after it is enforced. It can be by voluntary termination, as when a policyholder loses his job and cannot continue paying his premiums, or by death or disability. Insurers are concerned that policies continue to be paid and are not allowed to terminate to enable the policyholder to enjoy the benefits of their insurance coverage up to their maturity.

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