Predictors of the hazard rate of surrender Of A universal life insurance policy (Cox proportional hazards approach)
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Date
2008-10-21
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Abstract
The study was carried out to determine the effect of some chosen predictors or covariates i.e. age, gender, premium payment options and marital status of policyholders on the hazard rate of surrender of a Universal Life Insurance policy.
In line with this objective Kaplan-Meier Estimator also known as the product limit estimator was used to compare the survival distributions for each of the different levels in each predictor and how each level in each predictor contributes to the hazard rate of surrender of this life product.
The Cox proportional hazards approach was used to select predictor(s) which significantly increase(s) the explanatory power of the model (Cox proportional hazards model) in interpreting the effects and relative hazards rate of surrender of policyholders who patronized this life product.
With each of predictors having two levels of groupings, the Kaplan-Meier estimator plots revealed that there were no significant difference between the survival times of the various levels of premium payment options and marital status but showed significant differences for that of gender and age.
The Cox proportional hazards model had age and gender to be selected as the predictors or explanatory variables which significantly contribute to the hazard rate of surrender with males hazard rate of surrendering the policy being 1.416 times that of females and similarly for age, those in the higher age bracket having a hazard rate of surrender to be 0.702 times those in the lower age bracket.
It is therefore recommended that not only should people in the higher age group and females be targets in selling this product in future but other Life Insurance products should be developed soon to see the immediate needs of males and those in the lower age bracket to reduce the number of people who surrender.
Description
A Thesis submitted to the board of Post Graduate Studies,
Kwame Nkrumah University of Science and Technology,
Kumasi, Ghana,
In partial fulfillment of the requirements for the degree of Master of Science in Mathematics, 2008