Persistency in Life Insurance: Safeguarding Your Protection Over Time
Definition and Meaning
Persistency in life insurance refers to the likelihood that insurance policies issued by a company will remain active and not lapse, cancel, or be replaced by another insurer’s coverage. It is a critical factor in underwriting because it reflects the stability and longevity of the insurer’s business.
Etymology and Background
The term “persistency” derives from the Latin word “persistens,” meaning “continuing steadfastly.” In the context of insurance, persistency reflects the policyholder’s commitment to maintaining their policy over time. A high persistency rate indicates that customers value and continue their policies, reflecting trust and satisfaction with their insurer.
Key Takeaways
- Financial Stability: Persistency shows an insurer’s ability to retain customers, which is essential for long-term financial health and profitability.
- Consumer Trust: High persistency rates often indicate strong customer trust and satisfaction.
- Pricing and Profitability: Persistent policies contribute to better pricing models and increased profitability for insurers.
- Underwriting Insight: Persistency is a vital metric for underwriters to assess risks and forecast future claims.
Differences and Similarities
Differences:
- Retention: While persistency focuses on maintaining active policies, “retention” specifically pertains to keeping existing policies during renewal periods.
- Attrition: Opposite of persistency; measures the rate at which customers leave.
Similarities:
- Both metrics focus on the continuity of business and customer relationships.
- Both are indicators of financial health and customer satisfaction.
Synonyms and Antonyms
Synonyms:
- Continuation
- Retention
- Durability
Antonyms:
- Lapse
- Cancellation
- Attrition
Related Terms with Definitions
- Retention: The ability of an insurance company to keep existing policies active.
- Attrition: The rate at which customers discontinue their policies with an insurer.
- Policy Tenure: The duration a policy remains active from inception to termination.
Frequently Asked Questions
What is a good persistency rate for a life insurance company?
A persistency rate above 90% is generally considered excellent for life insurance companies.
Why is persistency important in underwriting?
Persistency allows underwriters to better predict long-term claims and assess the overall risk associated with issuing policies.
Question and Answer
Why do policyholders lapse their life insurance policies?
Policyholders may lapse their policies due to financial difficulties, better offers from other insurers, or losing trust in the current insurer.
Exciting Facts
- Insurers often offer incentives and benefits to encourage policyholders to maintain their coverage.
- Persistency not only affects profitability but also regulatory compliance and the company’s reputation.
Quotations from Notable Writers
“Persistency is to the business of insurance what air is to humans—essential yet often unnoticed.” — A fictitious notable writer, John Everlasting
Proverbs
“A bird in hand is worth two in the bush.”
Humorous Sayings
“Persistency in life insurance is like a good sock: highly underrated until you don’t have one!”
Government Regulations
Persistency heavily influences regulatory assessments of an insurer’s financial health and adherence to industry standards set forth by governing bodies such as the NAIC (National Association of Insurance Commissioners).
Suggested Literature and Other Sources for Further Studies
- “Principles of Life Insurance” by Joseph M. Belth
- “Life Insurance and Its Applications” by Solomon S. Huebner
- “Underwriting in Life and Health Insurance” by Robert Wingfield, Jim Kewel, Richard E. Bryant.
Thank you for diving into the world of insurance with me. Keep your coverage close and your benefits closer!
— Caroline Swift
