Definitions for "Lapse rate"
The magnitude of the decrease of an atmospheric parameter (principally pressure, temperature or moisture). For example, the standard temperature lapse rate in the lower atmosphere is 2.0° C per 1000 ft.
the decrease of temperature with height in the atmosphere. Confusingly, the opposite case, an increase in temperature with height, is known as a negative lapse rate.
Change of an atmospheric variable (temperature unless specified otherwise) with height.
The rate at which policies terminate through failure of insureds to continue paying either scheduled or minimum premiums, usually expressed as a ratio of lapses during a given period of time to the total number of policies of that type issued.
Percentage of the regular life insurance premiums relative to the mean regular in-force premium that is attributable to surrenders, conversion to paid-up policies and other premature lapses.
The percentage of policies that terminate with no value or are voluntarily surrendered each year. Because insurers typically lose money on a statutory basis in the first year a policy is in force (i.e., their mortality, reserve, expense, sales compensation, and underwriting costs are greater than the premiums they receive), they rely on renewal premiums to repay these initial costs. In most cases, if lapse rates are greater than expected, the insurer will either not recoup or delay the recoupment of it s initial excess expenses. An insurer with a low lapse rate, everything else being equal, can price its policies more competitively because it will have more margins available from the greater renewal premiums.