Long-term care first principles modeling: Lapse assumptions

In this article, Milliman consultants discuss issues related to developing healthy life lapse rates using a long-term care (LTC) first principles model. As noted throughout the article, the common assumption that the ultimate total life lapse rate reaches a constant level produces an increasing healthy life lapse rate by duration. Alternatively, if the healthy life lapse rate remains constant once it reaches an ultimate level, that would imply that the total life lapse rate continues to decrease over time. The article also examines how mortality and lapse assumptions interact and the importance that developing an appropriate mortality assumption can have on setting lapse rate assumptions.

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