Colorado Life Producer License Practice Test

A Return of Premium (ROP) term life policy is typically written as which type of term coverage?

1. Decreasing term

2. Level term

3. Increasing term

4. Renewable term

The correct answer is: Increasing term

A Return of Premium (ROP) term life policy is typically associated with level term coverage. This type of policy provides a death benefit that remains constant throughout the life of the policy. The unique feature of an ROP policy is that if the insured outlives the term, they are entitled to receive a refund of the premiums paid during that period. In the context of level term coverage, the premium remains the same for the entire term, offering predictability in budgeting for the policyholder. The ROP feature enhances the appeal of a level term policy by adding a savings aspect, motivating individuals to consider this option over other types of term life insurance that do not provide a premium refund. Decreasing term policies, on the other hand, have a death benefit that decreases over time, making them less suitable for the ROP concept. Increasing term policies feature a growing death benefit, which does not align with the static nature of premium refunds. While renewable term policies allow the insured to renew coverage after the initial term without re-evaluation, they do not inherently involve the return of premiums. Thus, level term is the most appropriate choice for this type of policy.