Colorado Life Producer License Practice Test

What is Return of Premium life insurance?

1. A policy that pays dividends to holders

2. A policy that pays an additional death benefit equal to premiums paid

3. A policy that has no premiums at all

4. A regular term insurance that pays nothing upon expiration

The correct answer is: A policy that pays an additional death benefit equal to premiums paid

Return of Premium life insurance is a type of term life insurance policy that provides a unique benefit to the policyholder. If the insured individual outlives the term of the policy, they will receive a return of the premiums they paid over that term. This option offers a financial safety net, as it effectively refunds the total premiums to the insured if they do not pass away during the coverage period. This can make the policy feel more like a savings account in addition to providing life insurance protection. In contrast, other types of policies mentioned do not offer this feature. For instance, typical term life insurance policies provide only a death benefit if the insured dies within the term but return no money after the term ends. Additionally, a policy with no premiums at all would not be feasible, as life insurance requires a payment mechanism for the coverage provided. Therefore, the uniqueness of Return of Premium life insurance lies in its dual role as both a protective measure and a potential savings mechanism, marking it distinctly different from the other insurance options.