Life & Health Insurance Exam (National Portion)Life InsuranceHard
A life insurance policy has a $200,000 face amount. The policyowner purchased a 'Return of Premium' rider for an additional $500 annual premium. After 15 years, the policyowner decides to surrender the policy. Assuming the rider is still in force, how much would the policyowner receive from the rider?
- A$7,500
- B$200,000
- C$0, as the rider only pays out upon death.
- D$15,000
Show answer & explanationAnswer & explanation
Correct answer: A. $7,500
A Return of Premium rider returns the premiums paid for the rider itself, or sometimes for the base policy, if the insured is still alive at the end of the term or if the policy is surrendered. In this case, $500 annual premium * 15 years = $7,500.
Why the other options are wrong
- B. The face amount of the policy is the death benefit, not the return from a rider upon surrender.
- C. The 'Return of Premium' rider specifically provides for a return of premiums, typically at the end of the term or upon surrender, if the insured is still living.
- D. This would be if the policy was in force for 30 years, not 15.
Return of Premium Rider
A rider typically attached to a term life policy that, upon the expiration of the term, refunds the premiums paid for the rider (and sometimes the base policy) if the insured is still alive.
- Refunds premiums if insured outlives the term.
- Can also apply upon surrender of the policy.
- Adds significantly to the premium cost.
- Not available on all policy types.
Memory trick: PREMIUMS 'P-R-E-M-I-U-M-S' returned, not the big death benefit.