What is the risk associated with refund life annuities?

Refund life annuities are designed to provide a certain level of security and assurance to policyholders. The core feature of these annuities is that they guarantee the return of the initial investment, or account balance, to the beneficiaries upon the death of the annuitant. This promise of refund mitigates the risk involved, which is a significant aspect of these financial products.

When the annuitant passes away, if the total amount received through periodic payments is less than what was originally paid into the annuity, the remaining balance is refunded to the designated beneficiaries. This makes refund life annuities relatively low-risk from a financial perspective, as it ensures that no matter how long the annuitant lives, the initial investment isn't lost completely.

In comparison with the other options, it is evident they either overstated or misrepresented the risk associated with refund life annuities, as these products inherently include a protective element for the invested capital.