Which type of insurance involves overcharge in premium being returned to policyholders?

Whole life insurance is the type of insurance where any overcharge in premiums is typically returned to policyholders. This occurs because whole life insurance is designed to maintain level premiums over the policyholder's lifetime, while also providing a guaranteed death benefit and a savings component (cash value).

When the premiums are collected, they are based on assumptions about mortality and interest rates. If actual experience indicates that the premiums collected exceed the cost of providing coverage, the insurer may issue a dividend to policyholders. These dividends act as a return on overcharged premiums and are often reinvested into the policy, reduced premiums for the following year, or taken as cash.

This characteristic of whole life insurance is distinct from other types of life insurance. For instance, term insurance typically does not accumulate cash value and provides pure life coverage, while universal and variable life insurances have their own mechanisms for handling cash value and premiums that do not guarantee a return due to their investment components.