A refund policy is a kind of warranty. Don't set up a return policy if you can't vouch for the durability and quality of the product. I use to tell customers to make use of refund policy in my business because I know what I put in and sure the quality is good.
This is practically the reason why I believe that for you to work on a very good refund policy, you must make sure that the conditions and terms will always favor having your business products in a very good condition for it to be returned.