What is Extended Term Insurance? A Quick Introduction

Extended term insurance is a nonforfeiture option available within certain permanent life insurance policies, like whole life insurance. It allows policyholders to utilize the accumulated cash value of their permanent policy to purchase a term life insurance policy with the same death benefit. This term policy will last for a specific period, determined by the amount of cash value available and the insured's age.

In this guide, you'll learn:

How extended term insurance works
The benefits of choosing this option
When extended term insurance might be the right choice

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John Ramsey

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Updated on

July 11, 2024

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Glossary

Extended Term Insurance

How Does Extended Term Insurance Work?

Permanent life insurance policies often accumulate cash value over time. If a policyholder decides they no longer want or need their permanent policy, they can use the accrued cash value to purchase an extended term policy. This effectively converts their permanent coverage into term coverage, ensuring that their beneficiaries will still receive a death benefit if the insured passes away within the term period.

Benefits of Extended Term Insurance

Continued Coverage: It provides continued life insurance protection, even if you can no longer afford the premiums of your permanent policy.
No Medical Exam: Typically, there is no need for a medical exam to qualify for extended term insurance, as it is based on your existing policy.
Flexibility: It offers a flexible solution for individuals who want to maintain some level of coverage without the ongoing costs of a permanent policy.

When Might Extended Term Insurance Be Right for You?

Extended term insurance can be an excellent choice if:

You need to reduce expenses: You can no longer afford the premiums of your permanent policy.
You have a temporary need for coverage: You need coverage for a specific period, such as until your children are financially independent or your mortgage is paid off.
You want to avoid surrendering your policy: You don't want to lose the cash value you have accumulated in your permanent policy.

If you are considering extended term insurance, it's crucial to understand the specific terms and conditions of your policy. Consulting with a financial advisor or insurance professional can help you make an informed decision.

If seeking a licensed professional, consider our services. Our insurance advisors and client support team are here to assist you with your insurance needs.

Conclusion

Extended term insurance is a valuable option for those seeking continued life insurance coverage without the ongoing costs of a permanent policy. Understanding how it works and its potential benefits can help you determine if it's the right choice for your financial situation.

For more insight into how this concept interacts with others, see our detailed guide on term life insurance, which further explores the various types of life insurance policies available and their respective advantages.

Extended Term Insurance FAQs:

What is the difference between extended term insurance and term life insurance?

Extended term insurance is a nonforfeiture option available within some permanent life insurance policies, while term life insurance is a standalone policy purchased separately. Extended term insurance uses the cash value of an existing permanent policy to provide coverage for a specific term, whereas term life insurance requires regular premium payments for a set period.

How long does extended term insurance last?

The duration of extended term insurance depends on the amount of cash value available in the original policy and the insured's age. It could last for several years or even decades, depending on these factors.

Can I convert extended term insurance back to a permanent policy?

Converting extended term insurance back to a permanent policy is generally not possible. Once you've exercised the extended term option, you cannot reverse the decision.