Extended-Term Life Insurance
An extended term life insurance policy is a former whole life insurance policy that has become too expensive for the policyholder. You can take the accumulated cash value you paid and move it to a term life insurance policy with the same coverage amount as your whole life policy.
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Heidi Mertlich
Licensed Life Insurance Agent
Heidi works with top-rated life insurance carriers to bring her clients the highest quality protection at the most competitive prices. She founded NoPhysicalTermLife.com, specializing in life insurance that doesn’t require a medical exam. Heidi is a regular contributor to several insurance websites, including FinanceBuzz.com, Insurist.com, and Forbes. As a parent herself, she understands the ...
Licensed Life Insurance Agent
UPDATED: Dec 15, 2024
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Dec 15, 2024
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Extended term life insurance is often confused with extended property insurance.
- You can use the cash value of the permanent life policy to purchase extended term life insurance.
- Under extended term life insurance, you can still keep your whole life insurance and the death benefit without canceling a life insurance policy.
Extended term life insurance is a type of life insurance that allows you to keep the value of a whole life insurance policy and turn it into a term life policy.
However, there are special conditions that will permit you to change your whole life policy without cancelling. This short guide explains everything you need to know about term life insurance extension and the average term life insurance quotes.
What is extended term life insurance?
Affordable extended term life insurance is an option where you can take your life insurance policy’s cash value and change it to a term life policy. This option becomes available when you don’t want to cancel your permanent life (whole life) insurance policy.
Changing to an extended term life insurance policy will lower your life insurance rates when whole life insurance becomes too expensive.
Reduced Paid-Up Option
You can also get a reduced paid-up option, where you receive part of the full paid whole life insurance value.
The reduced paid-up option exclusive commissions and other expenses. Ultimately, the policyholder’s age will determine the value of the new policy. Also, the death benefit will be smaller.
Term Life Insurance
To under extended term life insurance, you need to know how term life insurance works. Term life insurance is a policy that gives you life insurance coverage for a set number of years, such as 10 years or 20 years.
The cash value of a life insurance policy is known as the coverage amount or coverage limit.
Return of Premium Rider
Term life insurance expires after the set number of years you purchased have passed. Once a term life insurance reaches the end of term, you’ll lose the policy’s cash value unless you have a “return of premium” rider.
A rider is an add-on that gives a life insurance policy extra benefits.
With “return of premium,” you can receive a portion or all the premiums you paid for during the term life policy.
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Understanding Extended Term Insurance and Its Options
What is extended term insurance? At its core, extended term insurance refers to a type of non-forfeiture option available in life insurance policies. The extended term insurance meaning revolves around using the cash value of a policy to purchase a term insurance policy, typically for a shorter duration but with the same face value as the original policy. This ensures that coverage continues for a certain period without additional premium payments. An extended term insurance example could be when a policyholder decides not to continue paying premiums but wants to maintain some level of coverage, so they opt for the extended term option. This option is beneficial for those seeking temporary coverage without additional costs. The extended term insurance definition emphasizes that it allows the policy to continue in force as term insurance after premium payments have stopped.
Comparing Extended Term Insurance with Other Life Insurance Options
The extended term cover benefit provides policyholders with a way to maintain life insurance coverage, especially in challenging financial times. The extended term insurance vs reduced paid-up comparison is common, where policyholders must decide between maintaining full coverage for a limited time or having a smaller, paid-up policy that lasts for life. While extended life insurance is an option, it may not always provide the same coverage level as before, especially when choosing the extended term insurance nonforfeiture option. This option ensures the policy doesn’t lapse entirely, allowing continued coverage for a specified period. For those seeking affordable coverage, 40 year term life insurance rates and 20 year term life insurance quotes might be appealing. Additionally, a life insurance rider that allows an individual to extend coverage or add benefits can be crucial when planning long-term financial security. Understanding how does extended term insurance work is key to making informed decisions regarding your life insurance policy, particularly when considering the extended term option life insurance.
How is extended term life insurance calculated?
Every company calculates extended term life insurance differently. The standard for calculating extended term life insurance. So, how does it work?
Let’s say you have a $250,000 death benefit on a whole life insurance policy that you can no longer afford. Your cash surrender value is $40,000.
Cash surrender value is the money accumulated during the whole life insurance policy, which may be less than the actual cash value.
If you don’t want to cancel, you can move the cash surrender value of that whole life policy into an extended term life policy without cancelling with the company.
Also, you’ll keep the $250,000 death benefit. However, the life insurance company will estimate the number of years it will take for your $40,000 cash to reach $250,000. Calculations depend on:
- The coverage amount of your policy
- Your age during the time you activated the extended term insurance
- When you move from a whole life policy to an extended term life insurance, the policy’s cash surrender value.
Weigh your options before you make a final decision. There may be a way to budget your life insurance policy. If there’s no other way, consider adding a rider for more benefits to the extended term life insurance policy.
Extended Term Life Insurance vs. Extended Coverage
If you’re doing your research, it’s essential to include “term life insurance.” Extended coverage can be confused with extended insurance coverage for the property. Regarding property insurance, extended coverage is for losses due to fire, lightning, or other uncommon disasters.
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Exploring Extended Term Options in Whole Life Insurance
When considering a whole life policy option where extended term insurance is utilized, policyholders can ensure continued coverage even after they stop paying premiums. This is often done by converting the actual cash value of whole life insurance into an extended term policy, allowing the policy to continue with the same death benefit for a limited period. For those looking to enhance their coverage, additional coverage can be added to a whole life policy by adding a(n) rider, such as an extended term rider or a decreasing term rider. These riders provide flexibility and customization to meet individual needs. For those seeking affordable whole life insurance, understanding how these options and riders work is crucial to ensuring they receive the best value from their policy. The extended term policy is especially beneficial for those who want to maintain coverage without the need for ongoing premium payments.
Balancing Coverage with Extended and Decreasing Term Insurance
When you buy a life insurance policy, considering options like the extended term provision can help secure coverage even if financial circumstances change. For example, an extended life insurance policy can provide additional protection beyond the typical terms of a standard policy, ensuring long-term security.
Additionally, understanding the benefits of an extended warranty can further enhance your coverage, providing extra protection against unforeseen circumstances.
The extended death benefit is another feature that can be added, offering peace of mind that beneficiaries will receive a payout even if the insured passes away after the policy term. In cases where affordability is a priority, buy whole life insurance and combine it with a decreasing term rider or decreasing whole life insurance to balance coverage and cost. The extended life cover meaning becomes clear when considering the extended life cover itself, which offers continued protection with potentially fewer premiums.
Does cash accumulate for an extended term life insurance policy?
No. Your term life insurance policies don’t accumulate cash like whole life policies unless you have a “return of premium” rider. However, each company has different eligibility rules, so ask questions about riders on an extended term life insurance policy.
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Pros and Cons of an Extended Term Life Insurance Policy
Here’s a list of pros and cons that comes with getting an extended term life insurance policy.
Extended Term Life Insurance Pros and Cons
| Extended Term Life Insurance Pros | Extended Term Life Insurance Cons |
|---|---|
| You keep your death benefit (coverage amount) | You lose the whole life insurance perks |
| Ensures you keep your life insurance coverage | Retirement income goes away |
| Lowers your life insurance rates per month | You can't reverse your term life insurance back to whole life |
Whole life insurance can function as a retirement plan. However, retirement savings like 401(k) come with a penalty when you need to use it.
According to the Internal Revenue Service (IRS), you can’t move retirement savings to life insurance companies, but life insurance values can be transferred to different policies and different companies.
If you move your whole life insurance to an extended term life insurance, you will lose that option to move cash value around.
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Case Studies: Extended-Term Life Insurance
Case Study 1: The Financial Adjustment
Mark, a 50-year-old professional, had been paying premiums for a whole life insurance policy for several years. However, as his financial situation changed, the premiums became increasingly burdensome.
Mark decided to explore his options and discovered extended-term life insurance. By converting his whole life policy into a term life policy, Mark was able to maintain his coverage while significantly reducing his premiums.
Case Study 2: The Retirement Planning
Lisa had been diligently saving for her retirement and had a whole life insurance policy that had accumulated a substantial cash value. As Lisa approached her retirement years, she realized that she no longer needed the high premiums associated with her whole life policy.
She opted to convert her policy into an extended-term life insurance policy, allowing her to preserve some death benefit coverage while redirecting her financial resources towards her retirement savings.
Case Study 3: The Flexibility Seeker
Mike, a 40-year-old individual, had been considering various options for his life insurance coverage. After careful evaluation, he decided to purchase a whole life insurance policy due to its lifelong coverage and cash accumulation feature.
However, a few years later, Mike found himself in a situation where he needed more flexibility and lower premiums. He chose to convert his whole life policy into an extended-term life policy, giving him the affordability and duration he desired.
Extended Term Life Insurance: The Bottom Line
Whole life insurance is more expensive than term life insurance. Transitioning from whole life to an extended term life insurance policy will make your life insurance more affordable, but you’ll lose a lot of neat perks.
However, some riders can help you get something back if you outlive your term life policy. It might be a better idea to take your cash value and go to another life insurance company.
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Frequently Asked Questions
What is extended term life insurance?
Extended term life insurance allows you to convert the cash value of a whole life insurance policy into a term life policy when the whole life policy becomes too expensive.
How is extended term life insurance calculated?
The calculation of extended term life insurance varies by company. Typically, it involves estimating the number of years it will take for the cash value of your whole life policy to reach the death benefit of the new term life policy.
Does cash accumulate for an extended term life insurance policy?
No, extended term life insurance policies do not accumulate cash like whole life policies. However, certain riders, such as a “return of premium” rider, may allow you to receive a portion or all of the premiums paid during the term.
Can extended term life insurance be compared with extended coverage?
No, extended term life insurance should not be confused with extended coverage for property insurance. Extended term life insurance refers to converting a whole life policy to a term life policy, while extended coverage in property insurance relates to additional coverage for uncommon disasters.
What are the pros and cons of an extended term life insurance policy?
Pros of an extended term life insurance policy include lower premiums compared to whole life insurance and the ability to maintain some death benefit coverage. Cons include the loss of certain benefits associated with whole life insurance and the potential need for additional riders to enhance the policy.
What does ETI mean in insurance?
ETI stands for Extended Term Insurance. It’s a nonforfeiture option in some life insurance policies that allows the policyholder to convert the policy’s cash value into term insurance with the same death benefit for a limited period, without the need for further premium payments.
What is a level term life insurance policy?
A level term life insurance policy is a type of term life insurance where the death benefit remains constant throughout the term of the policy. This means that the amount of coverage stays the same from the beginning of the policy until its expiration.
What is an extended term insurance policy?
An extended term insurance policy is a life insurance option where, instead of lapsing when premiums are no longer paid, the policy’s cash value is used to purchase term insurance with the same face value for a specified period.
What is cash value life insurance?
Cash value life insurance is a type of life insurance policy that includes a savings component, allowing the policyholder to accumulate cash value over time. This cash value can be borrowed against or used for other purposes while the policy is active.
What is decreasing term life insurance?
Decreasing term life insurance is a type of term insurance where the death benefit decreases over the policy’s term, often used to cover financial obligations that decrease over time, such as a mortgage.
What is term life insurance cash value?
Typically, term life insurance does not have a cash value component. The cash value is associated with permanent life insurance policies like whole life or universal life insurance. Term policies provide coverage only and expire without accumulating value.
What is the benefit of choosing extended term?
The primary benefit of choosing extended term insurance is that it allows the policyholder to maintain the original death benefit for a limited time after they stop paying premiums, using the policy’s cash value to purchase this coverage.
What is the benefit of choosing extended term as a non-forfeiture option?
Choosing extended term insurance as a non-forfeiture option ensures that the policyholder retains life insurance coverage for a period, even if they can no longer afford the premiums, without completely losing the policy’s value.
What type of insurance would be used for a return of premium rider?
A return of premium rider is typically added to a term life insurance policy. This rider allows the policyholder to receive a refund of premiums paid if they outlive the term of the policy.
What type of policy would offer a 40-year-old the quickest accumulation of cash value?
A whole life insurance policy would typically offer the quickest accumulation of cash value for a 40-year-old, as it combines life insurance coverage with a cash value component that grows over time.
How does cash value life insurance work?
In cash value life insurance, a portion of the premium payments is allocated to build cash value within the policy. This cash value grows over time, can earn interest or dividends, and can be borrowed against or withdrawn under certain conditions.
How does level term life insurance work?
Level term life insurance provides coverage for a specific period (the term), during which the death benefit remains unchanged. If the insured dies during the term, the beneficiaries receive the full death benefit. If the policyholder outlives the term, the policy typically expires without value.
How does whole life insurance work?
Whole life insurance provides lifelong coverage as long as premiums are paid. It includes a death benefit and a cash value component, which grows over time and can be accessed by the policyholder through loans or withdrawals.
How to calculate cash value of term life insurance?
Typically, term life insurance does not have a cash value component, so there is no calculation needed. Cash value is associated with permanent life insurance policies. For those, the cash value calculation depends on the premiums paid, the policy’s age, and the interest or dividends accrued.
How to extend term life insurance?
To extend term life insurance, policyholders can renew the policy at the end of the term (if the policy allows for renewal), convert it to a permanent policy (if conversion options are available), or purchase a new term life insurance policy. The terms of extension will depend on the original policy’s provisions.
Can term life insurance be extended?
Yes, term life insurance can be extended in several ways, depending on the policy. Some term life insurance policies offer a renewal option, allowing the policyholder to extend the coverage for an additional term, typically at a higher premium. Another option is converting the term policy to a permanent life insurance policy, such as whole life or universal life, if the policy includes a conversion clause. Alternatively, you can purchase a new term life insurance policy at the end of the current term.
Can you cash out term life insurance?
No, you cannot cash out term life insurance because term life policies do not accumulate cash value. Unlike permanent life insurance policies, which build cash value over time, term life insurance provides coverage only for a specified period and pays a death benefit if the insured passes away during that term. Once the term expires, the policy ends with no cash value remaining.
Your life insurance quotes are always free.
Secured with SHA-256 Encryption
Heidi Mertlich
Licensed Life Insurance Agent
Heidi works with top-rated life insurance carriers to bring her clients the highest quality protection at the most competitive prices. She founded NoPhysicalTermLife.com, specializing in life insurance that doesn’t require a medical exam. Heidi is a regular contributor to several insurance websites, including FinanceBuzz.com, Insurist.com, and Forbes. As a parent herself, she understands the ...
Licensed Life Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
