Extended-Term Life Insurance

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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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.

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.

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.

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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