Extended-Term Life Insurance: Ensuring Your Future

How does extended-term life insurance work?

To understand the working of this insurance plan, let’s explain with the help of an example:

Let’s say someone has permanent (whole) life insurance with coverage of about $250,000. However, the policyholder has $35,000 in his cash value account and he wants to go for an extended-term insurance plan.  

The insurance provider will determine the length of time at which he wants to extend the plan. After that, they will provide some options on how the insured can convert his permanent policy. Meanwhile, note that the new coverage of the plan will be decided by: 

• The money accumulated in the insured’s cash value account. 
• The coverage term the insured wants (like 5, 10, or 20 years).
• The amount of coverage of insurance he wants. 

However, the insurer may give provide him with the following options:

• If the policyholder wants 20 years of coverage, he may get an extended-term life insurance plan of $75,000 covered by his cash value account. 
• If he needs 10 years of coverage, he may get a higher face-value term life plan. 
• But if he wants $200,000, the cash value can only cover it for five years.  

These options and considerations may vary according to the insurance company. If you are considering converting your permanent insurance plan to extended-term life insurance, determine your coverage and other options and then go for one that suits your needs. 

Advantages and Disadvantages of Extended-Term Life Insurance 

This plan could be the right choice for you if you want an insurance plan but can’t afford the high costs of permanent life insurance. Here are some of the benefits and drawbacks of extended-term insurance: 

Pros of Extended-Term Insurance 

While converting for this plan, you can consider availing following pros:

• You can keep the coverage amount or face value for longer. 
• The policy makes sure you have some type of life insurance coverage. 
• It reduces your insurance expenses by a month as the premiums are paid from the cash value account. 

Drawbacks of Extended-Term Insurance 

Some reasons to avoid this insurance plan are:

• You may lose the benefits of whole life insurance and can’t use a cash value account anymore. 
• After opting for this insurance plan, you can’t convert this term insurance into a permanent one if you want it. 

How to calculate extended-term life insurance? 

Every insurance company calculated the policy in its way. However, the standard for calculating extended-term life insurance is the same. Likewise: 

Suppose you have a whole life insurance plan of $250,000 death benefit that you can’t afford anymore. In that case, your cash surrender amount is $40,000. Cash surrender value is the amount accumulated during the insurance plan that is less than the actual cash value. 

If you don’t want to cancel the insurance plan, you are allowed to move the cash surrender value of your plan into an extended-term life policy without even canceling it. In addition, you can also keep the death benefit of your plan. Meanwhile, the insurer will determine the number of years it may take your surrender cash to reach $250,000. 

The calculations of the plan are based on: 

• The amount of coverage of your insurance plan. 
• Your age at the time of activation of the extended plan.
• The cash surrender value at the time of policy conversion. 

Before making a final decision, consider all your options. There might be an alternative way to budget your policy. But if you find no other way, then go for an extended-term life insurance plan instead of canceling it.