Extended Term Insurance
A non-forfeiture option in permanent life insurance that converts the policy's cash value into term life insurance. This provides temporary death benefit protection for a specific period without requiring premium payments.
Example
“When Robert lost his job, he used extended term insurance to convert his whole life policy's $8,000 cash value into 10 years of term coverage.”
Memory Tip
Extended Term = Extending Time with your insurance - you're trading cash for more time with death benefit protection.
Why It Matters
Extended term insurance prevents total loss of life insurance protection when financial hardship makes premium payments impossible. It provides a bridge during difficult periods, maintaining some death benefit coverage for beneficiaries without ongoing costs.
Common Misconception
Many policyholders think stopping premium payments on permanent life insurance means immediate loss of all benefits. Extended term insurance actually provides continued death benefit protection, though for a limited time period based on the available cash value.
In Practice
A 45-year-old man has a $100,000 whole life policy with $12,000 cash value but can no longer afford the $200 monthly premiums. Using extended term insurance, the $12,000 cash value purchases approximately 8 years of $100,000 term coverage with no further premiums required. This maintains his family's financial protection through age 53, giving him time to improve his financial situation.
Etymology
Developed in the early 1900s as life insurance regulators required 'non-forfeiture' options to protect policyholders who could no longer afford premiums on cash value policies.
Common Misspellings
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Related Terms
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See Also
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