Extended Term Life Insurance
There are many cases in which people buy whole life insurance, but they are unable to continue paying for it for their whole life due to financial losses or any other reason. Failure to pay the premiums leads to the cancellation of the policy, and the insurer gets no benefit. To avoid this situation, there is a nonforfeiture option on whole life insurance called Extended Term Life Insurance.
Extended Term Life Insurance uses the accumulated cash value of whole life insurance to buy term insurance for the existing whole life death benefit for a specific period of time. This does not change or alter the face amount of the policy; rather, only the policy changes to an extended-term insurance policy.
How does extended term life insurance work?
The policy option for extended term life insurance varies from company to company, but they all generally fall close to each other. Extended-term life insurance is only an option if you are already a carrier of whole life insurance and due to some reason, you can no longer pay the premiums, but you also wish to acquire your death benefit.
The insurance company calculates your accumulated cash value and specifies the term length. The exact number of years is decided by keeping in mind the death benefit amount, your age at that time, and the amount of the cash value. Once the extended term life insurance is opted, you can not revert to whole life insurance. All the cash value accumulated is used up for buying the term life insurance, and no future accumulation is done once the policy is shifted to term life insurance.
Also Read : Open care final expense plans
What are the pros and cons of Extended term life insurance?
Extended-term life insurance is definitely a savior of your death benefit in tough financial times. It saves you your coverage amount and keeps your insurance policy alive even after you have missed out on your premiums. Extended-term life insurance works as a peace of mind that covers you in a desperate time of financial need.
However, switching to extended-term life insurance takes away some benefits of the whole life insurance, such as there is no cash value accumulation. So, if you were planning to use the cash value after your retirement, extended-term life insurance disrupts the plan. Moreover, once opted, the option is generally irrevocable. Therefore, even if you get financially stable later in your life, you can not resume whole life insurance.