What Is Extended Term Insurance?

Extended term insurance transforms the cash value of your permanent life insurance policy into term life coverage, extending your protection for a set period without further payments.

To activate the extended term nonforfeiture option, a policyholder must have enough cash value in the life insurance policy to fund the new term coverage. This keeps the death benefit unchanged from the original permanent life insurance, continuing the policyholder's coverage.

Your cash value funds the extended term coverage, keeping the death benefit consistent with the original coverage terms.

Here are the advantages and limitations of extended term life insurance to help you decide if it fits your needs and financial goals.

"Extended term insurance" and "extending term life insurance" sound similar but mean completely different things. Extended term insurance is a nonforfeiture option that turns your permanent policy's cash value into term coverage. You keep your full death benefit without paying premiums.

Extending term life insurance means renewing or converting your existing term policy when it expires. Term policies don't qualify for extended term insurance because they have no cash value. Term policyholders must either renew at higher rates, convert to permanent coverage or let the policy expire.

A nonforfeiture clause prevents you from losing your policy's value when you can't afford premiums anymore. You keep some benefits, either through reduced coverage or by accessing your cash value.

Extended term life insurance is one of these nonforfeiture options. You convert your permanent policy into term life insurance using whatever cash value you've built up.

Your insurer looks at two things to calculate your extended term coverage: how much cash value you have and how old you are when you convert. Your cash value becomes a single prepaid premium for term insurance.

The term length depends on your age. Older policyholders pay more per year for term coverage, so their cash value doesn't last as long. A 50 year old with $20,000 in cash value might get 15 years of coverage, while a 70 year old with the same amount might only get seven years. Your age directly affects the annual cost of term coverage.

Extended Term Cost Factors

Most insurers calculate your extended term coverage during application. Five factors determine how long your coverage lasts:

• Your current age (older policyholders have shorter coverage periods)
• Cash value amount (higher balances extend coverage longer)
• Original policy death benefit amount
• Health class from your original policy
• Interest rates used in policy calculations

Although extended term life insurance offers a valuable solution for maintaining coverage during financially restrictive times, it may not be suitable for everyone. People seeking long-term security without the need to monitor cash value accumulation or those who can comfortably afford ongoing premiums might prefer other types of life insurance policies that provide permanent coverage without the need for conversion.

Your best nonforfeiture option depends on what you need right now. Cash surrender gives you money immediately. Paid up insurance cuts your death benefit but lasts forever. Extended term keeps your full death benefit but only for a limited time.

• Cash Surrender Value: This option allows you to cancel your policy and receive the accumulated cash value as a lump sum. It works best for people needing immediate cash access who are willing to give up future coverage. The cash surrender value usually equals less than the total premiums paid but provides substantial immediate funds.
• Paid-Up Insurance: This option reduces your policy's death benefit to a level your existing cash value can support without further premiums. This option suits people wanting lifelong coverage but unable to continue paying premiums. You maintain smaller coverage indefinitely without additional costs.
• Automatic Premium Loan: Some policies offer automatic premium loans that use cash value to pay premiums when you miss payments. This keeps your original policy active longer but reduces available cash value and death benefit by the loan amounts plus interest.

Extended term insurance is a nonforfeiture option available within permanent life insurance policies accumulating cash value. This feature allows policyholders to use the accumulated cash value to purchase term insurance, continuing life coverage without further premium payments.

Extended term insurance helps when you can't afford your permanent life insurance premiums anymore.

We answer common questions about extended term insurance and how it works:

Permanent life insurance with nonforfeiture options matters most when financial setbacks threaten your ability to pay premiums. Extended term insurance works best for policyholders who've built substantial cash value but can't afford premiums anymore, so we focused on insurers offering strong permanent policies with flexible nonforfeiture options and clear conversion processes.

We collected 1,488 life insurance quotes from national carriers selling permanent policies with extended term options. Our analysis compared costs across different ages, health profiles and cash value scenarios to show you how extended term calculations change over time.

Five factors determine each insurer's MoneyGeek score out of 100. Affordability counts for 30%, financial stability for 25%, buying process for 20%, customer satisfaction for 15% and product diversity for 10%. Companies earn up to five points per category.

Affordability: We got online quotes for whole life and universal life policies that include extended term nonforfeiture options. Permanent policies cost more upfront but build the cash value that funds extended term coverage later.

Financial stability: We combined AM Best ratings with years in business. Your extended term coverage depends on your insurer staying financially sound years or decades after you stop paying premiums, so we weighted financially stable companies higher.

Buying process: We scored insurers on online tools, payment flexibility and access to clear policy documents. Converting to extended term insurance requires straightforward processes and responsive customer service. Companies with confusing conversion procedures scored lower.

Customer satisfaction: We used the National Association of Insurance Commissioners (NAIC) complaint index from 2020 to 2022. We looked specifically for complaint patterns about policy conversions and nonforfeiture option disputes.

Product diversity: Insurers offering multiple permanent policy types with flexible nonforfeiture options (extended term, reduced paid up insurance and cash surrender) scored higher than companies with limited choices.

Our sample policyholder: 40 year old male, nonsmoker, 5 feet 11 inches tall, 175 pounds, excellent health. We changed age, gender, height, weight, tobacco use, health rating and location to model extended term calculations for different policyholders.

Why age matters in our analysis: We collected quotes for permanent policies with varying coverage amounts, then calculated how long extended term coverage would last based on projected cash value at ages 50, 60 and 70. A 50 year old with $30,000 in cash value might get 20 years of term coverage. That same $30,000 only buys a 70 year old about eight years of coverage because annual term costs increase with age.