What Is Extended Term Insurance and Who Should Buy It?

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 accrued enough cash value in the life insurance policy to fully fund the new term coverage. This keeps the death benefit unchanged from the original permanent life insurance, continuing the policyholder's coverage.

The cash value in life insurance provides the funding needed so that, after the extended term life nonforfeiture option is chosen, the available insurance remains consistent with the original coverage terms.

A nonforfeiture clause in life insurance protects policyholders from losing their policy's value if they cannot continue making premium payments. These clauses offer a safety net, allowing the policyholder to retain some benefits in the form of reduced coverage or accumulated cash value.

The extended term life insurance nonforfeiture option is a common choice under this clause. It allows policyholders to convert their permanent life insurance into term life insurance using the accumulated cash.

To calculate costs for extended term insurance, insurers use the accumulated cash value of the permanent life policy and factor in the insured's age at the time of conversion. This provides coverage continuation without new premium payments.

Insurers apply the total cash value as a pre-paid premium for the term insurance, which directly determines the term's duration. The insured's age influences the cost per year of term coverage, establishing how long the cash value can maintain the policy.

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.

Understanding the advantages and limitations of extended term life insurance is important for policyholders considering this option. This will help determine whether this feature is suitable for their needs and financial goals.

Extended term insurance is just one of several nonforfeiture options for life insurance policyholders wishing to preserve coverage despite financial challenges. Each option offers distinct benefits and trade-offs, so evaluate personal needs and future plans when considering nonforfeiture alternatives.

• Cash Surrender Value: This option allows policyholders to cancel their policy and receive the accumulated cash value as a lump sum. It's best for those who need immediate access to cash and are willing to forego future coverage. The cash surrender value of life insurance is usually less than the total premiums paid but can provide substantial cash when needed.
• Paid-Up Insurance: Choosing paid-up insurance means reducing the policy's death benefit to a level that the existing cash value can support without further premiums. This option is preferable for those who want to maintain lifelong coverage but cannot continue paying premiums. It allows the policyholder to maintain a smaller amount of coverage indefinitely without additional costs.

Choosing the right nonforfeiture option depends on individual financial circumstances and coverage goals. While cash surrender provides immediate liquidity, paid-up insurance offers a reduced yet permanent safety net and extended term insurance provides continued coverage for a set term without ongoing costs.

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.

The extended term insurance nonforfeiture option provides a solution for individuals experiencing financial changes that impact their ability to maintain regular premium payments on a permanent life policy.

Explore common questions about extended term insurance to understand how this nonforfeiture option can benefit you and fit your insurance needs.

Why Trust MoneyGeek? We analyzed 1,488 life insurance quotes alongside customer satisfaction ratings, financial stability reports, product offerings and more to determine the best life insurance companies for a variety of needs. 

Recency
Coverage costs and company information for life insurance providers were updated in 2025.

Methodology

MoneyGeek created a scoring system to compare life insurance companies across five categories and ranked them based on their scores. We chose to review these companies based on their broad national coverage and ability to provide an online quote. 

MoneyGeek’s Scoring System

In our unique scoring system, companies can earn up to five points in each category. We then use these category scores to calculate an overall MoneyGeek score out of 100. We applied the following weightings to score insurers:

• Affordability: 30%
• Financial Stability: 25%
• Buying Process: 20%
• Customer Satisfaction: 15%
• Product Diversity: 10%

Each company’s score incorporates the following:

• Cost data obtained through online quotes
• Financial strength ratings from AM Best and number of years in business
• Customer satisfaction data from the National Association of Insurance Commissioners (NAIC) customer complaint index (we reviewed annual complaint data from 2020 to 2022, the most recent year available)
• Availability of tools to aid in the buying process, such as online product materials and multiple payment options
• Diversity of life insurance products offered 

Sample Customer Profile

• MoneyGeek used a standard profile to obtain life insurance quotes:
• 40-year-old male
• Nonsmoker
• 5 feet 11 inches tall and 175 pounds
• Excellent health rating

Premiums are based on the standard profile unless otherwise noted.

We modified the profile by age, gender, height, weight, tobacco use, health rating and geographic location to collect a variety of quotes and determine the best life insurance company for several types of customers. We also collected quotes for term life insurance with varying term lengths and coverage amounts.

We identified trends in the data set and used those patterns to calculate projections and extend the data beyond what was initially collected.