3.11.3 Extended Term Insurance
The extended term insurance option differs from the reduced paid-up insurance option as it does not allow the policy to continue to earn interest, increase cash value, or pay dividends (if dividends are applicable).
It does, however, allow the face amount of the policy to remain the same for a specified period of time. The policy will contain a table that illustrates the length of time the face amount of the policy will remain the same during any given surrender year.
Several factors are necessary to calculate this timeframe:
- the policy's cash surrender value;
- the age of the insured at the time premium payments cease; and
- the insured's gender.
Now, if there is a policy loan outstanding at the time the extended term option is exercised, the insurance company will first deduct the loan outstanding from the cash surrender value of the policy. The reduced cash value will then provide term coverage for a shortened period of time and for a face amount that is likewise reduced by the amount of the outstanding loan.