Extended Term Insurance is not another form of Insurance as many people think but it is an option in a Whole Life Insurance Policy.For those who don’t know what a Whole Life Insurance Policy is that it gives a death benefit and a cash value based upon fixed premiums that is paid by the customer.Unlike Term Insurance,Whole Life Insurance has both a Cash Value Benefit and a Death Benefit.The Cash Value is paid to the insured in case that he does not die during the term of the policy.In Term Insurance there is no such Cash Value Amount that is paid.This is the reason that Whole Life Insurance is more expensive that Term Life Insurance.
How Extended Term Life Insurance came into Being
One of the frequent features of a Whole Life Insurance is that customers fail to pay premiums during the Policy Term due to some Financial Loss or Other Reasons.What used to Happen in that Case was that the Insurance Company would get the Cash Value of the Policy while the Death Benefit would continue if there was sufficient Cash Value to cover the Premiums.Now what happens is that there is a Nonforfeture Policy.In This Policy Option the Cash Value instread of being forfeited gets converted into an extended Term INsurance.If there is Cash Value left in the Whole Life Insurance Policy it goes into extendeding the Policy into an exteneded number of years.
What is Extended Term Insurance Nonforfeiture Clause
An Extended Term Insurance Non-forfeiture clause is designed to allow the insured to receive the benefits on the premiums that were paid on a whole life insurance policy, if the insured missed any premium payments which results in the policy becoming null.
How is Extended Term Insurance Calculated
Extended Term Life Insurance is Calculated using the Net Cash Value left in the Whole Life Insurance Policy
Net Cash Value = Cash Value of the Policy – Debt Raised against the Policy – Administrative Charges in Conversion
These Net Cash Value is then converted into a Single Premium which extends the Term Insurance of the Policy.The Tenure of the Extended Term Insurance depends on
a) The Age of the Insured
b) The Net Cash Value Amount
What are the Conditions of Extended Term Life Insurance
There are some conditions for the Extended Term Life Insurance to become activated
a) It usually involves some period in which the Insurance Policy has been in effect and one or more premiums has been paid
b) The Life Insurance Policy should not have been surrendered for cash earlier
c) The Face Value of the Insurance Policy remains the same.For example if you were insured for $100,000 you cannot have it increased to $150,000
Also Read about the advantages and disadvantages of buying life insurance
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