Following on from paid-up value, most life insurance policies offer one more option when you no longer want to keep paying premiums: extended term insurance, which produces an interestingly different result.
What extended term means
You stop paying premiums, and the value accumulated in the policy is used to buy term cover instead. The sum insured stays the same, but the period of cover becomes shorter — as long as the accumulated value can buy. The exact period is shown in the policy value table in your own policy document.
How it differs from paid-up value
An easy way to remember it: paid-up value = a lower sum insured, same period. Extended term = same sum insured, shorter period. Neither requires further premiums. The difference is simply which one you would rather keep.
Who it suits
This option often suits a stage of life when obligations are still heavy — a mortgage still being paid off, or young children at home — because if something unforeseen happens during that stage, the family still receives the full original sum insured, even though the cover does not run as far as the age set out in the original contract.
What to know before exercising the option
- When the extended period ends, cover ceases with no money returned (depending on the conditions of the plan).
- Riders generally terminate, as they do with paid-up value.
- Some plans may not offer this option, or may have specific conditions. Check your policy document.
How to choose between the three options
Ask yourself which matters more right now. If you need a lump sum today, that is surrender. If you want cover that stays with you for a long time at a reduced amount, that is paid-up value. If you want to keep the full sum insured through the stage when your obligations are heaviest, that is extended term. The answer differs from person to person. Looking at the real figures in your policy value table, and talking it through with whoever looks after your policy, will make the decision much clearer.