What does the extended term option utilize if the original policy is terminated?

The extended term option allows a policyholder to use the cash value accumulated in their original life insurance policy to purchase a term insurance policy for a specified period. This option comes into play when the original policy is terminated due to non-payment or if the policyholder decides to stop the policy.

By converting the cash value to buy a new term policy, the policyholder can maintain some level of life insurance coverage without needing to requalify for health underwriting or making additional premium payments. This provides an effective way to preserve some benefits of the original coverage, ensuring that beneficiaries are still protected for a time even after the original policy has been discontinued.

The other options focus on unrelated concepts: increased benefits based on dividends are more associated with participating whole life policies, the immediate payment of a death benefit typically pertains to active policies or policies that are in force, and a cash refund for unused premiums is not standard practice in life insurance, as premiums are generally considered earned once paid.