Can I stop paying and keep the contract, and what are reduced paid up and extended term?

How it works

Both routes spend the accumulated value on coverage instead of on cash. One buys a smaller amount that lasts for life, the other keeps the amount you have and puts a clock on it. Which is available is written in the non forfeiture section of your contract.

The cost or the catch

reviewed annually, never guaranteed

The dividend scale, and what rests on it

1. 01The assumptions used to set what is credited
2. 02Set by the insurer's board of directors
3. 03Reviewed annually and never guaranteed
4. 04Every non-guaranteed figure on an illustration rests on it

The word normally does a lot of work here. Once either election is made the original design is over: the payments cannot simply be resumed, and the coverage does not come back. Ask for both figures in writing, beside what continuing would cost.

What to ask before choosing

Regulation 306 of the Income Tax Regulations

The exempt test, and what it decides

1. 01A policy is measured against a notional benchmark. What does that decide?
2. 02It accumulates without annual taxationThe policy passes.
3. 03It is taxed each year on accrued incomeThe policy fails.

Asking the insurer to illustrate both options side by side, with the same assumptions for each, makes it possible to compare what each path would actually produce rather than choosing from a verbal description. This request can be made in writing and insurers typically respond within a few weeks. Requesting those figures matters because the risks in a participating contract are already limited to a known set, covered in what can actually go wrong.

Keeping this answer in writing with the other contract documents avoids having to ask for it again if the question comes up several years later. Those documents should also show who is named as beneficiary, since in Quebec why a spousal designation is irrevocable can limit what you are later free to change.

Step by step: how the two options are actually calculated

When the owner elects reduced paid up or extended term, the insurer takes the contract's accumulated value on that date and uses it as a single premium to purchase whichever option was chosen, applying the guaranteed cost of insurance rates for the insured's attained age rather than the age at the original issue. Reduced paid up produces a smaller amount of permanent coverage requiring no further premium; extended term keeps the current face amount in force for a fixed number of years determined by how long that value can support coverage at the insured's present age. Only the insurer's own administration system, not a sales representative, performs this calculation, drawing on the non forfeiture table filed with the contract.

The two resulting figures are not comparable without seeing both side by side: reduced paid up typically produces a materially smaller death benefit than extended term drawn from the same starting value, while extended term stops entirely once its term expires, at which point no coverage at all remains regardless of how long the original policy had been in force. The choice trades a smaller permanent amount against a larger but temporary one, and that trade only makes sense once both figures are seen together against whatever purpose the original coverage was meant to serve.

What varies by insurer and by contract

both failures come from one decision

How this goes wrong, named in advance

1. 01Early surrender, when the costs fall heaviest
2. 02Lapse while an advance is still outstanding
3. 03A taxable gain arriving with no cash to pay it
4. 04Funding a contract the household cannot sustain
5. 05Drawing on the contract without ever repaying

Every insurer files its own non forfeiture table with its regulator, so the same accumulated value sitting on two contracts from two different companies will not produce identical reduced paid up or extended term figures, and neither will two contracts issued by the same company in different years, since the table applied is the one that was current at each contract's own issue date. Some older contracts, particularly those issued decades ago, spell out both options explicitly in the policy wording itself; newer designs often route the same calculation through current administrative practice instead, arriving at a comparable result by a different path.

Whether either option is even available depends on how long the contract has been in force and how much value has actually accumulated. A contract still in its early years, before meaningful value has built up, may hold too little to convert into either option in a way that produces coverage worth keeping at all, and this is a fact the insurer's own non forfeiture table determines contract by contract, not a general rule that applies the same way across every policy on the market.

Who this affects most, and who it does not

five steps, and you may stop at any of them

From first conversation to a contract in force

1. A thirty minute discovery meeting, with no products
2. The suitability record a licence requires before advice
3. A design meeting, guarantees shown separately
4. Application and underwriting, decided by the insurer
5. An annual review once the contract is in force

This matters most to someone genuinely unable to continue premium payments, for reasons ranging from job loss to a change in family income, who still wants some form of permanent protection left in place, since the alternative to electing one of these two options is usually a lapse that ends coverage entirely with nothing kept back. It also matters to an older contract holder for whom new coverage priced at today's age and health would be markedly more expensive or simply unavailable, which makes the value already accumulated the only realistic source of continuing protection going forward.

It matters less to someone whose circumstances are only temporarily strained and who can reach one of the alternatives to skipping a payment altogether, such as directing declared amounts toward the premium or requesting an automatic advance, set out in what happens if a premium payment is missed, since those routes can preserve the original design rather than ending it for good.

What this does to a loan or a rider already in place

A policy loan outstanding at the time reduced paid up or extended term is elected typically reduces the single premium available to purchase the new benefit, since the insurer nets the loan against the accumulated value before applying it. A contract carrying a loan will not convert to as large a reduced paid up amount, or as long an extended term, as the same contract without one, and whatever paid-up additions the contract had already purchased are generally absorbed into the new arrangement rather than kept as a separate benefit alongside it. Any rider providing coverage on a different basis, such as one covering another life on the same contract, typically ends when the base contract's premium paying design ends.

Anyone weighing either option while a loan is outstanding should ask the insurer for the net figure after that loan is applied, not the gross accumulated value shown on an older statement, since the two numbers can differ meaningfully and only the net figure describes what will actually be available to purchase reduced paid up or extended term coverage on the date requested.

What this page will not tell you

This page does not calculate what a specific contract's reduced paid up or extended term figures would actually be, since that number belongs to the insurer's own administration system and depends on the accumulated value on the date requested, not a formula a reader could apply from a general description found here. It also does not say which of the two choices suits a specific household's estate or income planning, a question that depends on facts only the household and its own professional advisors hold.

A Financial Security Advisor can request both illustrations from the insurer and lay them out for comparison, but cannot decide on the household's behalf which trade between a smaller permanent amount and a larger temporary one fits its own goals. The advisor requesting these figures is compensated by commission on contracts placed, though neither of these two options by itself generates a new commission, a fact worth keeping in view when weighing how any conversation about them is framed.