Under what circumstance does the Extended Term option apply?

The Extended Term option is a feature often found in whole life insurance policies that allows the policyholder to convert the policy's cash value into a term insurance policy for the same face amount as the original policy. This option becomes applicable when the policyholder chooses not to continue paying premiums, but still wants to maintain some level of life insurance coverage using the cash value accumulated in the policy.

When selecting this option, the cash value acts as a premium for the new term policy, enabling coverage for a specified time frame instead of simply losing the policy due to non-payment of premiums or other reasons. This serves to provide a continuation of coverage, albeit in a different format, which can be beneficial for the insured as they transition from whole life insurance.

Other choices are not correct as they do not accurately describe the circumstances in which the Extended Term option is utilized. For example, canceling the policy would terminate coverage altogether, and the cash value would not be used to extend life insurance benefits. Reaching retirement age does not inherently trigger the Extended Term option, as this pertains more to policy ownership and premium payment decisions. Missing premium payments typically leads to a lapse in coverage unless other options or provisions are activated.