What is the face amount of the new term policy if an insured cancels a $50,000 whole life policy and exercises the extended term option with a cash value of $20,000?

In a situation where an insured cancels a whole life policy and chooses to exercise the extended term option, the cash value of the policy is utilized to purchase a new term policy. The face amount of the new term policy typically equals the face amount of the original whole life policy minus any outstanding loans, if applicable.

In this case, the original whole life policy has a face amount of $50,000, and the cash value available for the extended term option is $20,000. Since the extended term option allows for the retention of the original policy's face amount, the insured would receive a term policy with a face amount of $50,000.

Understanding that the extended term option allows the insured to maintain the same face value as the original whole life policy is vital here. Therefore, the new term policy, by exercising this option, retains a face amount of $50,000.