Just an update of how my issue got resolved.
I waited till my free license has expired and then proceeded to activate it again. The Avast interface still show the same problems, where they prompt you to choose between Avast Free Antivirus or Avast Internet Security. After selecting the free antivirus and selecting ‘No, thanks’ to the premium protection 20-day trial, it will just go back to the Status page with no further prompts.
However a few seconds later they reactivated my license for Avast Free Antivirus for another 365 days!
So basically, you would have to wait until your free license has expired before you reactivate it for another year of free antivirus.
Hope it helps!