insurance

Target Premium

The recommended premium amount for universal life insurance policies designed to keep the policy in force and optimize the cash value growth. It's higher than the minimum premium required but represents the ideal funding level for policy performance.

Example

“Although the minimum premium for Jake's universal life policy was $200 monthly, his agent recommended paying the target premium of $350 to ensure adequate cash value growth.”

Memory Tip

Target premium is like a bullseye - it's the center you should aim for to hit optimal policy performance, not the minimum required.

Why It Matters

Paying target premiums helps ensure your universal life policy won't lapse unexpectedly and maximizes the policy's potential for cash value accumulation. Understanding this amount helps policyholders budget appropriately and avoid underfunding their coverage.

Common Misconception

Many policyholders think paying the minimum premium is sufficient for long-term policy success, but this often leads to policy lapses as costs of insurance increase with age. Others believe target premiums are fixed when they actually may need adjustment based on policy performance and changing circumstances.

In Practice

Sarah's $500,000 universal life policy has a minimum premium of $300 monthly and a target premium of $475 monthly. If she pays only the minimum, rising insurance costs may exhaust her cash value by age 75. By paying the target premium, her policy is projected to maintain $50,000 in cash value at age 85 while keeping the full death benefit in force throughout her lifetime.

Etymology

Combines 'target,' from the Old French 'targette' meaning a small shield or goal to aim for, with 'premium,' reflecting the optimal funding level policyholders should aim for in flexible premium policies.

Common Misspellings

target preminumtargt premiumtarget premuimtaget premium

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