Target Premium
The recommended premium amount for universal life insurance policies that's designed to keep the policy in force and maintain the desired death benefit. This amount typically covers insurance costs, administrative fees, and builds cash value at a moderate pace.
Example
“John's universal life policy has a target premium of $300 monthly, though he can pay anywhere from the minimum $150 to maximum $1,500 depending on his financial situation.”
Memory Tip
Think of target premium as the 'bullseye' payment amount - not too little, not too much, but just right to hit your insurance goals.
Why It Matters
Paying the target premium helps ensure your policy remains in force throughout your lifetime while building predictable cash value. Paying less than target premium over time can cause your policy to lapse, leaving you without coverage when you need it most.
Common Misconception
People often think they must pay the target premium every month, but universal life policies offer flexibility. However, consistently paying below target premium will eventually deplete the policy's cash value and cause it to terminate.
In Practice
Sarah's $500,000 universal life policy has a target premium of $400 monthly. She pays $300 some months and $500 others, averaging $375 over three years. Her cash value grows to $12,000, and her policy remains strong because her average payments stayed close to the target amount.
Etymology
The term combines 'target,' meaning an intended goal or objective, with 'premium,' from Latin 'praemium' meaning reward or prize, reflecting the intended payment amount to achieve policy goals.
Common Misspellings
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