Target premium

Target premium is a figure the insurer calculates for each universal life policy, based on the insured's age, sex, rate class and face amount. Its main use is commissions: agents typically earn a high first-year commission on premiums up to the target and a much lower rate on anything paid above it. Surrender charges are also often tied to the target premium.

Target premium is different from the minimum premium needed to keep the policy in force and from the planned premium the owner chooses to pay. Hypothetically, a policy with a $5,000 target might pay the agent a commission equal to most of that $5,000 in year one but only a few percent on any additional premium. That's why cash value-focused designs that overfund a policy often use the smallest face amount the tax rules allow: a lower target means more of each dollar goes to cash value rather than commission.

For buyers, the target is useful context rather than a promise. Paying exactly the target doesn't guarantee the policy will last, which depends on crediting rates, charges and any secondary guarantee. Ask the agent how the target compares with the premium you plan to pay and how commissions work. See how life insurance agents are paid and how universal life insurance works.