South Carolina Life Insurance Practice Exam

What best defines the target premium in a universal life policy?

1. The maximum premium allowed

2. An estimate of the necessary premium

3. The minimum premium required

4. The average premium charged

The correct answer is: An estimate of the necessary premium

The target premium in a universal life policy is defined as an estimate of the necessary premium that the policyholder should pay to keep the policy in force and meet the outlined benefits over the long term. This premium is designed to cover the costs of insurance, administrative expenses, and to contribute to the cash value growth of the policy. It's not intended to be the maximum or minimum amount, but rather a suggested guideline to ensure that the policy remains effective and continues to provide the desired coverage while allowing the policyholder to maintain financial flexibility. This estimate allows policyholders to understand how much they should ideally contribute to achieve the best outcomes for their coverage and cash value accumulation. By adhering to this target premium, individuals can better manage their policy while still having the option to pay more or less depending on their financial situation in any given year, within the flexibility that universal life policies typically provide.