Colorado Life Producer License Practice Test

What is the target premium in universal life insurance?

1. The minimum premium required to keep the policy active

2. The recommended amount to cover the insurance costs

3. The amount that accumulates cash value

4. The maximum premium allowed

The correct answer is: The recommended amount to cover the insurance costs

In universal life insurance, the target premium is defined as the recommended amount to cover the insurance costs associated with the policy. This premium is aimed at ensuring that the policy remains in force while also supporting the expected growth of cash values. The target premium is not mandatory; policyholders can pay more or less than this amount, but consistently paying the target premium helps to maintain the intended benefits and ensures that the policy remains adequately funded over time. This insight is crucial for policyholders as it indicates the level of contribution they should ideally make to match the cost of insurance, administration, and other associated charges to promote the growth of cash values in the long term. While minimum premiums are essential for the policy's survival, the target premium serves a strategic purpose beyond mere maintenance. Understanding this relationship allows policyholders to make informed decisions about their contributions, ensuring that they are adequately preparing for their future financial needs.