How does the Target Premium function in a life insurance policy?

The Target Premium in a life insurance policy serves as a guideline that indicates the amount of premium a policyholder should ideally pay to ensure that the policy remains in force until maturity. This means that if a policyholder pays the Target Premium, they are likely to maintain sufficient cash value and coverage without running the risk of the policy lapsing due to insufficient funding.

By specifying the premium required to guarantee the policy, the Target Premium helps policyholders understand how to balance the premium payments with their financial situation and coverage needs. It is important to note that, while other premium amounts can typically be paid (such as a lower premium, albeit with the risk of policy lapse), the Target Premium establishes an optimal level that promotes the longevity of the policy through its lifetime.

This distinction clarifies the functionality of the Target Premium in supporting the policy's value and ensuring it serves its intended protective purpose until it matures.