Final answer:
The target premium for a universal life policy is set to ensure that the policy remains active by covering all associated expenses, which allows for the maintenance of the death benefit and growth of the policy's cash value.
Step-by-step explanation:
The purpose of establishing the target premium for a universal life policy is to keep the policy in force. The target premium is the amount of money that needs to be paid into a universal life insurance policy to cover all policy expenses, which include the cost of insurance itself, administrative fees, and any other costs associated with keeping the policy active.
This ensures that the policy will continue to provide the death benefit protection and will also maintain the policy's cash value growth over time.
The target premium is not specifically designed to accumulate cash value faster or to pay up the policy faster, but rather to make sure that the policy's costs are met, which can indirectly lead to a faster accumulation of cash value if the premiums paid exceed the cost of insurance and expenses.
The purpose of establishing the target premium for a universal life policy is to cover all policy expenses.
This includes not only the cost of providing death benefits to the insured's beneficiaries but also the administrative costs of running the insurance company and leaving room for the company's profits. The target premium is calculated based on actuarial tables that take into account factors such as the insured's age, health, and life expectancy.
By setting the target premium at an appropriate level, the insurance company can ensure that the policy remains in force and that all expenses are covered.