What is target premium?
Target premium is the carrier-set amount of premium on a permanent life policy that full first-year commission is paid on. Premium above it — excess premium — pays a much lower rate, often a few percent. It is why two policies with identical total premium can pay very different commission.
This catches people out on IUL and universal life constantly. A client funds a policy well above target because it is better for them, and the producer is surprised at the commission, because only the target portion paid at the full rate.
It is not a trick — overfunding genuinely is often the right advice, and the commission structure is disclosed. But it means commission and client outcome are not aligned by default on these products, which is worth being conscious of rather than discovering later.
| Total annual premium | $12,000 |
|---|---|
| Target premium | $4,000 |
| Commission on target at 90% | $3,600 |
| Excess $8,000 at 3% | $240 |
| Total first-year commission | $3,840 |
Illustrative. Target premium and excess rates are set by the carrier per product.