Open a whole life or IUL illustration and somewhere on it you'll find a line called target premium. Most people read it as a recommendation, the carrier's opinion of what you ought to pay. That's a reasonable read. It's also the wrong one, and for cash value the difference matters more than almost anything else on the page.
Target premium is the carrier's number, not yours. It marks the premium level the carrier uses to benchmark agent compensation and cover its own internal expenses. Pay up to the target and the selling agent generally earns full commission on those dollars. Pay above it and the extra dollars usually carry much lighter compensation. Useful information. But notice what it doesn't measure: how well the policy builds cash value.
I like to say every dollar has a job. In a target-heavy design, most of your premium dollars take a job inside the base policy, where costs and compensation live, and your early cash value shows it. In a cash value design the base stays as small as the carrier allows, which keeps the target small too, and the rest of your money goes in as paid-up additions that buy cash value nearly dollar for dollar. Same money leaving your checking account. Very different balance ten years in. If you've wondered why early cash value lags in some policies, this is a big part of the answer.
None of this makes target premium a trick. Carriers have to price their costs somewhere, and agents should be paid for real design work. The point is knowing which job each number does. Target premium measures compensation. The guideline and MEC limits measure how much the IRS lets you put in. A funding plan should be built off that second set of numbers, and our design page shows what that looks like in practice.
A policy funded hard toward the legal limit has to stay on the right side of the MEC line, or loans and withdrawals lose their usual tax treatment. And dividends, where a policy pays them, aren't guaranteed. Both belong in the design conversation before anything gets signed.
This week's LIFE Pod episode covers target premium in conversation form if you'd rather hear it than read it. When you're ready to act on it, Build a Life LOC picks up where this post leaves off.