Target Premium: Universal Life (UL) products are defined as such by their ability to accept flexible premium payments, which are set by the agent/broker and/or the trustee/grantor, and which can vary between the contractual minimum premium set by the insurer and the TEFRA Guideline Maximum Premium allowable under the Definition of Life Insurance (DOLI). Given this premium flexibility, insurers generally set a target premium equal to the annual premium amount needed to endow policy cash values in an amount equal to the policy face amount, and thus make policy death benefits permanent based on the insurer's current actuarial expectations as to mortality experience and operating expenses, and based on the historical performance for the asset classes underlying policy cash values. This target premium amount is thus analogous to the insurance premium (i.e., the premium required to cover expected cost of insurance charges and policy expenses). Premiums paid in excess of the target premium are considered "excess premium" (i.e., premiums in excess of the amount needed to sustain the life insurance death benefit) and are thus generally intended in increase the policy cash value (i.e., the policy investment account). As such, premiums paid up to the insurance premium are often subjected to insurance loads/expenses to cover expenses unique to the insurance component of the policy, while premiums paid in excess of the target premium are often subjected to lower investment loads/expenses on cash values intended to accumulate like an investment.
TEFRA: The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 provided a statutory definition of life insurance for flexible premium (i.e., Universal Life) products that limited the amount of premium per dollar of death benefit and required at least a minimum amount of pure risk coverage in order to be treated as life insurance for income tax purposes under IRC §101 (i.e., tax-free death benefits).
Term Life Insurance: Temporary insurance that provides life insurance protection for a specified time period. Death benefits are payable only if the insured dies during the specified period. If a loss does not occur during the specified term, the policy lapses and provides no further protection. All premiums are retained by the insurance company. Typically, term insurance premiums do not have a savings component; thus, term insurance does not usually create cash value.
Tobacco Use: A health indicator insurers use to describe a policy buyer’s use of tobacco products. (Also see Nonsmoker, Never Smoked, and Smoker).