Premium allocation describes how incoming premiums are distributed within a life insurance or annuity contract after initial charges are deducted. In variable and indexed products, allocation refers to how net premiums are directed among subaccounts, index options, or fixed accounts according to the owner's instructions. In some products, allocation strategies can be customized for accumulation versus income phases, with automatic rebalancing or dollar-cost averaging features. Premium allocation also interacts with policy charges, because cost-of-insurance and expense loads are typically drawn from the policy's accumulated value. The way premiums are allocated can significantly influence long-term performance, volatility, and risk exposure.

In real-world case design, advisors discuss premium allocation when setting up variable universal life, indexed universal life, or variable annuities. They help clients choose investment or index strategies that match their risk tolerance and time horizon, often using model portfolios. During reviews, advisors may recommend adjusting allocation to reflect market conditions, life changes, or evolving objectives such as income versus growth. Carriers provide allocation forms and online tools so owners can update their choices, sometimes with automatic rebalancing. Clear explanation of premium allocation helps clients understand that product performance is not purely guaranteed and that their choices influence both upside potential and downside risk.