What are the potential consequences of early withdrawals from a Variable Life Insurance policy?

Early withdrawals from a Variable Life Insurance policy can lead to potential surrender charges and tax implications, which is why this option is the correct choice. When an insured decides to withdraw funds from their policy before a certain period, they may face surrender charges, which are fees deducted from the cash value of the policy. These charges can diminish the overall cash value or death benefit of the policy.

Additionally, withdrawals can have tax implications because gains in the policy, which can be considered as income, may be subject to income tax if the amount withdrawn exceeds the premiums paid into the policy. This means that while the policy allows for withdrawals, doing so can have financial repercussions that policyholders need to carefully consider.

Other options provided do not accurately represent the consequences associated with early withdrawals. For example, guaranteed withdrawal privileges without penalties would not typically apply to policies that allow early access to funds. There are often restrictions and potential penalties involved. Similarly, stating that there are no implications as long as the policy is active overlooks the complexities of the financial impacts associated with withdrawals. Finally, increased policy benefits after withdrawal contradicts the nature of withdrawals, which typically reduce the overall value of the policy rather than enhance it.