What effect do withdrawals have on a Variable Life Insurance policy?

Withdrawals from a Variable Life Insurance policy decrease both the cash value and the death benefit. When a policyholder withdraws funds, it directly reduces the amount of cash value that is available within the policy. Since the death benefit is typically tied to the cash value, any withdrawal will also reduce the total death benefit that will be paid out to beneficiaries upon the policyholder's death.

In the context of Variable Life Insurance, the death benefit can be structured in various ways, such as a level or increasing death benefit. Regardless of the structure, withdrawals generally diminish the overall benefits of the policy. It's important to understand that these withdrawals are not loans; they are reductions in the policy values, thus impacting both the cash accumulation component and the eventual payout upon death.

Understanding this mechanism is crucial for policyholders, as they need to be aware of how their decisions to withdraw funds affect their policy's overall value and the financial security it provides to their beneficiaries.