Partial withdrawals (universal life only) result in which of the following?

• A. Partial withdrawals have no effect on the death benefit.
• B. Partial withdrawals cause the policy to lapse.
• C. The cash value decreases but death benefit remains the same.
• D. The death benefit is permanently reduced.

Answer: (D)

In universal life, the death benefit and the cash value are connected parts of the policy. When you take a partial withdrawal, you’re removing cash value from the policy. That reduction in cash value means there are fewer funds available to support the death benefit, so the amount paid at death is decreased by the withdrawal amount. Since withdrawals are taken from the accumulated value, that decrease in the death benefit is permanent unless additional funds are added to restore it.

For example, if the policy’s death benefit is 500,000 and you withdraw 50,000 from the cash value, the death benefit is reduced by that 50,000 (assuming the policy structure uses cash value to support the death benefit). The cash value drops accordingly, and the death benefit remains lowered going forward.