What is a potential consequence of taking distributions from a VUL policy?

Taking distributions from a Variable Universal Life (VUL) policy can indeed reduce both the death benefit and the cash value. When a policyholder withdraws funds from a VUL, the insurance company typically deducts that amount from the cash value component of the policy. This reduction in cash value means that there is also a corresponding reduction in the death benefit if the policy is structured so that the death benefit is tied to the cash value.

Furthermore, it’s important to understand that in a VUL policy, the cash value is invested in various sub-accounts and can fluctuate based on market performance. As a result, by taking withdrawals, not only is the immediate cash value reduced, but there is also the potential for long-term impacts on the investment account’s growth, which can affect both the cash value and the death benefit.

This reflects a key aspect of VUL policies: withdrawals can have significant implications for the coverage and financial planning aspects, emphasizing the need for policyholders to consider their choices carefully.