A partial surrender is the term used to describe withdrawing cash out of the policy as a direct “cash withdrawal” (see ”Cash Withdrawal”). Its name comes from the fact that you are surrendering a little (or maybe larger) piece of your policy when you withdraw money out of it.
When properly set up, a Whole Life insurance policy is constantly growing because of the Paid-Up Additions or PUA (see “Paid-Up Additions”) added each year. When you withdraw cash directly from your policy, you are surrendering a portion of these PUA to create the cash value to be withdrawn. The death benefit associated with these surrendered Paid-Up Additions will be reduced by an amount very likely to be greater than the amount of the cash withdrawal. This is really the only time that you will experience a decrease in the cash value balance or death benefit amount inside your policy, when money is withdrawn, or when the premiums are offset (see “Premium Offset”).
Keep in mind that once the money is withdrawn from the policy through a partial surrender, the withdrawal cannot be replaced or paid back, so the transaction is final. Once this cash is removed from the policy, it will not only reduce the cash value inside the policy, but it will also affect the future growth of the policy by reducing the amount of future dividends that will be received. Typically, we would advise accessing your money through policy loans, allowing the full amount of your money to grow over time (your advisor should be able to confirm what the best option is in your particular situation).