Peter over at Dungeon Fantastic posted a response to my previous post, Level Drain, detailing the ways he handles the effect in GURPS. It's a good read.
In short, he doesn't touch anything like levels or character points, because they're a meta-concept that doesn't exist inside the game-world, and while it works very well to scare the players, it also helps to drag them out of the world into the space of treating it as a game instead of an experience.
Instead, for lasting effects he applies disadvantages to the characters.
I've puzzled it over, and I have to agree I think it's a superior system. While I don't really care about it being a dissociated mechanic (a term Peter gives good grounds for), all things being equal, I'd prefer keeping them from my game if they don't serve some further purpose.
However, what strongly moved me to his camp where the following considerations:
First, disadvantages are baked-in to GURPS already, meaning I don't have to kludge together another mechanic or a mimic for something from somewhere else; instead I can use a native piece, which always feels smoother. As a corrolary to this, I don't have to make up new spells to reverse level drain or glom that effect onto an extant spell.
Second, removing character-points in play seems like it could be a serious pain for the player and the table at large. Levels are fairly easy - you know what comes with your character's level, and you peel that back - but character points involve choices, and choices take time, especially choices you don't want to make.
Third, this gives a good way to differentiate my level-draining undead from each other. Maybe wights confer the Wounded disadvantage, whereas Wraiths confer Hemophilia. Of course, the nastiest forms of undead confer some complex, like Epilepsy and Draining.
Now I'll have to think over what sorts of undead confer what sorts of disadvantages, and how to work with multiple hits (maybe Wounded turns into Slow Healing and then Unhealing and finally -1HT if you get hit several times), but that's a good puzzle. Overall, it's an elegant solution to the problem.