What does surrender charge mean?

Understanding Surrender Charges in Variable Annuities

Variable annuities, a type of investment contract, provide a way to save for retirement and potentially earn a return on your investments. However, it’s important to be aware that variable annuities often come with a surrender charge.

What is a surrender charge?

A surrender charge is a fee that an insurance company or annuity provider may impose if you withdraw your money from a variable annuity before the end of the surrender period. The surrender period typically lasts for six to eight years, although it can vary depending on the annuity contract.

The purpose of a surrender charge is to discourage early withdrawals and recoup sales costs for the annuity provider. These costs can include commissions paid to financial advisors and other expenses associated with selling the annuity.

How much is the surrender charge?

The surrender charge typically decreases over the surrender period. For example, the surrender charge might be 7% in the first year, 6% in the second year, and so on. After the surrender period ends, there is usually no surrender charge if you withdraw your money.

When is a surrender charge applied?

A surrender charge is applied if you withdraw your money from the variable annuity before the end of the surrender period. This includes taking withdrawals, making loans, or annuitizing the contract.

Are there any exceptions to the surrender charge?

There are some exceptions to the surrender charge. For example, you may be able to avoid the surrender charge if you:

• Die
• Become disabled
• Enter a nursing home
• Experience financial hardship

It’s important to check the terms of your annuity contract to see if there are any exceptions to the surrender charge.

Should you avoid annuities with surrender charges?

Whether or not you should avoid annuities with surrender charges depends on your individual circumstances. If you think you may need to access your money before the end of the surrender period, then you may want to avoid annuities with high surrender charges. However, if you are confident that you will not need to access your money for several years, then a variable annuity with a surrender charge may be a good option for you.

It’s important to weigh the pros and cons of annuities with surrender charges before making a decision. Be sure to talk to a financial advisor to get personalized advice.