What a Surrender Charge Is
A surrender charge is a fee applied if you withdraw more than the contract's free withdrawal allowance during the surrender period — designed to recoup costs the insurer incurs in issuing long-term guarantees.
How Surrender Schedules Typically Work
Surrender charges commonly start at a set percentage (often 7-10%) in year one and decline each year until reaching 0% at the end of the surrender period (commonly 5-10 years), though exact schedules vary significantly by contract.
Free Withdrawal Provisions
Many annuity contracts allow you to withdraw a limited amount each year (often 10% of contract value) without triggering a surrender charge — important to understand for partial liquidity needs.
Exceptions That May Waive Charges
Some contracts include waivers for situations like terminal illness, confinement to a nursing home, or required minimum distributions — always confirm what waivers, if any, apply to your specific contract.
Key Takeaways
- Surrender charges apply to withdrawals beyond the free withdrawal allowance during the surrender period.
- Charges typically decline each year and reach 0% at the end of the surrender schedule.
- Free withdrawal provisions and waivers vary by contract — read the specific terms before purchasing.
Surrender charge schedules, free withdrawal percentages, and waiver provisions vary significantly by carrier and contract. This is general education, not a description of any specific product's terms.
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