Annuity Surrender Charges Explained

As the case with contract goes, breaking any of the clauses would bring about different unfortunate circumstances. The same thing happens when you surrender your annuity earlier than you should. Any form of violation of the contract would require you to pay certain charges. For this reason, it is best if you understand the different repercussions that you would have to face if you break the agreement that you and your broker originally agreed upon. 

There are two ways that you can break your annuity contract and be required to pay the surrender charges. Make sure that you guide yourself against taking these steps in order to avoid paying for the fees as well.

For one, you need to ensure that you wait for the right time before you withdraw any amount of money from your agreement. If you look at your agreement’s fine print, you would find out how long you would have to wait before you will be allowed to get your money legally. You need to adhere to the set timeframe in order to avoid having to pay the surrender charges.

You may also be fined for withdrawing your money too often or too many times. Again, the ways in which you may withdraw your funds, as of the frequency and the over-all nature of the withdrawal, will be stated in the agreement. You stand the chances of getting charged if you withdraw too many times, if you empty your account too fast, or if you withdraw amounts that are beyond your allowed limit.

Companies often allow their clients a certain number of free withdrawals, which are usually formulated based on the initial amount that was invested. If you go past the number of free withdrawals that you are allowed, you will pay a surrender penalty.

In general, annuity surrender charges usually fall around the small percentage of the amount that the client received from the withdrawal. Generally, the percentage that one will be charged for usually goes down the longer the account is held. This is why it will be best for you to wait for the allowed time before you withdraw anything from your account. Wait for as long as possible in order to avoid any form of fine due to breaking your agreement.

Annuities are best suited for long term investors.  Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax.  Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time.  Any guarantees on principal invested are based upon the claims paying ability of the underlying insurance company.