Surrender Period

AAA

DEFINITION of 'Surrender Period'

The amount of time an investor must wait until he or she can withdraw funds from an annuity without facing a penalty. Surrender periods can be many years long, and withdrawing money before the end of the surrender period can result in a surrender charge, which is essentially a deferred sales fee. Generally, but not always, the longer the surrender period, the better the annuity’s other terms.

INVESTOPEDIA EXPLAINS 'Surrender Period'

After the surrender period has passed, the investor is free to withdraw the funds without being subject to a fee. Some annuities have no surrender period and therefore no surrender fees. A typical annuity might have a surrender period of six years, and a surrender fee that starts at 6% and decreases by 1% each year.

If you purchased a $10,000 annuity in 2010 with these terms and closed your annuity in 2013, which is during the third year of the surrender period, you would pay a fee of 4% of $10,000, or $400. The surrender period would end in 2017, at which point you could withdraw your $10,000 without paying a surrender fee. To avoid possible surrender fees, you should not put money into an annuity that you might need to withdraw during the surrender period.

If you make additional investments or premium payments to the annuity, there may be a separate surrender period for each investment. Suppose you paid $5,000 into an annuity in 2012 and another $5,000 in 2013. Again, assume a six-year surrender period with a 6% fee that declines by 1% each year. If you withdrew the entire $10,000 in 2014, you would be in year 2 of the surrender period on your first $5,000 investment, so your fee would be 5%, or $250, but you would only be in year 1 of the surrender period on your second $5,000 investment, so your surrender fee would be 6%, or $300, for a total surrender fee of $550 to withdraw your $10,000.

VIDEO

Loading the player...
RELATED TERMS
  1. Values

    The worth of a nonforfeiture clause that specifies that an insured ...
  2. Surrender Rights

    A right to cancel an annuity or life insurance contract in exchange ...
  3. Surrender Charge

    A fee levied on a life insurance policyholder upon cancellation ...
  4. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
  5. Surrender Fee

    A charge levied against an investor for the early withdrawal ...
  6. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
RELATED FAQS
  1. What are the main differences between a Registered Retirement Income Fund (RRIF) ...

    A Registered Retirement Income Fund (RRIF) is a tax-advantaged plan that allows investors the benefit of tax-deferred growth ... Read Full Answer >>
  2. Is it wise to put an IRA account into a fixed or variable annuity?

    The answer to this depends on an individual's investment goals, requirements and risk tolerance. During the 1990s, the majority ... Read Full Answer >>
  3. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ... Read Full Answer >>
  4. What are the distribution options for an inherited annuity?

    Distribution options will vary depending if you are the surviving spouse or someone other than the surviving spouse. If you're ... Read Full Answer >>
  5. My variable annuity account took a beating. Should I seek other alternatives?

    This depends on several factors, you should ask yourself, the insurance company, or your adviser the following questions ... Read Full Answer >>
  6. Should I pull my money out of an annuity if the insurance company is having financial ...

    If an insurance company is having financial problems, you don't necessarily have to pull your money out of the annuity. Even ... Read Full Answer >>
  7. If I roll my annuity into an IRA and receive after-tax distributions, will this be ...

    Distributions of after-tax amounts (amounts already taxed) will not be taxable when distributed to you. However, you will ... Read Full Answer >>
  8. I want to purchase a five-year period certain single premium immediate annuity (SPIA) ...

    The income from a SPIA IRA is subject to the early distribution penalty unless an exception applies. As you may know, the ... Read Full Answer >>
  9. I am retiree, drawing from my 403(b) annuity. I am the sole employee of my own business. ...

    It depends. If your business is unincorporated, and you have net earnings from self-employment, you are eligible to establish ... Read Full Answer >>
  10. What do you do for a non-spouse beneficiary receiving a required minimum distribution ...

    Unfortunately, a non-spouse beneficiary is not allowed to rollover assets from a qualified plan. Therefore, purchasing an ... Read Full Answer >>
Related Articles
  1. Taxes

    The Tax Benefits Of Having A Spouse

    Check out the perks designed to promote and preserve your post-work savings - if you're married, that is.
  2. Personal Finance

    Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  3. Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  4. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  5. Options & Futures

    Break Out Of Annuity Prison

    Annuities offer security but also lock up your cash. The secondary market could be your key.
  6. Options & Futures

    Taking The Bite Out Of Annuity Losses

    If this investment product has caused you sleepless nights, it's time to consider alternatives.
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  9. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  10. Professionals

    Are Longevity Annuities in 401(k)s a Good Idea?

    An in depth look at the arrival of longevity annuities in 401(k)s and IRAs.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center