Loading the player...

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Surrender Fee

    A charge levied against an investor for the early withdrawal ...
  2. Surrender Rights

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

    The sum of money an insurance company will pay to the policyholder ...
  4. Surrender Charge

    A fee levied on a life insurance policyholder upon cancellation ...
  5. L Share Annuity Class

    The L share annuity class is a common share class offered by ...
  6. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
Related Articles
  1. Insurance

    Understanding Cash Surrender Value

    The amount of money an insurance company pays the owner of an insurance policy if the policy is voluntarily surrendered prior to the event that is insured
  2. Financial Advisor

    Cash Value vs. Surrender Value: What Is the Difference?

    How much you actually receive from the cash value of your life insurance policy is based on the surrender value, which can sometimes be much lower.
  3. Retirement

    Taking The Bite Out Of Annuity Losses

    If this investment product has caused you sleepless nights, it's time to consider alternatives.
  4. Financial Advisor

    How to Avoid Overpriced Annuities

    The key to not paying excessive fees for annuities is understanding how they work. Here's what you need to know.
  5. Retirement

    When Annuities Are the Wrong Investment

    Understand how annuities provide several unique benefits, but many drawbacks as well, and identify the situations where they are not the best investment.
  6. Investing

    Just Say No to Variable Annuities

    Sellers of variable annuities make them sound great to earn their commission, but they are not.
  7. Investing

    The Disadvantages of Annuity Contracts

    The disadvantages of annuities aren't always fully understood.
  8. Retirement

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  9. Investing

    Annuities: The Good, Bad and Ugly You Should Know

    Let's take an in-depth look at the different types of annuities and their pros and cons.
  10. Investing

    Things Your Annuity Salesperson May Not Tell You

    Your variable annuity salesperson should tell you many things. But there's a chance they'll leave out some crucial details.
RELATED FAQS
  1. What can I do if I bought an annuity and don't want it anymore?

    Consider possible repercussions of cashing in your annuity policy. Depending on the circumstances, this could cost you. There ... Read Answer >>
Hot Definitions
  1. Free Rider Problem

    1. In economics, the free rider problem refers to a situation where some individuals in a population either consume more ...
  2. Dumping

    In international trade, the export by a country or company of a product at a price that is lower in the foreign market than ...
  3. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  4. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  5. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  6. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
Trading Center