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

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 Fee

    A charge levied against an investor for the early withdrawal ...
  4. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
  5. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  6. Surrender Charge

    A fee levied on a life insurance policyholder upon cancellation ...
Related Articles
  1. Retirement

    What are the main differences between a Registered Retirement Income Fund (RRIF) and a life annuity?

    Learn about the advantages and differences of Registered Retirement Income Funds and life annuities. Explore two different retirement income options.
  2. Retirement

    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 of seasoned financial planners would tell you that it's not a wise ...
  3. Retirement

    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 and in return obtain regular disbursements beginning either immediately ...
  4. 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.
  5. Personal Finance

    Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  6. 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.
  7. Home & Auto

    An Overview Of Annuities

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

    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 the surviving spouse, you have several options, but the most common ...
  9. Options & Futures

    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 to aid in your decision: Are you still happy with the investment options ...
  10. Home & Auto

    Should I pull my money out of an annuity if the insurance company is having financial problems?

    If an insurance company is having financial problems, you don't necessarily have to pull your money out of the annuity. Even in a financial meltdown, there's no need to sweat when it comes to ...

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center