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. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  5. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
  6. Annuity

    A financial product that pays out a fixed stream of payments ...
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. Retirement

    Taking The Bite Out Of Annuity Losses

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

    Update Your Variable Annuity With Section 1035

    Thanks to a special tax code clause, you can surrender a variable annuity without paying income tax.
  4. 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.
  5. Investing

    Just Say No to Variable Annuities

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

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  7. 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.
  8. 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.
  9. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
  10. Retirement

    5 Mistakes to Avoid When Shopping for Annuities

    Annuities give retirees guaranteed income but they aren't all created equal.
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. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  2. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  3. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  4. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  5. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  6. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
Trading Center