Surrender Fee

DEFINITION of 'Surrender Fee'

A charge levied against an investor for the early withdrawal of funds from an insurance or annuity contract, or for the cancellation of the agreement. Surrender fees act as an economic incentive for investors to maintain their contract, and they allow the insurance company to have reasonable expectations for the frequency of early withdrawals.

Also referred to as a "surrender charge".

BREAKING DOWN 'Surrender Fee'

Surrender fees vary among insurance companies and among annuity and insurance contracts, but a typical annuity surrender fee could be set as a 10% (of the funds contributed to the contract) charge levied for withdrawal in the first year. For each successive year of the contract, the surrender fee could drop by 1%, for example, effectively giving the annuitant the option of no-penalty withdrawal after 10 years in the contract.