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.

RELATED TERMS
  1. Surrender Period

    The amount of time an investor must wait until he or she can ...
  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. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  5. Cash Surrender Value

    The sum of money an insurance company will pay to the policyholder ...
  6. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
Related Articles
  1. 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.
  2. 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
  3. Financial Advisor

    Here's How to Duck a FINRA Slap on L Shares

    Regular and L-share annuity contracts come with back-end surrender charges that clients should know. Here's how to steer clear of any compliance trouble.
  4. 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.
  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. Retirement

    Taking The Bite Out Of Annuity Losses

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

    Getting the Whole Story on Variable Annuities

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

    Annuities and Baby Boomers: The Pros and Cons

    The pros and cons of annuities that Baby Boomers seeking retirement income need to know.
  9. Financial Advisor

    Divorce and Annuities: What Clients Need to Know

    Divorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
  10. Retirement

    Converting An IRA Annuity To A Roth: Know The Rules

    We look at the past and current legislation that governs IRA annuity conversions.
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 >>
  2. Are there penalties for withdrawing monies invested in annuities?

    Learn about the penalties associated with taking early withdrawals from an annuity. Steep penalties are assessed by the insurer ... Read Answer >>
  3. Can I borrow from my annuity to put a down payment on a house?

    Learn how you can borrow money from an annuity for a house down payment, but also understand why fees and penalties make ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center