Why do annuities have surrender charges?
Surrender charges are part of the trade off for a guarantee on your funds; in other words, the life insurance company will give you written guarantees on your funds, and in return they expect to be able to use your funds as part of their financial reserves for a predetermined period of time (your contract term). Provided that the life insurance company is financially stable, any deferred annuity can be cancelled/surrendered at any time, and surrender charges apply on the portion of money withdrawn in excess of the ‘penalty free withdrawal’ amount found in most annuities. For example, let’s say you placed $100,000 in a three year account, but you decided 25 months into the contract to surrender it: assume the contract value is $110,000 at this point, and the surrender charges were 9% during year 1, 8% during year 2, and 7% during year three. You are surrendering your account during year 3, and the account carries a 10% annual penalty free withdrawal. Surrender charges would apply as fol
Related Questions
- Are there any deferred sales charges (surrender fees) from my existing provider if I transfer my account balance into the Cedars-Sinai 403(b) Retirement Plan now administered by ING?
- What are the surrender charges if I chose to end my contract early and take out all of my money?
- Why do annuities have surrender charges?
