What is a Surrender Charge?
Annuities: Withdrawals At no Charge
A deferred annuity may be surrendered to receive a lump-sum payment of the account’s value. Most annuities have a surrender period that allows withdrawal at no charge. Withdrawals during the surrender period (meaning during the contract term, remember only allow this to be a MAX of 10 YEARS!) are usually subject to charges based on several factors including the account value and the number of years remaining. DO NOT accept any surrender charges over 10%. If you have any questions please contact us. Some products will have 14% or 20% surrender changes. Insurance companies should not sell these!
Surrender-Charge Free Withdrawal Options
Annuities are long-term instruments designed to accumulate money for retirement. Consequently, they provide the best possible benefit if left intact. Many of our products provide a number of options to withdraw because you should have options. Hence, options include 10% penalty-free withdrawals. Most noteworthy, they include interest withdrawals through the easy systematic payment program. Certain products withdrawals prior to age 59½ may be subject to restrictions and a 10% tax penalty. This is because of IRS regulations. These options vary by annuity, yet may include:
- 10 % annual withdrawals.
- 5% annual withdrawals Waivers for certain medical conditions
- IRS required minimum distributions (RMD freindly)
- Substantially equal periodic payments
Doing your annuity homework? Start with our free comparison guide and the 7 questions to ask any advisor. Ready for real numbers? Talk to a licensed advisor in your state — we serve all 50 states.
How Surrender Charges Are Calculated Over Time
Surrender charges are typically structured on a declining scale, meaning the percentage you owe decreases each year you hold the annuity. For example, a 7-year surrender schedule might start at 7% in year one and reduce by one percentage point annually until it reaches zero at the end of the term. This structure rewards policyholders who commit to the full contract period.
The charge is generally calculated against either the amount withdrawn or the total account value, depending on the specific contract language. Always review your annuity illustration carefully to understand exactly which basis applies to your policy before making any withdrawal decisions.
Market Value Adjustments (MVAs) are another factor that can work alongside surrender charges in certain fixed annuities. An MVA can either increase or decrease your surrender value depending on interest rate movements since you purchased the contract, making it important to understand both components together.
Before purchasing any annuity, request a complete surrender charge schedule in writing and compare it across multiple products. Tennessee residents have access to competitive annuity options with reasonable surrender periods — typically between 3 and 10 years — that balance growth potential with meaningful liquidity protections.