Annuity Surrender

Annuity surrender refers to cancelling and cashing-in your annuity contract . If you need access to the funds that reside in your annuity or you want to shift to another annuity or investment, you may have to consider cancelling your existing annuity. The insurance company usually imposes surrender charges, and the earlier you are in the surrender period, the higher the surrender fees. For example, surrender fees might start at 5 percent during the first year of the contract and reduce 1 percent each year to zero over the course of 5 years. The fee is taken against the value of the investment, so you don’t get as much cash as you would have had you held on to the contract beyond the surrender fee period. Some annuity products provide limited access to fund with no charges in the event of disability, health deterioration, etc. It is also important to remember that annuities are similar to IRAs in that money pulled from an existing annuity before age 59 ½ is subject to a 10 percent penalty and ordinary income tax.