What is a surrender charge and how long does it usually last?

What is a surrender charge and how long does it usually last?

• A. A fee for early withdrawal during the surrender period, which commonly lasts 7–10 years and declines over time.
• B. A tax charged on earnings when they are withdrawn.
• C. An annual investment expense ratio charged by subaccounts.
• D. A one-time setup fee charged at issue.

Answer: (B)

A surrender charge is a fee charged if you withdraw money from a variable annuity during the surrender period. This period typically lasts several years—often 7 to 10—and the charge declines each year until it ends. The purpose is to protect the insurer from losses related to early withdrawals and to recover costs tied to the guarantees and commissions built into the contract. It is not a tax, which is a separate consideration when earnings are withdrawn. It is also not an annual expense ratio charged by the subaccounts, nor a one-time setup fee charged at issue.

A surrender charge is a fee charged if you withdraw money from a variable annuity during the surrender period. This period typically lasts several years—often 7 to 10—and the charge declines each year until it ends. The purpose is to protect the insurer from losses related to early withdrawals and to recover costs tied to the guarantees and commissions built into the contract. It is not a tax, which is a separate consideration when earnings are withdrawn. It is also not an annual expense ratio charged by the subaccounts, nor a one-time setup fee charged at issue.