What is the typical range for surrender charge schedules in many contracts?

What is the typical range for surrender charge schedules in many contracts?

• A. 5-7 years
• B. 7-10 years
• C. 10-12 years
• D. 3-5 years

Answer: (B)

Surrender charges are fees charged on withdrawals made during the early years of a variable annuity to recover the insurer’s issuing costs and to discourage early, large redemptions. The schedule for these charges typically spans several years, with the amount decreasing each year until it eventually ends. Seven to ten years is the most common range seen in many contracts, which is why this range is the best answer. Shorter schedules (three to five years) are less typical because they may not adequately cover the initial costs, while longer schedules (ten to twelve years) do occur in some contracts but are not as common. After the schedule ends, withdrawals usually incur no surrender charges.

Surrender charges are fees charged on withdrawals made during the early years of a variable annuity to recover the insurer’s issuing costs and to discourage early, large redemptions. The schedule for these charges typically spans several years, with the amount decreasing each year until it eventually ends. Seven to ten years is the most common range seen in many contracts, which is why this range is the best answer. Shorter schedules (three to five years) are less typical because they may not adequately cover the initial costs, while longer schedules (ten to twelve years) do occur in some contracts but are not as common. After the schedule ends, withdrawals usually incur no surrender charges.