Surrender Charge

Surrender Charge: A surrender charge is a fee imposed by an insurance company or Financial Institution when a policyholder withdraws funds from a contract, such as an annuity or Life Insurance policy, before a specified period known as the surrender period. This fee is designed to discourage early withdrawals and can vary in amount depending on the terms of the contract and the length of time the policy has been held.

Examples:

• If an individual has a variable annuity with a 7-year surrender period and decides to withdraw funds after 4 years, they may incur a surrender charge of 7% on the amount withdrawn.
• A Life Insurance policy with a 10-year surrender period might charge 5% of the cash value if the policyholder cancels the policy after 3 years.

Cases:

• Case 1: A policyholder who invested $100,000 in a fixed Indexed annuity with a 10-year surrender period and withdraws $20,000 after 5 years may face a surrender charge of 4% on the withdrawn amount, totaling $800.
• Case 2: A Life Insurance policy with a $50,000 cash value and a 6-year surrender period incurs a 10% surrender charge if the owner cancels the policy after 2 years, resulting in a $5,000 fee.