Short versus long-term surrender charges

As with any insurance product, an annuity must be selected to fit the particular needs of the person buying it. As with any financial product, they will be suitable for some, but not all people, and for some, but not all, of their financial assets.

Like most insurance retirement products, annuities are designed to be held for a number of years. Accordingly, annuities—whether fixed or variable—may not suitable for persons, regardless of age, who could not be expected to keep their product in force for the long term.

Early termination or withdrawals above a specified amount may be subject to surrender penalties as well as potential tax penalties.

Surrender charges are waived in many circumstances: death, terminal illness, nursing home confinement, RMDs, conversion to a stream of income, unemployment and most annuities have a specified annual free withdrawal amount such as 10% of the accumulated value. And all without the potential loss associated with market risk.

Longer surrender charge durations afford the insurance carrier to the ability to invest longer term which generally offers higher interest returns to the client. This means that those who surrender early are not being subsidized by those who stay the course.

No other financial instrument offers the ability to avoid surrender charges under so many circumstances and market risks as well.