\u00a0<\/div>\n\n
How Much Can Annuity Surrender Charges Cost Me<\/h3>\n\n
While these charges vary by each company and policy you purchase, the typically annuity surrender charge starts at a certain percentage. With each passing year, this percentage decreases by 1 percent till it’s elimination entirely.\u00a0<\/p>\n\n
For example, your annuity company may charge you an 8 percent surrender fee in case of early withdrawal of funds in the first year. Now, if your surrender period lasts for eight years, the annuity surrender charge will decrease by 1 percent every year.\u00a0<\/p>\n\n
That means you will pay a 7 percent surrender fee in the second year, 6 percent in the third till it will fall to only 1 percent in the eight-year and zero after that.\u00a0<\/p>\n\n
Moreover, the shorter your surrender period, the higher the surrender charges you will have to pay. In some cases, the state may regulate the cost of your annuity surrender charges.<\/p>\n\n
For example, the state of Idaho prohibits insurance companies from applying a surrender period lasting more than ten years. Moreover, the companies cannot charge more than 10 percent of the annuity surrender charge in the first year of purchase.\u00a0<\/p>\n\n
\u00a0<\/h3>\n<\/h3>\nIs Investment with Annuity Surrender Charges Worth It?\u00a0<\/h3>\n\n
First thing first, you must always remember a general rule of thumb, i.e., annuity surrender charges will reduce the overall value of your investment in case of withdrawal. That said, high-quality annuity contracts, mutual funds, and life insurance policies with annuity surrender charges may still be a valuable and worthwhile retirement-saving plan.\u00a0<\/p>\n\n
Are you looking for a long-term investment plan with no problems with long-term withdrawal restrictions? In that case, annuities are among the best and most promising options for high returns on investments.\u00a0<\/p>\n\n
However, if you are looking for a short-term investment domain and need high liquidity, an annuity is not an ideal product as it will impose surrender charges. In case you are not sure if you fall in the long-term or short-term investment categories, it is best to seek professional assistance from a financial advisor.\u00a0<\/p>\n\n
These financial planners are mostly independent and do not get any commission for promoting annuity products. This will guarantee that a planner will only recommend an annuity contract suitable for your financial circumstances and goals.\u00a0<\/p>\n\n
When you decide to choose an annuity product that is asking for a surrender charge, you must check the benefits it is offering. These include long-term capital amount appreciation, the potential for regular income after retirement. These may offer services that compensate for the lack of access to your cash.\u00a0<\/p>\n\n
\u00a0<\/div>\n
\u00a0<\/div>\n\n
How to Avoid Annuity Surrender Charges<\/h3>\n\n
Certain aspects can help you reduce or avoid the annuity surrender charges entirely. One of the obvious ones is to sit out the entire surrender period. While this is often not a feasible option, you can still earn a waiver or reduce the annuity surrender penalty.\u00a0<\/p>\n\n
You can continue to hold your annuity policy in such circumstances until it matures and you continue to receive consistent periodic income payments.\u00a0<\/p>\n\n
Another good way is to shop for an annuity product that will offer you lower or flexible exemptions from paying early withdrawal surrender charges. You may even be able to purchase an annuity that will not charge any fee whatsoever. However, they may charge you higher annual expenses instead in order to manage your annuity.\u00a0<\/p>\n\n
Most people either ignore or are completely unaware of the surrender charges clause in their annuity insurance plans. However, you must ask your insurance company to give you full information on the matter to avoid disappointment and future financial shocks if you need to withdraw early.\u00a0<\/p>\n\n
Annuities are expensive financial products, and their management expenses are somewhat similar to other investment options. Always remember that the underlying insurance features of an annuity plan require a thorough underwriting process.\u00a0<\/p>\n\n
So you must add in the expenses of your broker\u2019s commission. You must also consider the years it will take for the insurance company to turn your investment into profit on the annuity you purchased. While the company may levy stiff surrender penalties in case you wish to recover your capital early, there are several ways you can minimize or avoid these penalties.\u00a0<\/p>\n\n
\u00a0<\/div>\n
\u00a0<\/div>\n\n
5 Ways to Avoid Surrender Charges<\/h3>\n\nHere are five main ways that can help you avoid annuity surrender charges. However, not all of them may apply to your annuity plan<\/strong>:<\/h5>\n\n\u00a0<\/div>\n\n
\n- You must wait your surrender period out. This is the long route, and if you do not require a significant amount, you can ask a friend or family to help you out and return that money later. This is better because you will avoid surrender charges and save money on paying additional income tax when withdrawing the amount.\u00a0<\/strong><\/li>\n
- You can withdraw your capital funds incrementally as the years pass by. Most annuity plans allow you to withdraw 10 percent to 15 percent of your overall balance each year. This facility comes without any penalty; however, you will still have to bear the income tax applicable at the time of withdrawal.\u00a0<\/strong><\/li>\n
- You can purchase a \u201clevel-load\u201d or \u201cno-surrender\u201d annuity insurance policy. These annuities charge a higher annual fee than traditional annuities. This way, you will not be paying a surrender fee, and in case you want to pull out, the trade-off will be worthwhile.\u00a0<\/strong><\/li>\n
- You can re-allocate your investments, especially if your annuity is not performing well. It is best to change your underlying investment instead of surrendering the entire annuity plan. Most annuity company providers charge a little to no fee at all for these types of internal financial transfers.\u00a0<\/strong><\/li>\n
- Under the tax code section 1035, you can exchange one annuity plan for another.\u00a0 In case you switch your annuity plan offered by the same provider, there will be no surrender fee in most cases. This is also an efficient mode to avoid tax penalties, which you would have paid in case of withdrawals.\u00a0<\/strong><\/li>\n<\/ul>\n\n
\u00a0<\/h5>\n<\/em><\/h5>\nIn Conclusion<\/em><\/h5>\n\n\u00a0<\/div>\n\n
In case you are considering purchasing annuity but do not know which ones offer the lowest or no annuity surrender charges, seek professional assistance from a financial advisor. This will also help you bag the best annuity plan to maximize your return on investment in your post-retirement days.<\/p>\n\n
\u00a0<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Annuity Surrender Charges \u00a0 \u00a0 An annuity is a written agreement between you and an annuity insurance provider. The core purpose of this contract is to serve as an investment account with opportunities to grow your money on a tax-deferred…<\/p>\n","protected":false},"author":5,"featured_media":2623,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"class_list":["post-479","page","type-page","status-publish","has-post-thumbnail","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/pages\/479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/comments?post=479"}],"version-history":[{"count":32,"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/pages\/479\/revisions"}],"predecessor-version":[{"id":3292,"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/pages\/479\/revisions\/3292"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/media\/2623"}],"wp:attachment":[{"href":"https:\/\/www.policyzoom.com\/wp-json\/wp\/v2\/media?parent=479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}