Surrender charges penalize early withdrawals but fade over time. Call 1-800-MEDIGAP to understand yours.
How does an annuity surrender charge work?
A surrender charge is a fee the insurer collects if you withdraw more than your contract's free amount during the surrender period. The schedule usually declines each year; for example, a 7-year contract might charge 7 percent in year one, 6 percent in year two, and so on until it reaches zero. Most annuities permit penalty-free withdrawals of around 10 percent of the value each year, so the charge applies only to amounts above that. Surrender charges exist because the insurer invests your premium for the long term and prices the contract accordingly. Knowing the schedule before buying is essential. A 1-800-MEDIGAP specialist will review each carrier's surrender terms with you.
How can you avoid or minimize surrender charges?
You can limit surrender charges several ways. First, only commit money you will not need during the surrender period, matching the contract term to your timeline. Second, use the annual penalty-free withdrawal allowance, often about 10 percent, rather than taking large lump sums early. Third, look for contracts with shorter surrender schedules or features that waive charges for nursing-home confinement or terminal illness. Fourth, wait until the surrender period ends to access the full balance penalty-free. Reading the contract's surrender schedule before signing prevents surprises. To compare surrender terms across carriers and find a contract that fits your liquidity needs, call 1-800-MEDIGAP.