In this post I will explain the surrender fees associated with annuities, how they are calculated and under what circumstances they will be waived.
First, what is a surrender fee? It’s a charge the insurance company will subtract from your account should you cancel your policy or withdraw MORE than the annual allowed limit before the end of the term.
The reason for these fees is, unlike banks, insurance companies are forbidden by law from investing in any speculative investments. Therefore, in order for the insurance company to be able to pay out competitive interest rates to annuity clients they must ensure they have access to your principal for a specific period of time to realize the necessary rate of return on the conservative investments they are allowed to invest in. Which are usually long term government and corporate bonds.
The surrender fee schedules usually are for a set period of years and DECREASE each year by 1%. For example if you purchase an annuity with a 7 year surrender schedule, the fees may look like this, year 1: 7%, year 2: 6%, year 3: 5%, year 4: 4%, year 5: 3%, year 6: 2%, year 7: 1% and zero surrender from year 8 and on.
However, a very important feature of most annuities is, the the insurance company will WAIVE the surrender charge if the annuitant is: confined to a nursing home, diagnosed with a critical illness, loses 2 or the essential activities of daily living (adls) or dies. Which means that your retirement savings are accessible WITHOUT surrender fees should a catastropic event occur and you need access to your account balance prior to the end of the contract.
Furthermore, some annuities will allow you to withdraw as much as a 10% per year without activating the surrender fee which allows for liquidity.
So to dispell misconception number 4 regarding annuities, You do have access to your money without surrender charges for specific reasons and under specific circumstances.
If you would like more information regarding annuities or have any questions regarding your retirement savings options feel free to contact me directly at 1-877-777-7055.
Just Us Insurance is located in Southern California.
We proudly serve businesses and local residents in Corona, Murrieta, and Temecula.
Just Us Insurance operates throughout Riverside, San Bernardino San Diego, and Orange Counties
