What Is a Surrender Charge?

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A surrender charge is a fee incurred for cashing in, withdrawing from, or canceling annuities early.

Key Takeaways

  • Firms that sell annuities will charge a fee if you decide to surrender or cancel your annuity too early.
  • Surrender charges are only applied during a pre-set term, after which they go away.
  • These charges are most common in deferred annuities.
  • If you purchase a product with a surrender charge, you should plan to hold it long-term to avoid paying these fees.

Definition and Examples of a Surrender Charge

Surrender charges are fees imposed on annuities. If you sell, cash in, or cancel your annuity early, you will have to pay a surrender charge. For example, if you purchased an annuity with a surrender period of eight years, you wouldn't be able to withdraw from it before the period ends, without incurring a charge. The charges exist to discourage you from withdrawing funds, because most of the financial products you buy that have surrender periods use the funds you give them in investments.

How Does a Surrender Charge Work?

Surrender charges are assessed as fees when you cash out your annuity early. You will receive the amount that you cash out minus the surrender charge. The surrender period for these products varies, but for the most part, it is between six and eight years. After that point, you no longer have to pay a surrender charge. Some firms may waive these charges if the interest being offered on the contract falls below a certain level.


If you must cash in your annuity, check to find out when surrender charges expire. If you are close to that date, it might be better to delay by a few days or weeks to avoid paying the charges.

As a rule of thumb, surrender charges reduce the value of, and the return on, an annuity. However, the fees don't negate their full value. High-quality annuities that carry these charges may still be worth the money in some cases. If you have a long time horizon and are willing to live with less cash during the surrender period, they might be right for you. If you have a shorter time horizon and need the money soon, you may want to stay away from products that impose a surrender charge.

After your surrender period ends, the charge no longer applies, and the firm that sold you your product will no longer be able to charge or assign fees if you decide to close it out.

Fees for backing out of a financial contract early are most common with:

Immediate annuities are not subject to fees for short-term withdrawal, because they are designed to provide income right away.

Surrender Charge Amounts

The fees vary by the product, issuing firm, and how long you own the product. For the most part, the shorter the holding period, the higher the surrender fee. A surrender charge schedule depends on how much you take out. It starts as a percentage of the withdrawal amount in the first year you own the product and then falls by a specific percentage each year. After enough time has passed, it is entirely gone.


The cost of surrender charges may depend on the state where you purchase your annuity, as each state has its own laws on the matter. For instance, Idaho law does not allow surrender periods for contracts to last longer than ten years, and fee amounts cannot be greater than 10% in the first year.

For instance, you might be charged a 7% surrender fee if you withdraw funds from an annuity in year one, a 1% fee on amounts you withdraw in year seven, and no fee at all during or after year eight. Under this scheme, if you want to withdraw $10,000, you would pay $700 in year one versus only $100 in year seven. This means if you can afford to wait, you can save $600.

Why Do Firms Charge for Early Surrender?

Firms that sell financial products pass along these costs to the people who buy their products for a few reasons:

  • Offset operating costs: Firms need to recoup their administrative, operational, and sales costs by charging standard fees, but they lose these fees if you give up the product too quickly.
  • Deter short-term use: Annuities are designed for long-term financial goals, such as retirement, rather than for short-term purposes, such as cash for a sudden surprise expense.
  • Maximize returns: Firms want to be able to invest your money over the long term to gain higher returns.

What It Means for You

If you're unsure about how or whether to invest in an annuity with surrender charges, work with a fee-only financial planner. They aren't paid for selling products or given commissions, so you can be reasonably sure that the products they offer are in your best interests.


When choosing an annuity product with a surrender charge, ensure the perks outweigh the lack of liquidity. You might look to features such as the potential for income or long-term capital appreciation.

You Can Avoid a Surrender Charge

There are three main ways to forgo these fees.

  • Hold past the surrender period
  • Withdraw smaller amounts
  • Take advantage of fee waivers

Surrender charges are only imposed if you give up the product before the surrender period, which means you can avoid the fee by holding it past that period. You can find the precise date of the surrender period on your contract. Look for the fee schedule listed in the contract when you first buy it.


The waiver period can vary from as short as 30 days for mutual funds to 10 or more years for annuity and insurance products.

Most annuity contracts have a free withdrawal provision that lets you take out a certain percent of the contract value, such as 10%, each year without incurring a surrender charge.

You might be able to get the surrender charge waived in some instances, such as when:

These may appear on your contract as "crisis waivers," or they may be in a section about IRS rules. Read the terms of your contract for the waiver details and learn the steps you need to take to get the fees waived.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Securities and Exchange Commission. "Updated Investor Bulletin: Variable Annuities."

  2. Annuity.org. "Withdrawing Money From an Annuity."

  3. State of Idaho Department of Insurance. "Bulletin No. 20-11," Page 4.

  4. Annuity.org. "Crisis Wavers."

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