Annuity Surrender Schedule

We think the Annuity Surrender Schedule is the single most important component of an Annuity, and want you to know why. Pay close attention.

The annuity surrender schedule tells you how much of your money you can have at any given time.  Why do we think this is important?

Companies that offer shorter surrender schedules indicate a respect for your capital. This fundamental integrity flows through to the myriad other contractual terms we look at, and indicate the overall quality of the people at the issuing company.

We like to work with good people and companies.  Companies that are up front and honest don’t try and lock up customers unnecessarily.  They don’t tempt agents to steer their clients into inappropriate products with high fees.  Many good terms and conditions stem from something as simple as a surrender schedule.

Why have surrender schedules at all?

Most annuities have no upfront fee to customers who purchase annuities.  But in selling an annuity contract, the insurance company incurs costs, so they attach a contingent deferred sales charge, or surrender charge, to make sure the company gets its money back in case the customer cancels the contract early.

The surrender charge is a direct indicator of the fees associated with placement (sale) of the annuity.  The major costs to the company are one-time bonus rates for the customer, and agent commissions.  Minor expenses include administrative costs linked to shuffling papers and managing money within the company.

You can’t get away from administrative expenses but you do need to be careful that you are not on the hook for a 15 years surrender schedule while the agent made off with a big payday.

As a corollary to this topic, there is another very important detail often left out.  We call this the “Negative Inheritance.”

In the unfortunate event you pass away during the period the surrender schedule of your annuity, your heirs may be liable for that surrender cost.  Many high quality annuity contracts will waive the surrender charge to your beneficiaries in this unfortunate event.

Of course, as you do your homework, you will find many companies that do NOT waive this surrender penalty upon your death, leaving your heirs with a large penalty and thus the Negative Inheritance.

It’s pretty obvious that you’ll want to work with only the best companies- like the surrender schedule, this waiver of surrender charge upon death is a key indicator of the integrity of the offering company, and adds an important item to the list of reasons why certain companies do and do not deserve your business.

Action Items:

Seek annuities with the lowest surrender charges and the shortest surrender schedule.  Seven years is a good ballpark.
These annuities will have the lowest agent commissions, so most likely your agent won’t tell you about these products.
Whenever possible, make sure the surrender charge is waived to your heirs.

Written By

Bryan Anderson

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