Surrender Period
The surrender period is the number of years during which surrender charges apply to withdrawals from a deferred annuity. After the surrender period ends, the contract is fully liquid — no surrender charges apply to any withdrawal. Surrender periods typically match the contract's guarantee period: a 5-year MYGA has a 5-year surrender period; a 10-year FIA has a 10-year surrender period. Some products offer "rolling" surrender periods that reset with each premium payment, which can effectively extend the surrender period indefinitely on contracts that accept ongoing premiums.
A 7-year MYGA is purchased at age 60. The surrender period ends at age 67. From age 60 through 66, withdrawals above the 10% free amount trigger declining surrender charges. At age 67, the consumer can withdraw the full contract value with no surrender charge. The consumer can also renew, annuitize, or 1035-exchange at the end of the surrender period.
Why it matters
The surrender period is the planning horizon for the contract. Annuity purchases should be planned around the end of the surrender period: what is the consumer going to do at that date? Renew? Withdraw and reinvest? Annuitize? Choosing a surrender period longer than the consumer's actual planning horizon creates unnecessary liquidity constraints.
How to evaluate
Pick the shortest surrender period that produces an acceptable rate or product feature. Longer surrender periods sometimes (not always) carry higher rates or more attractive rider terms because the carrier has more time to amortize costs. The benefit of a slightly higher rate is rarely worth a 3-year extension of the liquidity constraint.
In the contract
Look for "surrender period," "withdrawal charge period," or implicit in the surrender schedule. Some contracts include a "market value adjustment period" that may match or differ from the surrender period.
Related terms
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