What You Need To Know About The Surrender Period In Fixed Index Annuities

​Fixed Index Annuities (FIAs) are a popular financial product for individuals looking to secure retirement income with the potential for growth. While FIAs offer benefits such as protection from market losses and tax-deferred growth, they also come with certain rules and limitations. One of the most important concepts to understand before purchasing an FIA is the surrender period.

What Is a Surrender Period?
The surrender period is the length of time during which you must keep your money invested in the annuity before withdrawing it without facing penalties. If you withdraw funds too soon, the insurance company charges a surrender charge, which is a percentage of the amount withdrawn.

• Typically, surrender periods last 5 to 10 years, though some contracts can be longer.
• Charges usually decrease each year—for example, starting at 7% in the first year and dropping by 1% annually until reaching 0%.

Why Do Surrender Periods Exist?
Insurance companies impose surrender periods to:

• Protect their investment: Annuities are long-term products, and companies use your premiums to fund guarantees.
  
  
• Discourage early withdrawals: This ensures customers treat annuities as long-term retirement vehicles rather than short-term savings accounts.
  
  
• Cover administrative costs: The fees help insurers manage contract setup and ongoing services.

How Surrender Charges Work
If you withdraw money during the surrender period, you’ll likely face a charge. Here’s a simple example:

• You invest $100,000 in an FIA with a 7-year surrender schedule.
• In Year 1, the surrender charge is 7%. If you withdraw $10,000, the fee would be $700.
• By Year 5, if the charge has dropped to 3%, withdrawing the same $10,000 would cost you $300.
• After Year 7, there’s no surrender charge—you can access your funds without penalties.

Important Exceptions to Know
Most contracts provide ways to access money during the surrender period without paying fees:

1. Free Withdrawals – Many FIAs allow you to withdraw up to 10% of the account value annually without penalties.
   
   
2. Required Minimum Distributions (RMDs) – If you own your FIA inside an IRA or other qualified retirement account, RMDs are generally exempt from surrender charges.
   
   
3. Hardship Provisions – Certain contracts may waive charges for nursing home care, terminal illness, or disability.

Things to Consider Before Purchasing an FIA
Understanding the surrender period is critical to making a smart decision. Keep these points in mind:

• Your time horizon: Don’t invest money you might need in the short term.
• Surrender schedule: Compare contracts—some have more flexible terms than others.
• Liquidity needs: Take advantage of free withdrawals but plan for emergencies.
• Alternative options: If you need more flexibility, consider products with shorter surrender periods.

Conclusion
The surrender period in a Fixed Index Annuity isn’t a trap—it’s a feature designed to align the product with its long-term purpose: providing retirement stability. By understanding how surrender charges work, what exceptions apply, and how they affect your liquidity, you can make informed decisions that support your retirement goals.

When evaluating annuities, always ask:

• How long is the surrender period?
• What’s the charge schedule?
• What exceptions are included?

With the right planning, Fixed Index Annuities can be a powerful tool for financial security.

​At Dumon Financial Group, we are dedicated to providing our clients with comprehensive and affordable insurance policies. Our commitment extends to going the extra mile to address your specific needs. To learn more about how we can assist you, please contact our agency at 702-871-0777 or  CLICK HERE to request a free quote.

Disclaimer: The information presented in this blog is intended for informational purposes only and should not be considered as professional advice. It is crucial to consult with a qualified insurance agent or professional for personalized advice tailored to your specific circumstances. They can provide expert guidance and help you make informed decisions regarding your insurance needs.