Printable checklist for your desk
Print this checklist and write the surrender schedule and free-look deadline in the spaces provided.
Download the PDF (large print)The short version. Most deferred annuities tie up your money for a set number of years. Taking more than the allowed amount out early can cost a surrender charge, may adjust the value up or down, and may add income tax and a 10% additional tax. Know the schedule before you buy, and use the free-look period to change your mind. [1, 2]
Surrender charges
- A surrender charge is a fee for withdrawing more than allowed within a set number of years. It usually goes down each year until the period ends. [1, 3]
- The SEC says the surrender period for an indexed annuity typically lasts six to ten years, or even longer. FINRA says variable annuity periods can be eight years or more. [4, 5]
- The Texas Department of Insurance describes a surrender charge that generally starts at about 10% and drops each year until the period is over. This is an example, not a rule for every contract. [6]
Free withdrawals
Many annuities let you take out a certain amount each year, usually up to 10%, without a surrender charge. Ask whether the limit applies to the contract value or the premium, whether there is a cap on total withdrawals during the surrender period, and whether unused free withdrawals carry over. [3]
Market value adjustments
Some contracts apply a market value adjustment (MVA) to early withdrawals. The NAIC says an MVA could increase or decrease your account value, cash surrender value, or death benefit. If interest rates are higher than when you bought, the adjustment could reduce the value. [3, 1]
Indexed annuities: timing matters
If you withdraw before an index term ends, the contract may not add all the index-linked interest for that term. Some contracts forfeit credited interest on a withdrawal, which can result in a loss of principal. [3, 5]
Taxes on top
Withdrawals are generally taxed earnings first, and a 10% additional tax can apply before age 59½. See our annuity taxes guide.
Waivers
Some contracts waive surrender charges for events such as death, nursing home confinement, or terminal illness. Regulators do not set standard terms, so ask whether yours does and under what conditions. [3, 7]
Your free-look period
State law gives you a set number of days after you receive the contract to cancel it. The SEC says this is usually 10 to 30 days, and FINRA gives the same range. Examples: Texas requires 20 days (30 days for a replacement annuity), New Jersey says 10 days, and Virginia's replacement rule requires at least 10 days. Free-look rules vary by state and by whether you are replacing an existing contract, so find the exact number and refund terms in your contract and write the deadline on your calendar. [1, 2, 6, 8, 9, 10]
Replacing an existing annuity
The SEC advises caution if a professional suggests an annuity exchange: expect a surrender charge on the old contract and a new surrender period on the new one, and only exchange if, after comparing features, fees, rates, and risks, the new contract is clearly better. State replacement rules also require specific notices before you sign. [1, 10, 11]
Liquidity questions to answer before you buy
- How much can I take out each year without a charge, and what is the surrender schedule year by year?
- Is there a limit on total withdrawals during the surrender period?
- Is there a market value adjustment, and can it reduce my value?
- Do I have emergency savings and other income so I will not need this money early?
- Does the contract waive charges for nursing-home confinement or terminal illness, and under what conditions?
- What is the free-look deadline, and what do I get back if I cancel?
Frequently asked questions
How long is a typical surrender period?
The SEC says the surrender period for an indexed annuity typically lasts six to ten years, or even longer.
How much can I withdraw without a charge?
Many annuities let you withdraw a certain amount each year, usually up to 10%, without a surrender charge. Check your contract.
What is a free-look period?
A period after you receive the contract when you can cancel it. The SEC and FINRA say it is usually 10 to 30 days, depending on the state.
Sources and review notes
- SEC Investor.gov: Annuities
- FINRA: Annuities
- NAIC: Buyer's Guide to Fixed Deferred Annuities (revised 2013)
- SEC Investor Bulletin: Indexed Annuities (updated July 31, 2020)
- FINRA: The complicated risks and rewards of indexed annuities (July 14, 2022)
- Texas Department of Insurance: Annuities consumer guide (updated October 16, 2023)
- California Department of Insurance: annuity training outline (waiver events, 2012)
- New Jersey Department of Banking and Insurance: annuity free look press release (April 5, 2017)
- Virginia Administrative Code, 14VAC5-30: Rules governing advertisements and replacement of life insurance and annuities
- NAIC Model 613: Life Insurance and Annuities Replacement Model Regulation
- NAIC Model 275: Suitability in Annuity Transactions (best interest standard; replacement considerations)
About this guide. This is general education, not tax, legal, or investment advice, and it is not a recommendation to buy or not buy any product. Nazim Lokhandwala is a licensed insurance professional who offers fixed and indexed annuity products. He does not offer variable annuities or registered index-linked annuities. This guide covers every type so you can compare, and an annuity is not the right choice for everyone. Annuity guarantees depend on the claims-paying ability of the issuing insurer. Product features, rates, and rules vary by company and by state, so read your contract and ask the seller to explain anything that is unclear.