Table of Contents

Do All Annuities Have Surrender Charges?

Stan Haithcock
July 6, 2023
Do All Annuities Have Surrender Charges?

Hey, Stan The Annuity Man here, America's annuity agent. Today's topic is, Do All Annuities Have Surrender Charges? The short answer is no, but obviously, there's more to that. You just can't say no. It's like saying, "How are you doing?" "Good." There's more to it than that, but we're going to go through all the different types. I'll explain the ones that do, the ones that don't, and the reasons they do and don't.

Annuities With Surrender Charges

Let's go through the types. The ones that do, the ones that don't. The ones that do are Multi-Year Guarantee Annuities and Fixed Rate Annuities. They combine them as short as, say two years, up to 10 years in length. And those have surrender charges declining, meaning that, let's say, you have a five-year, and they're all different. But let's say, for example, if you got out at year one, it would be 8%, year two would be 7%, and year three would be 6%. In other words, it is declining surrender charges. That's 8% of the total, by the way. So, it is predatory from the standpoint of surrender charges. But the annuity companies aren't being mean.

They have to do that to cover the commissions hidden in the policy and back up the guarantees. They're guaranteeing something within the contract. It can't be 100% liquid. They've got to lock in and have surrender charges. The surrender charges are in place in case you pivot and say, "I don't want to do that anymore." They have to recoup their cost. It's not some evil conspiracy surrender charges for the annuity companies to make all this money. So, Multi-Year Guarantee Annuities, Fixed Indexed Annuities, and most Variable Annuities do have surrender charges.

Now, some variable annuities are no-load, meaning there's 100% liquidity from day one. But the majority of the Deferred Annuities out there, Multi-Year Guarantee Annuities, Fixed Rate Annuities, and Variable Annuities, have surrender charges.

Annuities With No Surrender Charges

Let's talk about the ones that don't. Those are Immediate Annuities, Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. What those are are annuitized products. Annuitization means to create payments. Those products are irrevocable when you buy them, meaning you'll get all your money back. You're just going to get them back in payment form. For example, if you bought a Deferred Income Annuity, which is an Immediate Annuity that you can defer, and you had the income starting and signed the application and then said, "I want the income to start in four years.” You can't call me up in two years and say, "You know what? I don't want to do that anymore. Send me all the money back, Stan." You can't. Now, do some of these policies have liquidity provisions, things that can get your money back? Yes, 1% of them, but it's almost not worth talking about because most of them do not.

When you buy an Immediate Annuity, a Deferred Income Annuity, or a Qualified Longevity Annuity Contract, you need to make sure that the money you're putting in that policy, you don't have to get to. In other words, it has to be at the correct proportion and allocation. Because with those products, Single Premium Immediate Annuities, Deferred Income Annuities, and QLACs, you will get your money back, but it will be in payment form.


I had this happen the other day. A guy said he bought a QLAC and was deferring it out as far as he could, which was age 85, and he was in his mid-70s. He needed money sooner. We couldn't send him all the money in a lump sum, but we could start the income stream sooner. So, he decided to do that. Remember, income is primarily based on your life expectancy when you take the payments. This is for lifetime income guarantees. The payment guarantee was less than when he was going to start at age 85 because he's older. He was younger, and so they were based on his life expectancy at a younger age. The payments were a little bit lower, but still, that's a little bit of liquidity that he got out of it. But you can't pivot on those three products and get all your money back.

I got a call the other day from a guy, and I get these calls a lot. He was pitched this as an annuity. It was an Indexed Annuity with a 10-year surrender charge on it, but it had all the whistles and bells on it that he wanted. He also liked the upfront bonus, even though that's a contractual guarantee and not free money. He liked a couple of other things inside of it, but he called me and said, "Hey, Stan, I'd love that product, but I want it no-load." "It can't happen, Chester. There's just no way."

Once again, when the annuity companies guarantee contractually because, oh, by the way, annuities are contracts. Don't believe me? Buy one, and you'll get a contract in the mail. In my opinion, they're not investments. They're transfer of risk contracts. When they're guaranteeing an Income Rider with a future income stream at a future date, or an upfront bonus that you think is great, that's still part of the overall contractual guarantee not offered in a no-load 100% liquid form. If it were, that would make the world perfect, and we'd all have six-pack abs. It doesn't happen. There are no six-pack abs for everybody, and there are no fully loaded benefit annuities that do not have surrender charges. So put your rational thinking cap on. And I told him that he was disappointed, but I understood he had to ask, and maybe that was in the back of your head as well.

Therefore, Surrender charges are a reason to lock in those guarantees within the contract. And then the annuities that don't have those surrender charges are primarily for lifetime income and annuitized, creating payment-type products. Keep that in mind.

Hey, thanks for hanging in there with me for this blog. I encourage you to watch this video. It's about annuity applications, like the process and how it works. You probably don't know; maybe you do. But if I'm looking at possibly purchasing an annuity from The Annuity Man, of course you want to know how the process works. I fully explain it in that video. But I recommend you to go to my site if you want quotes or to book a call with me. Lastly, do not forget to subscribe to our YouTube channel because I'm always putting videos out. Thank you, see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

Learn More