Annuity Surrender and Default Info

Annuities can end so here is some basic Annuity Surrender and Default Info.

Annuity Surrender Info

Things happen. Sometimes people enter into an Annuity and years later decide they have to get out. They need to get their annuity investment and cancel the annuity contract. If you have owned your annuity for less than seven years or whatever is in your contract as a minimum holding period, you can ask to surrender your annuity. But you will have to pay a surrender charge. Surrendering in the first year and your fees can start as high as 7%. It will normally decline 1% a year until after 7 or 8 years when the surrender fee then disappears.

Then there is the all-important tax obligation that comes with cashing out your annuity. If you are under age 59 ½ then guess what? You also have the dreaded 10% early withdrawal penalty that the IRS loves to collect.

The 1035 Exchange. There is a way to transfer your annuity money to another annuity by way of a 1035 exchange. This will let you avoid taxes and if applicable to your age, the 10% youngster penalty. If an annuity salesperson is pitching this swap as the deal of the century for you, just know that they will get a fat commission. A commission which ultimately comes out of your money. Their advice may be just a little biased so do your research.

Once you do this swap your annuity 7 year surrender clock starts over again. So be sure you really want to be married to another annuity for the long haul again. There is a reason you wanted out of the other annuity and you need to assess whether the swap is such a good idea for you.

Annuity Default Info

You buy an annuity through an insurance company and bad things can happen causing the insurance company to go under and your annuity going into default. It is important that your annuity is with a top rated insurance company. One you can be confident will be in business when you retire and throughout your retirement.

Verify the insurer’s credit rating which is a grade given by credit bureaus, like A.M. Best, Moody’s and Standard & Poor’s. These credit bureau ratings expresses the insurance company’s financial health. Each of the rating firms have their own grading scale. Try to limit your annuity options to insurers that receive either an A+ from A.M. Best or AA- or better from Moody’s and S&P. Go find their ratings online or you can get them from your trusty insurance agent.

The biggest protection from losing your money when an insurance company holding your annuity goes under is that you stay under the guarantee threshold amount. This guarantee threshold amount is set by the State Guaranty Funds which protect annuity owners when insurance companies fail.

This coverage is limited and varies from state to state. Do not buy/invest more in an annuity from an insurer than your State Guaranty Funds will back. You can check your State’s Guarantee Fund threshold online.

I hope you found this Annuity Surrender and Default Info to be beneficial.


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