A surrender period is the amount of time that must elapse before the investor can withdraw money out of an annuity or similar insurance product without incurring a monetary penalty. This penalty is known as the surrender charge or fee, which may decrease as time goes on.
Surrender periods vary from one annuity to the next. They help guarantee that the investor will keep their money with the insurer for at least a certain time period. Often, longer surrender periods may entail better terms. For example, the insurer may guarantee a higher interest rate or offer longer guarantees. Nevertheless, they may not benefit nor suit the investor at all. Investors can often find a reasonable surrender period with terms they can be happy with, so it does not pay to automatically opt for longer surrender periods for the promise of better terms.
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