Many people around the world own a life insurance or annuity product and have some familiarity with the terms of the contract or policy; however few really understand the surrender charges? These surrender charges are fees that insurance companies charge policy holders that surrender their policies before the end of the surrender charges phase, or take a partial withdraw that is greater than the penalty free amount.

In almost every annuity or life insurance policy, there are some surrender charges. Most policies' surrender charges last for a specific period of years, generally five to eight years. Some policies' surrender charges are also tied to when the deposit is made, so it is very important to read the contract, especially if you are close to retirement age. Yes, these penalties are generally legal and must be filed with State Insurance Department.

There are ways to avoid surrender charges. For instance, if your policy allows for a penalty free withdraw, then that amount can be withdraw without a penalty from the insurance company. Many contracts allow one penalty free withdaw per policy year, so take your policy out and read it. Keep in mind, on non-qualified and qualified annuity policies, if you are under 59 1/2, a 10% penalty may be imposed by the IRS. Some exceptions could apply including paying for higher education, disability defined by the IRS, etc. For more information contact your Insurance Department or a local insurance professional.

Disclaimer: Always consult a financial profession to determine what coverage is right for you.

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