Insurance Library

Annuities > Cancellation

If you buy an annuity and then decide you want to get your money out, you can surrender your annuity. Most companies will charge you a surrender fee if you decide to surrender your annuity within the first seven to eight years of owning it. The less time you spend in the annuity, the more you will pay in surrender fees.

Besides paying a surrender fee to your insurance company, you may incur a 10% penalty tax if you surrender your annuity before the age of 59½.

In extreme circumstances, such as serious illness or disability, some insurance companies will allow you access to a small percentage of your annuity investment (10 to 15 percent) with no penalty. Though after the surrender period ends, you can withdraw as much as you want. Again, if this is before the age of 59½, you may pay a penalty tax.

Another option, rather than surrendering your annuity, is to switch it for another. This can be done without paying taxes. According to Section 1035 of the federal tax code, you can exchange a life insurance policy for another life insurance policy, an annuity for another annuity, or a life insurance policy for an annuity without paying taxes. However, when exchanging an annuity for a life insurance policy, you will pay taxes on the gains in your contract. This exchange of contracts is knows as a 1035 exchange.