Insurance--Annuities
Surrendering your annuity
contract
If you purchase an
annuity and then change your mind, you simply surrender your annuity. You
will face a surrender fee if you surrender within the first seven to eight
years of the annuity. The faster you surrender, the more in fees you will
pay. For example, if you surrender in the second year, you will pay a lot
more than if you had surrendered in the eighth year.
If you want to switch your annuity for
another type of annuity, you can do it without paying any taxes. This is
known as a 1035 exchange. You can exchange a life insurance policy for
another policy, an annuity for another annuity or a life policy for an
annuity. However, if you change an annuity for a life insurance policy,
you will pay taxes on the gains made while under contract.
If you find that you need money, some
insurers will allow you to take a small portion of your investment -
usually 10% to 15% -- especially in the cases of illness or disability.
Once the annuitization period begins, you can take out as much as you
want. You will be subject to a 10% penalty tax for any withdrawals made
before you reach 59 ½.
