Features Of A Fixed Index Annuity: Surrender Charges
November 17, 2020 by Wade Pfau
Fixed index annuities can be complex financial products, and I will conclude this chapter* by discussing some of the other various features one may come across when investigating FIAs.
We begin with surrender charges or, more formally, contingent deferred sales charges. FIAs are meant to serve as long-term tools and surrender charges help the insurance company to invest in longer-term bonds with higher yields and to recover its initial fixed costs for setting up the contract. Surrender charges will only apply to excess distributions in the early years of the contract. As one example, surrender charges might apply during the first seven years of a contract. These charges could start at 8 percent and decrease until they are eliminated entirely after year seven.