Are We There Yet?
Generally, longer surrender periods give you better benefits. The insurance company knows you're not going to snatch your money out of your account, so they can do more with it behind the scenes. Surrender periods may be any number of years (0, 4, 7, or more are commonly used).
For example, the insurance company may give you a higher guaranteed interest rate with a longer surrender period, or they may offer guarantees that last longer. Depending on your needs and expectations about interest rates, the guarantees may or may not be useful.
Some products with the longest surrender periods do not benefit you at all. Instead, they're abusive and provide larger commissions for salespeople (a salesperson deserves to earn a living, but some annuities pay enormous commissions). If you see a surrender period longer than 7 years, ask about shorter surrender schedules and see what the tradeoffs are.
Don't use an annuity with a surrender period you're not comfortable with. You'll lose money, and you can always find annuities with surrender periods aligned with your goals.
Dodging the Surrender Charge
If you need money but you're not out of the surrender period, you may have some options. Check with the insurance company and see if you can:
- Take out 10% of the initial premium (or any "free money")
- Take out any earnings
- Qualify for a waiver given your circumstances (such as terminal illness or nursing home needs)
- Annuitize the contract
