Which statement about surrender charges on deferred annuities is true?

Which statement about surrender charges on deferred annuities is true?

• A. Surrender charges are never assessed during the accumulation period.
• B. Surrender charges apply only after the contract matures.
• C. During the early part of the accumulation period, the insurer normally waives surrender charges.
• D. During the early part of the accumulation period, the insurer normally assesses a surrender charge.

Answer: (D)

Surrender charges are fees designed to recover the insurer’s costs and deter early withdrawals from a deferred annuity. In the accumulation period, premiums grow tax-deferred, but if you pull money out too soon, the insurer wants to recoup sales commissions and other expenses. So, during those early years, a charge is normally assessed and then declines over time until it eventually disappears after the surrender period ends. That’s why this statement is true: early in the accumulation period, the insurer normally imposes a surrender charge. The other ideas—no charges during accumulation, charges only after maturity, or waivers in the early period—don’t align with how surrender charges are typically structured.

Surrender charges are fees designed to recover the insurer’s costs and deter early withdrawals from a deferred annuity. In the accumulation period, premiums grow tax-deferred, but if you pull money out too soon, the insurer wants to recoup sales commissions and other expenses. So, during those early years, a charge is normally assessed and then declines over time until it eventually disappears after the surrender period ends. That’s why this statement is true: early in the accumulation period, the insurer normally imposes a surrender charge. The other ideas—no charges during accumulation, charges only after maturity, or waivers in the early period—don’t align with how surrender charges are typically structured.