The maximum charge that can be levied by the insurance company when an investor withdraws money in excess of the acceptable amount before the variable contract’s annuitization date.
Benefits
The manner in which the surrender charge declines is noted in parentheses next to the percentage figure. Variable life policies generally feature both full and partial surrender charges. Full, partial, and rolling charges denoted in Morningstar Advisor Workstation.
Origin
This information is taken directly from the insurance contract’s prospectus.
For the Pros
In variable annuities, surrender charges are often used in place of front-end sales loads and, in effect, compensate the insurance company for the expenses of starting up a contract. Usually, the surrender charge is expressed as a percentage of the amount of the contract value that is either withdrawn or surrendered, and is generally imposed on the premiums paid and not the gains.