The investor sometimes desires to make a withdrawal of the investment made at various sectors. At that time a charge is levied on such early withdrawal of funds in connection with insurance, annuity contract or any other cancellation of the agreement. Such charge is called as surrender charge or surrender fee. The surrender fee may vary from company to company. As far as annuity, the surrender fee for the first year will be 10% of the funds contributed.
The surrender fee not limited to only investment on insurance but extended to all investments. It means when the investor desired early withdrawal of funds out of investments will carry surrender fee. However, the surrender fee is fixed by the respective company and varies with each organization. The investors may desire to sell, cancel certain types of investments or annuity policies. At that time such early withdrawal involves the cancellation of agreement. While cancelling the agreements, the companies impose Surrender fee for which investor supposed to bear.
Surrender fee is an internal fee on the investment to cover the cost of the commission so that the investment company should not lose the money. Therefore the issuing companies will attaché a surrender fee to the investment. Surrender fee is common in case of annuities and mutual funds. Surrender fee is not routine and the fee is attached only when there is withdrawal of funds before maturity of the specified period.
Therefore, the investor must read the contract before signing the investment agreement and aware of the surrender fee. Typically the investors think that there should not be any charge for withdrawal of their own amount. In order to cover the costs of marinating such investments, the surrender is charge is levied. There will be no charges if such investments are withdrawn after completion of specific period.
In fact, the surrender fee is a penalty for early withdrawal of money before specified period. The period is set by the seller. Many annuities charges surrender fees. However, few vendors offer annuities with minimum or even no surrender fees. Also, the investors must be aware that the surrender fees starts based on the initial date of the contract but not subsequent deposits in annuities. Normally, the investments which carry surrender charge might have offered upfront commissions while selling the investments. When the investor chooses early withdrawal, the company will impose surrender charge to recover such commission paid to the investor.