Ann owns a variable annuity share class C. After 3 years, she surrenders the annuity so she can take the $100,000 and go on a lavish round-the-vacation. If her annuity is typical for share class C, how much will she pay in surrender charges?
Answer (2)
Ann will likely pay around $2,000 in surrender charges if she surrenders her share class C variable annuity after 3 years, assuming a typical charge of 2%. It is important for Ann to verify the specific terms of her annuity contract, as these can differ by provider.
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Ann's question involves understanding surrender charges associated with variable annuity share class C.
What is a Variable Annuity and Share Class C?
A variable annuity is a type of investment where the return is based on the performance of a portfolio of investments chosen by the holder. Share class C of variable annuities typically has a level sales charge structure, meaning there are no front-end loads (upfront sales charges) but may have deferred sales charges when surrendered early.
What are Surrender Charges?
Surrender charges are fees imposed by annuity providers if the annuity is surrendered or withdrawn before a certain period, usually to encourage long-term investment.
Typical Characteristics of Share Class C:
Generally, share class C annuities have lower or no upfront fees.
They often impose surrender charges if surrendered within the first 1-5 years.
Surrender charges typically decrease over time.
Calculating Surrender Charges:
Since Ann surrenders her annuity after 3 years and assuming her annuity is a typical share class C:
Most share class C annuities have around a 1-3% surrender charge if surrendered within the first 3-4 years.
For an approximate calculation, let's assume a 2% surrender charge based on industry norms for share class C after 3 years:
Surrender Charges = 0.02 × 100 , 000 = 2 , 000
Thus, Ann would likely pay around $2,000 in surrender charges if she surrenders her annuity after 3 years.
Conclusion
Ann should carefully consider the financial implications and explore the terms of her specific annuity contract, as terms can vary by provider.
