What Does Surrender Fee Mean?

In its first meaning, the term refers to a charge deducted from investors due to their early withdrawal of their invested amounts. This means a risk, an expense or a loss for the annuity or insurance policy, therefore the investor must be punished in some ways, and the insurance company compensated.

Surrender fee or charge is also used in the context of transactions between the insurer and the insured. In this case the surrender fee is the amount of money which is levied against the policy owner who has cancelled the insurance contract.

Surrender Fee Explained

In both senses, but mainly in the first meaning, surrender fees play an important role in maintaining a good insured (investor)/ insurance company relationship based on reliability. This means an investor is recommended to maintain their investments and not to cancel their contracts. Similarly, insurance companies have lower risks, as they usually have enough information on their client’s intentions concerning withdrawals. However, if a client or an investor terminates the contract before informing the company, this in turn will benefit from the deducted fees.

One should know that surrenders fees vary from company to company, and also according to the type of the insurance contract.