When most people think of annuities, they think of a safe and secure investment. However, there are times when you may want to get out of your annuity. Whether you’ve lost money on it or don’t need the income anymore, here are some tips and tricks to get out of your annuity without too much hassle.
I Have an Annuity, And I Need Cash Now!
If you’re stuck in an annuity and want out, you’re not alone. Annuities are notorious for being difficult to escape, but there are ways to do it. This guide will go over the various methods to cancel or transfer your annuity contract, least painfully. First, most annuities are long-term contracts. If you’re not ok with committing to at least two years in a contract, don’t buy one.
Free Look Period
Annuities and life insurance have a short time for new contract owner to change their minds and cancel the policy. This period is called the free look period. If the policy owner cancels the policy during the free-look period, the insurance company will refund the insurer’s entire premium. However, the insurer must pay surrender charges and penalties if the policy owner cancels beyond the free look period.
The free look period varies with each policy and is a specified number of days, typically 30 days in length. The period starts on the first day the policy owner receives the policy. The free look period’s length is displayed on the policy’s first page.
Immediate Annuities
The notorious SPIA has always been the poster child for clients stuck in an annuity contract. The singular function of an SPIA is trading your lump sum of cash into a guaranteed income stream, so in most cases, it’s no one’s fault except yours.
So how do we get out of it?
You don’t unless there is a Return of Premium feature, which is rare.
So what’s the other route?
Sell it on the Secondary-Market.
Some firms will purchase your annuitized contract in exchange for a lump sum of money.
Search “Buy My Annuity” on your preferred internet search engine, and there will be plenty of options.
Deferred Annuities
Most deferred annuities are pretty straightforward on how you can cancel your contract because of a surrender schedule that is put in place to see what your penalties will be upfront.
Fixed, Fixed Indexed, Registered-Linked, and Variable Annuities are deferred annuity contracts.
So how do we take money out of the annuity painlessly? When closing out an annuity, there are three options:
- Surrender the annuity, and take the penalty according to the surrender schedule.
- Pocket the maximum annual penalty-free withdrawal amount each year until the policy is exhausted.
- If you’re transferring your annuity for another, find an annuity with a premium bonus to make up the surrender charge from your current annuity.
Two-Tiered Annuity
Another annuity contract that gets a bad reputation. Luckily, two-tiered annuities are not in production currently.
If you are in one of these contracts, there are a few options if you haven’t already annuitized yet.
If you are taking income from the contract, refer to the Immediate Annuity solution.
- Surrender the policy, and take a considerable loss. Move on.
- Pocket the maximum annual penalty-free withdrawal amount each year until the policy is exhausted (if available).
- Annuitize the contract on a period certain basis, and select the least amount of time to get your money back.
- Sell your contract to a secondary-market firm.
Tip* Before you make any quick decisions, call the insurance company first. If your contract has an MVA, and we are in certain market conditions, you might be able to get out of your contract with minimal damage.
Deferred Income Annuity and QLAC
If you haven’t annuitized the deferred income contract, you should be able to get your money out, similar to a deferred annuity.
If you have annuitized, you can sell your contract.
Medicaid Annuities
You can’t get out of your Medicaid annuity. When you purchase one of these contracts, you give your rights to the assets, which means you can’t sell them.
Income Riders
If you’ve purchased a deferred annuity with an income rider, the same cancellation rules apply to deferred annuities.
Look at your surrender schedule, or call the insurance company.
Exercise your options from there.
If you’re transferring your annuity into another annuity contract, don’t be distracted by a “bell and whistle.”
Ensure your financial situation will be improved in the new annuity, meaning you receive more income, a long-term care feature, better growth, etc.
Annuity Liquidity At A Glance
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Immediate Annuity | Deferred Income Annuity | |
|---|---|---|---|---|---|
| Cancellation Allowed | Yes | Yes | Yes | No | Yes/No |
| Penalty-Free Withdrawals | Yes | Yes | Yes | No | No |
| Health-Related Waivers | Yes | Yes | Yes | No | No |
| Return of Premium | No | Yes | Yes | No | No |
When Can You Cash Out An Annuity?
An annuity can be cashed out at any time before annuitizing the contract. If the annuity is cashed out before the deferred annuity’s term has been met, a surrender charge can be applied. Generally, the annuity can be cashed out without a penalty after the term has been completed. Immediate annuities can not be cashed out. Annuitized payments can not be cashed out.
Next Steps
Annuities are long-term contracts, and while they can be a great way to save for retirement, it can be challenging to get out of your contract without taking a financial hit. However, there are ways to cancel or transfer your annuity contract if you know where to look. Do your homework first so that you understand the best route to take before executing any plans. If you have questions about your annuity contract, our team is here to help. Contact us today for a quote on how we can help you terminate your annuity contract efficiently and without too much pain.
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