A surrender charge is when a policyholder cashes out their annuity or life insurance policy before a certain date, known as the surrender period, the insurance company will apply a cost. Typically, applicable to adjustable life insurance policies such as indexed universal life insurance, variable universal insurance, and whole life insurance policies.

A generally declining schedule of charges against the cash value may be imposed on the life insurance policy for a certain number of years from the policy issue date if the policy is surrendered, the death benefit is reduced, or in some instances, the surrender charge is taken into account in the monthly calculation to determine if the policy is still in force.'

It is important to review the terms of a life insurance policy before signing up and to fully understand the implications of a surrender charge before making a decision to cash out.

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