SIE practice questioneasyVariable Annuities — Surrender Charges
An investor who withdraws funds from a variable annuity during the surrender period will typically face:
- ANo charges of any kind
- BA charge that increases each year
- CA surrender charge (contingent deferred sales charge) that decreases over time✓ Correct answer
- DA flat 10% charge regardless of when the withdrawal is made
Explanation
Why C — A surrender charge (contingent deferred sales charge) that decreases over time
Variable annuities typically impose a surrender charge (CDSC) on withdrawals during the surrender period, commonly 6-8 years. The charge usually starts high (e.g., 7%) and decreases by about 1% each year until it reaches zero. This encourages long-term holding. Most contracts allow annual withdrawals of 10% without surrender charges.
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