If you purchase an annuity and then change your
mind, you simply surrender your annuity. You will face a surrender
fee if you surrender within the first seven to eight years of the
annuity. The faster you surrender, the more in fees you will pay.
For example, if you surrender in the second year, you will pay a lot
more than if you had surrendered in the eighth year.
If you want to switch your annuity for another
type of annuity, you can do it without paying any taxes. This is
known as a 1035 exchange. You can exchange a life insurance policy
for another policy, an annuity for another annuity or a life policy
for an annuity. However, if you change an annuity for a life
insurance policy, you will pay taxes on the gains made while under
contract.
If you find that you need money, some insurers
will allow you to take a small portion of your investment - usually
10% to 15% -- especially in the cases of illness or disability. Once
the annuitization period begins, you can take out as much as you
want. You will be subject to a 10% penalty tax for any withdrawals
made before you reach 59 ½.
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