What does a surrender charge schedule outline in relation to annuities?

A surrender charge schedule outlines the penalties that apply to early withdrawals from an annuity during the initial contract period. This is crucial for consumers to understand, as it details the potential financial implications of accessing their funds before a specified time frame. Surrender charges are typically designed to discourage policyholders from withdrawing funds too early, allowing the insurance company to recoup costs associated with issuing the annuity.

The schedule typically specifies how much the charge will decrease over time, often diminishing to zero after a set number of years. This structure encourages long-term investment and helps ensure that the annuity fulfills its purpose as a retirement savings tool or a long-term financial strategy. Understanding surrender charges is vital for making informed decisions regarding the timing and method of withdrawing funds from an annuity.