120k views
4 votes
The most common restriction to fund transfers in variable annuities prevents

1 Answer

6 votes

Final answer:

The most common restriction to fund transfers in variable annuities is the surrender charge, which is a fee imposed by the insurance company when the policyholder withdraws money from the annuity within a certain period of time after purchase. This charge is meant to discourage early withdrawals and protect both the insurance company and the policyholder.

Step-by-step explanation:

The most common restriction to fund transfers in variable annuities is the surrender charge. A surrender charge is a fee imposed by the insurance company when the policyholder withdraws money from the annuity within a certain period of time after purchase. This charge is meant to discourage early withdrawals and allow the insurance company to recoup their costs.

For example, let's say a variable annuity has a surrender charge of 5% for the first five years. If the policyholder tries to withdraw $10,000 within the first year, they would have to pay a surrender charge of $500. The surrender charge typically decreases each year until it reaches zero.

This restriction is in place to protect both the insurance company and the policyholder. It encourages long-term investment in the annuity and prevents people from taking advantage of the tax-deferred growth and other benefits offered by variable annuities.

User Ahmed
by
8.7k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.