Glossary
Surrender charge
A fee deducted from a policy's or annuity's value if you cancel or withdraw too much in its early years, usually shrinking each year.
Also called: surrender fee, contingent deferred sales charge, CDSC, back-end load
A surrender charge is what an insurer keeps if you cancel a permanent life policy or deferred annuity in its early years, or withdraw more than the contract allows. It lets the company recover up-front costs, mainly the agent's commission, that it expected to earn back over time. The charge typically declines on a schedule until it reaches zero at the end of the surrender period.
Life policies often express it as a dollar amount per $1,000 of coverage or a share of target premiums; annuities usually use a percentage of the amount withdrawn. Hypothetically, an annuity with a schedule of 7, 6, 5, 4, 3, 2 and 1 percent would charge $2,500 on a $50,000 surrender in year three (at 5 percent) and nothing after year seven. Many annuities let you take part of the value, often 10 percent a year, without a charge under a free withdrawal provision.
Surrender charges are a key reason early cancellation of permanent insurance is expensive, and a frequent issue in replacement sales, where a new contract restarts the clock. Check the schedule before buying and before switching. See life insurance surrender charges explained and annuity surrender charges and free withdrawals.
Last reviewed October 4, 2026