Whether they realize it or not, clients considering the surrender of an annuity product have many factors to weigh before determining whether walking away is the wisest course of action, and the scenario is becoming more common each day. Clients who are locked into variable annuity products may find themselves evaluating buyout offers from insurance companies that want to escape the guarantees that are often attached to these products. In other cases, clients may simply have buyer’s remorse and wish to escape themselves. In either case, professional guidance is crucial to navigating the decision making process—to ensure both that the client receives the best possible deal upon surrender and that the recovered funds are allocated in a manner that best suits the client’s current needs.
To Surrender or Not to Surrender
Clients who purchased variable annuities with a view toward generating retirement income may be facing buyout offers, notices that their investment choices are being limited to those that are very conservative, or may simply find themselves facing changed circumstances so that the product no longer makes sense.
For example, a client who has recently been diagnosed with a disease that is likely to shorten his life expectancy may find that surrendering the annuity in exchange for a lump sum payout may better serve his reduced need for lifetime income. Other clients may be facing unanticipated expenses and see the buyout as a way to meet those expenses.
Clients facing the need for an immediate lump sum of cash should also be aware that it may be possible for them to withdraw a portion of the annuity’s assets, keeping only a small part of the initial investment in the annuity to maintain the contract’s death benefit. Clients who are simply unhappy with the variable annuity’s investment performance may also find this strategy appealing, as they can then invest in another income-producing product while preserving some value in the original annuity.
For clients who are still attracted to the income-producing feature of a variable annuity, however, it might be best to hold on to the product in the face of a buyout offer, especially if the product offers guaranteed returns that may be unavailable in a replacement product.
Considerations upon Surrender