How to Close a Variable Annuity Contract

By: Fred Decker

Surrendering an annuity can be costly, so be sure you understand the potential fees and taxes.

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A variable annuity might not represent the sexiest of available investment products, but many investors can find them to be an important piece of their portfolios. Variable annuities are essentially a collection of securities purchased within an insurance contract, which gives them several advantages. Most include guarantees to minimize losses in down markets, and they provide market-driven, tax-sheltered growth in strong markets. Unfortunately, their costs are also higher than many competitive investments while returns can be lower. You can close out your annuity and retrieve the capital if you're unhappy with your investment, but there are costs to consider.

Step 1

Locate your copy of the variable annuity contract and your most recent statements from the insurer that issued the contract.

Step 2

Review the conditions and charges for surrender of your contract. Most contracts carry a stiff "surrender charge" for the first several years of the annuity, but the charges usually drop to zero after seven to 10 years. If you're still liable for charges, assess how much you'll pay.

Step 3

Look at your most recent statement to check how much gain your investment has earned. That amount will be taxable as ordinary income when you close the annuity. If you aren't at least 59 1/2 years of age, the IRS will also levy a 10 percent surcharge on the taxable portion.

Step 4

Contact the insurance company that issued the annuity contract and request surrender forms for your variable annuity. The company's website might also make them available as PDF files for download, which makes the process faster and more convenient.

Step 5

Complete the forms according to the insurer's instructions, specifying that you wish to surrender the annuity as opposed to making a partial withdrawal. Some companies might require you to have your signature witnessed as a way to protect you against fraud.

Step 6

Submit the forms to your insurer. If you've filled them out correctly, you can usually expect to receive a check within two to three weeks.


  • Some annuity contracts enable you to surrender or withdraw from the contract without penalty for specific hardship circumstances. If that's why you're closing your annuity, contact the insurer and ask what arrangements can be made.
  • It's possible to purchase "no-surrender" annuities that don't charge fees for closing your contract. They typically offer lower returns or charge higher administrative costs to offset the product's expenses.
  • Many annuities offer less-drastic options, such as borrowing from the contract or partial withdrawals, to help policyholders meet short-term financial crises without terminating the annuity contract.


About the Author

Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.

Photo Credits

  • Ryan McVay/Photodisc/Getty Images

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