A charge to annuity contract owners who withdraw funds during the “surrender charge period” or the first several years of the contract. Surrender charges are also referred to as surrender fees and early withdrawal fees. The specific terms will vary among insurance companies and contracts, but surrender charges are typically assessed as a percentage of the contract value for withdrawals that exceed a certain percentage of the contract value. For example, an annuity may have a 7% surrender charge for any withdrawal in excess of 10% of the premiums paid. Assume that a person paid $100,000 in premiums and withdraws $50,000 during the first year. In this case, the surrender charge would be $3,500 ($50,000 x 7%). The surrender charge will often reduce a certain percent each year—typically 1% each year—until it disappears. The expenses are significant, so it is critical to ask about and understand surrender charges before entering into a new annuity contract or considering a 1035 exchange.