What is the typical outcome if a variable annuity contract is terminated early?

When a variable annuity contract is terminated early, it is common for a penalty fee to be applied. This is due to the structure of variable annuities, which are designed as long-term investment vehicles. When a policyholder decides to withdraw their funds before a predetermined period, insurance companies often impose surrender charges. These charges serve as a disincentive for early withdrawals and help the company recoup costs associated with issuing and managing the annuity.

As a result, while some options might suggest a full refund or no financial consequences, the reality is that early termination typically incurs some form of penalty, reflecting the investment nature of variable annuities. Hence, understanding the implications of early withdrawal and the related fees is crucial for policyholders considering their options.