Question 65

Surrender charges will reduce the final contract settlement.

When a contract owner fully surrenders an annuity contract, any applicable surrender charges will indeed reduce the final settlement amount received from the annuity.

A) reduce the final contract settlement

This option is correct because surrender charges are typically deducted from the total value of the annuity at the time of surrender. This means that the amount the owner ultimately receives will be less than the accumulation value due to these charges.

B) be paid in addition to the accumulation value

This option is incorrect as surrender charges are not an additional payment. Instead, they are subtracted from the total value, meaning the owner will not receive the full accumulation value, but rather a reduced amount after these charges are deducted.

C) determine the available payout options

This option is also incorrect. Surrender charges do not influence the payout options available under the annuity contract. Payout options are typically predetermined by the terms of the contract and are not affected by the charges incurred during surrender.

D) be held to pay future administrative costs

This option is incorrect as well. Surrender charges are not retained for future administrative costs; they are a one-time deduction applied when the annuity is surrendered. They do not serve to cover ongoing costs but are rather a penalty for early withdrawal.

Conclusion

Option A is definitively correct because it accurately describes the impact of surrender charges on the final settlement amount when an annuity contract is surrendered. The other options fail to correctly represent how surrender charges function within the context of annuity contracts, thereby reinforcing Option A's validity.