Can I Cancel My Annuity?
Annuities are large financial decisions, and you may be wondering what your options are if you change your mind after you purchase your annuity. This in part depends on when you decide to cancel and what type of annuity you have.
One thing all annuities have in common is the Free Look Period. The free look period is a limited time, often anywhere from 10 to 30 days, where you can cancel your annuity for a full refund, no questions asked.
If your free look period expires, your ability to cancel your annuity depends on the type of annuity you have: immediate annuity, deferred income annuity, fixed index annuity, or multi-year guarantee annuity. While some annuities allow for partial withdrawals, many have significant surrender penalties, market value adjustments (MVAs), or may even be completely illiquid.
Can I cancel my annuity during the free look period?
Yes, in fact this is the best time to cancel your annuity. During the free look period, you can cancel your annuity and get your full premium back from the insurer. Canceling during your free look period means you won’t have any penalties; you are legally permitted to cancel during this time.
Just keep in mind that this is not an instantaneous process. The insurer will have to process your free look, and send your money back.
Where your money gets sent back to depends on its tax qualification and source. Here’s a general breakdown of how this works with different sources:
- Personal savings: the insurer will send the refund back to you
- Partial IRA transfer: the insurer will send the refund back to the original IRA
- Full IRA transfer: you will have to open a new IRA for the insurer to send the refund to
- Non-qualified annuity: you will likely have to accept the refund personally, which may have tax implications
- Qualified annuity: you can open an IRA to accept the qualified refund
It’s worth noting that your free look period begins as soon as your contract is issued. So you want to be sure that you initiate your free look as soon as possible if you change your mind.
Can I cancel my annuity before the contract is issued?
This is actually the best time to change your mind. Speak to your agent as quickly as possible about canceling your application.
If you act fast, the insurance company may never send a transfer request to your fund custodian, so the money may never get sent to the insurer. This greatly simplifies the process as no refund needs to be given.
What if I want to cancel after the free look period ends?
If your free look period has already expired and you want to cancel your annuity, your ability to do so depends entirely on the annuity you purchased. Some annuities have limited withdrawal options while others have none.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
Annuities with Surrender Charges
If you purchased an annuity with a surrender charge schedule, you may have to accept the surrender charges and market value adjustment (if applicable). This would mean that you aren’t going to get your full account value back, but you will get some of it back.
Annuities that often have surrender schedules are multi-year guarantee annuities and fixed index annuities.
Annuities with Withdrawal Provisions
Some immediate annuities and deferred income annuities have withdrawal provisions. They may allow you to make a lump sum withdrawal in exchange for a reduced income stream later.
However, if your intention is to cancel your annuity entirely, some insurers will allow you to make a full withdrawal. Just keep in mind that your withdrawal may be significantly reduced from the current account value of the annuity depending on your surrender charges.
Annuities with No Withdrawal Provisions
If you purchased an annuity with no withdrawal provisions, canceling your annuity becomes extremely difficult or impossible. You are relying on the insurer making an exception for you, which they do not have to do.
If your annuity has no withdrawal provisions, but you absolutely must cancel it, another option is selling your income stream. This would give you a lump sum upfront, but you would be giving up future payments from your annuity.
While these types of settlements are generally bad financial decisions for the seller of the annuity, these income streams are often resold at competitive rates. We have a list of secondary market annuities where you can peruse income streams people have sold.
Will I be taxed if I cancel my annuity?
This depends on the funding source of your annuity and how you cancel it. If you cancel during your free look period and your money can go back to the original account, you should not incur any taxes.
However, if you cancel a qualified annuity and it is not returned to a qualified account, this would be considered a distribution and trigger taxes. Similarly, if you cancel a non-qualified annuity purchased via a 1035 exchange, and it cannot be returned to the original policy, the untaxed earnings would be subject to taxes.
If you make a full withdrawal after the free look period, you may be subject to taxes on any earnings that have not yet been taxed in addition to surrender charges deducted from your account value.
It is also worth noting that distributions from qualified accounts or tax deferred annuities prior to 59½ can result in 10% penalties from the IRS.
Can I cancel my annuity due to illness or hardship?
Yes, but this depends on the terms of your annuity contract. Some annuities have provisions for terminal illness or nursing home confinement. If you meet the criteria outlined in your contract, the insurer may allow you to withdraw some or all of your annuity's account value.
Bear in mind that these provisions are not universal, vary by contract, and may have specific requirements or limitations.
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| Oxford LifeMulti-Select 8 | 5.35% | 8 |
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| AxonicAxonic Waypoint 5 | 5.70% | 5 |
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| AxonicAxonic Waypoint 3 | 5.45% | 3 |
| AxonicAxonic Waypoint 2 | 5.00% | 2 |
Is canceling after my free look period a bad idea?
Yes, it is generally a bad financial decision to cancel your annuity after your free look period. Even with annuities that have more forgiving surrender charge schedules, you are still losing money. And if your annuity doesn’t allow withdrawals, your options become even worse.
As a result, we encourage you to take some time, do research, and ask questions before you purchase your annuity. When people come to us with an annuity that isn’t performing the way they thought it would, it’s very unfortunate but there’s little we can do.
Need Help Finding the Right Annuity?
If you want to make sure you are purchasing the right annuity, just call our U.S.-based annuity experts at (866) 866-1999. We’re happy to talk through which annuities can meet your financial goals so you don’t have to worry about canceling your annuity after the fact.
We have decades of experience helping people find the right product. Just check out our excellent customer reviews. Call us, we’re happy to help.
The Bottom Line
When you purchase an annuity, you are granted a free look period, which allows you to cancel the policy and receive a full refund without any penalties. This period typically lasts between 10 and 30 days, depending on your state's regulations.
If you cancel after your free look period, you may face surrender charges, tax consequences, or you may not be able to cancel at all.
We encourage you to carefully consider your decision, consult with a fee-only financial advisor and loved ones, and read the annuity's brochure carefully before purchasing an annuity.
What is a free look period?
A free look period is a limited time period after your contract is issued where you can cancel the policy and receive a full refund. Free look periods typically last between 10 and 30 days, depending on your state's regulations.
Can I cancel my annuity after the free look period?
Canceling your annuity after the free look period depends on the terms of your policy. If your annuity has a surrender charge schedule, you can likely cancel it, but the insurer keeps a portion of the funds as a penalty. If your annuity does not have any liquidity features, your only option may be to sell the income stream on the secondary market.
Is canceling my annuity a bad idea?
If you cancel your annuity before the contract is issued or during the free look period, you will get a full refund; the only cost is your time and effort. However, if you cancel after the free look period, it is likely you will lose money. You will either be charged surrender charges or get a reduced lump sum on the secondary market, and you may face tax consequences. Canceling outside your free look period is generally a bad financial decision.
Where does my money go if I cancel during the free look period?
The insurer typically sends the money back to its original source. However, if you have closed this account, you may need to open another account of the same type or the funds may be returned to you, which could have tax implications.
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Comments (8)
Kyle
2023-07-13 11:26:00
Hi Rob,
Thank you for reaching out. Free look periods are always at least 10 days, but can be as long as 30 days from the date you receive your contract booklet. You should see the length of your free look period listed in the first few pages of your contract.
We would have to recommend that you reach out to Mass Mutual for guidance on your particular case.
Best of luck,
Kyle
Rob P.
2023-07-12 16:43:30
How is the look free period determined? I just purchased a fixed annuity through Fidelity (Mass Mutual) and I'm not sure if I can get out without paying a penalty. I signed the contract on June 12th. I live in Texas. I'm wondering if I can cash out. I heard that I had 3 months for the look free period from another source.
Kyle
2023-04-26 16:59:35
Hi Luis,
Thank you for reaching out.
Generally, when you purchase an annuity there is a free-look period of at least 10 days, during which you can cancel your contract and be refunded. However, we're not sure whether a 'TSP direct to MetLife' annuity purchase might receive different treatment.
We would recommend reviewing your annuity contract to see whether there is a mention of a "free look period," and then working with TSP/MetLife to resolve the issue.
Best of luck!
- Kyle
Luis
2023-04-25 15:30:55
Regarding annuities, recently i requested 401k(Thirfy saving) for monies in the account close. They reply with check to be delivered. Somewhere, this turns into a annuity with. METLIFE, so I call MetLife and indicate that i in the grace period for cancelling, they indicate that this needs to be done by the "TSP". The TSP indicates that are irreversible,
and I said well i haven't receive no monies from MetLife and they insist that TSP can reverse the same
Question? I'm doom or is there light at the end of this tunnel. Appreciate any feedback, thanking in advance
Hersh Stern (ImmediateAnnuities.com)
2015-09-14 09:39:59
Hi Lynne-
First, I want to establish that I don't sell variable annuities so I am not an expert in how that type of annuity works. My comments are more general in nature about how one might approach trying to cancel an existing annuity.
Start with the agent who sold you the policy. What did he or she suggest when you told him you wanted to cancel your contract? Even if he agrees with you, frankly, know that there may not be much he can do to influence the insurance company in your favor. Most companies will not reverse a contract unless there is clear evidence of malpractice on the agent's part or there was written evidence of misinformation or misstatements in the paperwork or presentations.
Also, keep in mind, that the application paperwork probably included a page you signed saying that you understood how the annuity worked and how its expense ratios would be calculated. So it may be difficult to make a case that you were not told that information.
After discussing your options with the agent, call the issuing company. Keep a record of the dates, times, names, extension numbers of all employees you speak with and what was discussed or promised. Insist that a note with your request and complaint be added to the company's recordkeeping system so it can be referred to later on. If you feel you're not getting the right attention ask the customer service rep to escalate your request to a supervisor.
Finally, if after discussing your concerns with the company's reps, you still feel you are not getting a fair hearing, you can contact your state insurance commissioner's office and or the federal regulators who oversee the marketing and administration of variable annuities. They may be able to help you if there's clear evidence that the agent violated the regs or practices required when selling this type of annuity.
Hersh
Lynne
2015-09-14 09:37:48
I purchased a variable annuity a few months ago and it is now beyond the "Look free" period. My financial adviser explained the details of it to me, quoting the percentages for the M & E expenses. Recently, another financial adviser evaluated it for me and explained what those percentages translated into dollar amounts. I was appalled! What are my chances for cancelling this annuity? I had no idea what it would cost me, therefore I want my money back and without the surrender fee applied.
Hersh Stern (ImmediateAnnuities.com)
2014-10-28 15:36:05
Hi Edward-
You asked about buying a deferred annuity within a rollover IRA.
There are two types of deferred annuities you might be considering:
1. Deferred income annuity (DIAs) - this is like an immediate annuity but with a delayed start date. Generally, DIAs cannot be cashed out so this purchase would be irrevocable.
2. Deferred Multiyear or Index annuity- this type is somewhat like a bank certificate of deposit but without FDIC coverage. Index annuities are also somewhat like mutual funds but with limited upside growth and full downside or loss protection. These annuities can be cashed out at a later date.
All the above annuities can be purchased with IRA monies. You start by investigating the various types and deciding which type to buy and from which insurance company. The carrier's application paperwork will include an IRA transfer authorization form. This tells your present IRA custodian to release your money to the insurance company. Such a transfer is called a "direct transfer" (custodian to custodian) and should not create a taxable event.
If you have particular questions please call me at 800-872-6684. I'd be happy to discuss your plans with you.
Hersh
Edward M.
2014-10-27 15:44:08
How do I go about buying a deferred annuity within my rollover IRA?