- Start with the free-look period if the contract is new — in most states you can cancel within 10 to 30 days of delivery and get your money back.
- The free withdrawal allowance, commonly around 10% of value a year, is the cheapest ongoing exit and costs nothing beyond tax.
- A full surrender costs the surrender charge plus any market value adjustment, and the MVA can work in your favour when rates have fallen.
- A 1035 exchange moves the contract without tax but does not waive the old surrender schedule — and can start a new one.
- Selling payments to a factoring company is the most expensive door and the one most heavily advertised. Price everything else first.
Most people arrive here after discovering something about a contract they already own — a surrender schedule longer than they remembered, a rider fee they did not price, or income that turned out to be smaller than the illustration implied. The good news is that there are six ways out. The useful news is that they cost wildly different amounts, and the most expensive one is the one with the advertising budget.
Here they are in the order you should try them.
Door 1 — The free look, if the contract is new
Every state requires a free-look period after the contract is delivered — commonly 10 to 30 days, longer in some states and for some buyers — during which you can cancel and receive your premium back. This is the only exit that costs nothing at all.
Two details decide whether it is available to you. The clock generally starts on delivery of the issued contract, not on the date you signed the application, and those can be weeks apart. And the window applies to the contract as issued, which is frequently not identical to the illustration you were shown. If a contract has arrived in the last month, stop reading and go check the first page for the free-look language before anything else on this list.
Door 2 — The free withdrawal allowance
Most deferred contracts permit withdrawing a percentage each year with no surrender charge, commonly around 10% of the account value. It is usually exempt from any market value adjustment too.
Cost: nothing beyond tax. Gains come out first on a non-qualified contract and are ordinary income, plus the 10% additional tax if you are under 59½. If your need is for part of the money rather than all of it, this door frequently solves the whole problem, and a surprising number of people surrender an entire contract when they needed one year's allowance.
Door 3 — Waivers you may already have
The most overlooked door. Many contracts waive surrender charges entirely under specific conditions: entry into a nursing home or extended care facility, a terminal illness diagnosis, and sometimes disability or unemployment. Waiting periods and definitions vary a great deal, so this needs reading rather than assuming.
Check for it before paying a surrender charge, because it costs nothing to ask and it converts an expensive exit into a free one for the people most likely to need the money urgently.
Door 4 — Full or partial surrender
The straightforward exit: take the money, pay the charges. Two separate charges apply and most people only know about one.
The surrender charge is a declining percentage set at issue — often starting high in year one and stepping down annually until the surrender period ends. It is printed in the contract and you can read exactly what year you are in.
The market value adjustment is the one that surprises people. It moves the payout up or down based on where interest rates sit relative to your issue date, and it has no fixed schedule to look up. Rates up since you bought means a negative adjustment stacked on the surrender charge. Rates down means a positive one — and in that case surrendering can cost meaningfully less than the schedule alone suggests, occasionally almost nothing. This is worth computing rather than assuming, because it is the one variable that can move in your favour.
Then tax: gain is ordinary income, and the 10% additional tax applies under 59½ unless an exception fits. Ask the carrier for a written full surrender quote, which decomposes the charge, the adjustment, and the withholding. They will provide one and it takes a phone call.
Partial surrender deserves its own mention: taking only what you need means charges apply only to that amount, and the rest keeps its terms. Size the exit to the actual need.
Door 5 — A 1035 exchange into something better
If the problem is the contract rather than the money — a poor crediting structure, an expensive rider, a carrier you have lost confidence in — a Section 1035 exchange moves annuity to annuity without a tax bill, preserving your basis and deferral.
What it does not do, and this is the trap: it does not waive the old contract's surrender charge, and the new contract almost always starts its own surrender period. Exchanging out of year seven of a ten-year schedule into a fresh ten-year schedule pays a charge to reset a clock, which is how an exchange can be worse than doing nothing. Run three numbers before agreeing: the surrender cost of leaving, the new contract's schedule, and what you actually gain in terms.
One motive to be alert to: an agent earns a commission on the new contract and none on you keeping the old one. That does not make the recommendation wrong, but it does mean the arithmetic should come from someone else.
Door 6 — Selling the payment stream
If the contract is already annuitized, or you hold a structured settlement, factoring companies will buy the payments for a lump sum. This is a real market providing a real service to people with genuine urgency.
It is also the most expensive door on this page. Buyout pricing commonly implies discount rates that cost a quarter to a third of what the stream is worth — our selling guide prices the haircut at each rate in dollars. Structured settlement sales require court approval; ordinary annuity streams get no such review. Exhaust everything above first, then sell the fewest payments that solve the actual problem, bid it competitively, and know the implied rate before signing.
The one door that may not exist: undoing annuitization
If you have already annuitized, there is generally no account value to recover. You exchanged the sum for the payment stream, permanently, and that irreversibility is the mechanism that funded the guarantee. Some contracts offer limited commutation of a period-certain portion, priced unfavourably. Check the contract, but set expectations low — and if you are considering annuitizing and this paragraph worries you, that is useful information about whether to do it.
The order, restated
Free look if you are inside the window. Free withdrawal if you need part of it. A waiver if your circumstances qualify. Partial surrender before full surrender. A 1035 exchange if the contract rather than the money is the problem, with all three numbers computed. Selling payments last, competitively, and only for what you need.
Run in that order, a large share of people discover the problem was solvable at door two or three. The reason the sixth door feels like the first is that it is the only one with a marketing budget.
Frequently asked
Want the exit priced before you pull the trigger?
Send the contract and a current surrender quote. We will decompose it into surrender charge versus market value adjustment, check whether any waiver applies to you, and tell you which of the six doors is cheapest in your specific case.
Book a Free Review →