Utah Life Producer Practice Exam

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Prepare for the Utah Life Producer Exam with study materials, quizzes, and expert insights. Our resource offers hints and explanations for each question, enabling you to understand key concepts deeply. Boost your readiness with our comprehensive review!

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What is a surrender charge in relation to annuities?

A fee for early withdrawal
A charge for fund management
A penalty for late contributions
A fee for converting to a different type of annuity

The correct answer is: A fee for early withdrawal

A surrender charge is a fee that applies when an annuity holder withdraws funds from their annuity before a specified period, typically during the initial years of the contract. This charge is designed to discourage early withdrawals and compensate the insurer for the costs associated with issuing the annuity. It can be viewed as a penalty for accessing funds sooner than agreed. Understanding this concept is crucial because annuities are often long-term investment vehicles, and the surrender charge reinforces the commitment to the investment over the intended term. The charge decreases over time as the contract matures, becoming less burdensome as the policyholder stays invested longer.