Understanding the Annuity Free Look Period

The annuity free look period is a final chance for you to make sure that you are happy with your new annuity and get any questions you have answered.

If, for any reason, you decide that you do not want to go through with purchasing the annuity, you can opt out of the contract during this period with no penalty. You will be refunded any premiums or fees that you paid into the annuity and will not face surrender charges.

The free look period will last at least 10 days, but the exact time varies from state to state. In some states, it could last as long as a month. Insurance companies can also opt to offer a period that is longer than the state-mandated minimum.

It can be critical to take advantage of this period since attempting to walk away from or break an annuity contract afterwards can be very difficult. You will likely face surrender charges or other penalties if you decide to break the contract after the free look period.

The free look period gives you one last opportunity to review your annuity and be sure that you are happy with your purchase. There are several factors you should consider during this time.

Annuities can be complex products that come in many different forms and can include various riders. The free look period can give you some time to be certain that you are satisfied with the final version of your product.

This period also serves as an opportune time to go over the contract itself and be sure that there is nothing that you take issue with. If you determine that you are not happy with the contract or that the annuity did not turn out as you had hoped, you can cancel the annuity during the free look period without any penalties or fees.

One reason the free look period is so advantageous to buyers is that canceling an annuity is not always easy or straightforward once the contract is signed and the period is over.

During the free look period, you can cancel without penalty and may also receive back any premiums you have already paid into the annuity. If you attempt to cancel an active contract, this may not be the case.

When you attempt to break an annuity contract by taking money out of it early, you will likely face surrender fees and charges. Typically, the penalty will be harsher the earlier you cancel the annuity. It may also be very difficult to cancel an annuity once it has annuitized and you are receiving set payments. You may not be able to cash out the principal.

Many of these potential pitfalls can be avoided by taking advantage of the free look period to ensure that you are not locking yourself into an annuity that you will not be happy with or that you may not be a suitable buyer for.

The rules surrounding free look periods and other annuity topics are set at the state level, so the way the period works will depend on where you live.

Generally, you will have at least 10 days to look over your contract and cancel the annuity without penalty. However, some states require longer periods. Texas, for example, mandates a 20-day free look period. In other states, the period can last as long as 30 days.

Annuity providers also do not have to set their free look period at exactly the state requirement. It can be longer — but it can’t be shorter.

When looking for an annuity, it may make sense to ask potential providers about their free look period policies.