Updated August 13, 2026
The SEC’s Office of Investor Education and Assistance is issuing this Investor Bulletin to educate investors about some of the pros and cons of annuity buyout offers. This bulletin will provide information to help you consider whether a buyout is right for you.
Note: An annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase an annuity contract by making either a single purchase payment or a series of purchase payments.
Buyout Offers
If you own an annuity, you could receive an offer from your insurance company asking you to accept a buyout offer. A buyout offer refers to an offer by the insurance company that issued the annuity to either: (1) increase your contract value in exchange for giving up a contract benefit; or (2) increase your cash surrender value in exchange for surrendering your annuity or exchanging it for a new annuity that may have different terms and conditions.
Caution: Insurance companies may make buyout offers because it is in their own best interest to do so. The insurance company does not make a buyout offer solely based on a determination that it is in your best interest.
A buyout offer may not be beneficial for everyone. You should accept a buyout offer only when you determine, after knowing all the facts, that it is better for you to accept the buyout offer rather than continue to own your annuity with a particular benefit.
1. If you accept a benefit buyout, your annuity’s contract value will increase, but you will lose the benefit. This can be an attractive option if you are no longer interested in that benefit.
2. If you surrender or exchange your contract, you will receive an increase to your contract’s cash surrender value, and you will no longer own your annuity. This can be an attractive option if you no longer want to own an annuity or if you want to replace your annuity with another annuity with different features, such as different benefits or investment options.
Be aware that the amount of the offer (the amount by which your contract value or cash surrender value will increase if the offer is accepted) may fluctuate. You should contact the insurance company or your investment professional to determine the current value of the buyout offer.
Issues to Consider
Caution: Buyout offers are optional. You are not required to accept an offer. If you do not accept the offer, your annuity and its benefits will continue unchanged.
Before you accept an annuity buyout offer, here are a few of the questions that you should consider asking yourself to help you understand the possible effects of your decision.
1. Has your situation or that of the insurance company changed?
Consider whether your personal situation has changed since the time you made your original decision to purchase an annuity. For example, a decline in your health may make promises for long-term payments less important to you. Likewise, a personal financial emergency could make a large lump sum payment more desirable than a promise to provide long-term payments.
Likewise, a decline in the financial health of the insurance company may cause you concern that the insurance company might not be able to make payments to you in the future. This may make long-term promises from the insurance company less attractive.
If there has been no change in your personal situation or that of the insurance company, you should question whether accepting the buyout offer is right for you. A lump sum payout or an increase to the value of your contract may be attractive, but consider whether that outweighs the benefits provided by the annuity.
2. Would accepting the buyout offer have any additional financial impact?
Accepting a buyout offer may cause you to pay “surrender charges” upon surrender of your annuity. The amount which you may be charged decreases over a period of several years following each purchase payment you invested in the contract. This is known as the “surrender period.” For example, a 7% charge might apply to a purchase payment surrendered within the first year after investing it, a 6% charge in the second year, 5% in the third year, and so on until the end of the surrender period. At that point, the surrender charge would no longer apply to the surrender of that purchase payment.
Transferring cash surrender value to a different financial product (which may be another annuity) may trigger a new sales charge or subject you to a new surrender charge period. Also, new financial products, including annuities, may have higher fees or be less favorable than the benefits offered by the annuity you currently own.
Caution: You should be cautious if you are offered a new annuity with features similar to those offered by your current annuity. While the features may appear similar, you should consider the fees (including surrender charges and contract benefit fees), investment restrictions, and benefits and risks of the new annuity as compared to your current annuity.
Surrendering your annuity for a lump sum payment or using your surrender proceeds to purchase another financial instrument may also result in tax liability. If you surrender your annuity and do not exchange it for another annuity, your surrender amount may be taxable and you may face a 10% federal income tax penalty if you are under 59½ years old. For additional information on potential tax consequences, please consult a tax professional.
3. Have you consulted with an investment professional?
An investment professional may be able to help you better understand the pros and cons of a buyout offer. However, be aware that they may receive a commission for selling you a new annuity or for persuading you to accept the buyout offer. You should ask them to disclose any conflicts of interest that they may have.
Caution: Investment professionals may be directly or indirectly compensated if an owner of an annuity accepts a buyout offer. Some insurance companies offer financial incentives to investment professionals if their clients accept a buyout offer. Similarly, if an investment professional is compensated based on the value of the assets managed, then acceptance of a buyout offer or reinvesting the proceeds from a surrendered annuity may lead to increased compensation for the investment professional.
Related Information
Updated Investor Bulletin: Variable Annuities
Updated Investor Bulletin: Indexed Annuities
This Investor Bulletin represents the views of the staff of the Office of Investor Education and Assistance. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This Bulletin, like all staff guidance, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
