When a contract owner terminates an annuity before its maturity date, which of the following typically occurs?

• A. The annuity contract is converted into a life insurance policy at no additional cost.
• B. The owner may receive the surrender value, which could be less than the total premiums paid due to surrender charges and possible tax penalties.
• C. The owner automatically receives the full value of all future annuity payments without any deductions.
• D. The owner is required to continue making premium payments until the original maturity date.

Answer: (B)

Verified step by step guidance

1. Understand the concept of an annuity: An annuity is a financial product that provides a series of payments to the owner, typically after retirement, in exchange for premiums paid over time.
2. Recognize what happens when an annuity is terminated before maturity: Early termination of an annuity often involves surrender charges and potential tax penalties, which can reduce the amount the owner receives.
3. Identify the surrender value: The surrender value is the amount the owner receives upon termination, which is typically less than the total premiums paid due to deductions like surrender charges.
4. Clarify why the other options are incorrect: An annuity contract is not converted into a life insurance policy at no cost, nor does the owner automatically receive the full value of future payments without deductions. Additionally, the owner is not required to continue making payments after termination.
5. Conclude that the correct answer is: The owner may receive the surrender value, which could be less than the total premiums paid due to surrender charges and possible tax penalties.