Understanding the Annuity Free Look Period
After you receive your annuity contract, you are entitled to a free look period. This timeframe, which starts when you get the contract and lasts at least 10 days, gives you the chance to terminate the contract with no penalty. It’s a good opportunity to go over the contract, ask any questions and ensure that you are happy with your choice.
- Written by Christian Simmons
Christian Simmons is a writer for RetireGuide and a member of the Association for Financial Counseling & Planning Education (AFCPE®). He covers Medicare and important retirement topics. Christian is a former winner of a Florida Society of News Editors journalism contest and has written professionally since 2016.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Financially Reviewed ByToby Walters, CFA®
Toby Walters, CFA®
Chartered Financial Analyst and Paraplanner
Toby Walters, CFA®, has over 25 years of financial research experience. With a knowledge and understanding of researching and analyzing financial data, he has developed a unique and experienced viewpoint on money matters. He has been a chartered financial analyst since 2003, and most recently a portfolio analyst and paraplanner.Read More
- Published: March 22, 2023
- Updated: April 28, 2023
- 6 min read time
- This page features 3 Cited Research Articles
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- The annuity free look period offers you a chance to review your pending annuity, get any questions answered and determine if you are happy with the final product.
- You can walk away from the annuity during the free look period with no penalty and receive the premiums you paid without facing surrender charges.
- The free look period lasts at least 10 days but may be longer depending on the state.
What Is 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.
Purchasing an annuity is a major decision and one that can include committing a lot of money to an investment. The free look period provides one final chance to go over all the details and ensure that you are happy with your decision.
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.
Annuities can be complex and may not allow you to readily access your investment. Take advantage of a free look period to thoroughly understand what you’re investing in. For states with longer free look periods, it’s possible that when interest rates are rapidly rising, a free look period may allow you to cancel an annuity and lock in at a higher rate being offered. Some states, such as Florida and Arizona, mandate longer free look periods for senior citizens.
Things To Consider During 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.
- Are you satisfied with how the contract turned out?
- Are you certain you are ready to commit your money to this?
- Are there better annuity options available?
- Have you gotten all your questions answered?
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. You can use this window to ask your provider questions and get any clarifications that you need about your contract and annuity.
If you determine that you are not happy with the contract or that the annuity did not turn out the way that you had hoped, then you can cancel the annuity during the free look period without any penalties or fees.
Canceling an Annuity After the Free Look Period Ends
One reason that the free look period is so advantageous to buyers is the fact that cancelling 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 into the contract that 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.
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State Requirements for Free Look Periods
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. But 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.
So, for example, if a state sets its period mandate at 20 days, then an annuity provider could opt to give potential buyers 30 days. The provider just can’t offer less than 20.
When looking for an annuity, it may make sense to ask potential providers about their free look period policies.
Annuity Free Look Period FAQs
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3 Cited Research Articles
- Texas Department of Insurance. (2023, March 21). Annuities Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb078.html
- Michigan Department of Attorney General. (n.d.). Annuities – Are They the Right Investment for Me? Retrieved from https://www.michigan.gov/ag/consumer-protection/consumer-alerts/consumer-alerts/invest/annuities
- U.S. Securities and Exchange Commission. (n.d.). Free Look Period. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/glossary/free-look-period
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