Some companies have “bailout plans,” which are money-back guarantees that enable the policyowner to cash in the policy without penalty if interest rates drop a percentage point or two below the initial guaranteed rate. (The insurer waives any surrender charge.) The bailout provision may have a limited duration, such as the first two to seven years, depending on the length of the original interest rate guarantee.
A bailout feature allows policyowners to change their minds after the policy is issued and still obtain a refund of their entire original investment if the specified conditions are met. But keep in mind that the bailout provision applies only to the insurance company surrender charges, not to any income tax or income tax penalties that may be payable on amounts received upon surrender.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM