What Nonforfeiture Value Means and Why It Protects Your Annuity Money

Nonforfeiture value is the minimum amount of money you are may provide to receive from an annuity, even if you stop making payments or surrender the contract early

When you buy an annuity, you are entering a contract with an insurance company. That company takes your money and promises to pay you income later — sometimes when ready, sometimes years from now. A nonforfeiture value is a legal floor: it is the smallest amount the insurance company must give back to you if you walk away from the contract before the income payments begin or before you have received back what you put in.

The nonforfeiture value exists because state insurance laws require it. It protects you from losing everything if your circumstances change and you need your money back. The exact amount depends on the type of annuity you own, how long you have held it, and the contract terms you agreed to when you bought it.

Key Takeaways

• Nonforfeiture value is the minimum may provide return you receive if you surrender an annuity before income payments start, set by state insurance law.
• The amount typically equals the premiums you paid minus any withdrawals you have already taken and any surrender charges the contract allows.
• Surrender charges can reduce your nonforfeiture value significantly in the early years of the contract, sometimes by 5 to 10 percent of your account balance.
• Different annuity types — fixed, variable, and indexed — calculate nonforfeiture value differently, and the contract you sign determines the exact formula.
• You do not forfeit your nonforfeiture value if you die; your beneficiary receives it as part of your estate.

How nonforfeiture value differs from surrender value

The terms are related but not identical. Surrender value is what you actually receive when you cash out an annuity contract. Nonforfeiture value is the legal minimum the insurance company must offer you — it is the floor below which they cannot go.

In practice, the surrender value and nonforfeiture value are often the same number. But the contract may allow the insurance company to pay you more than the nonforfeiture minimum if market conditions or the annuity's performance have improved your account. The nonforfeiture value is your legal protection; the surrender value is what you walk away with.

What gets subtracted from your nonforfeiture value

Your nonforfeiture value starts with the premiums you paid into the annuity. From that, the insurance company subtracts any withdrawals you have already made. Then comes the surrender charge — a fee the contract allows the company to deduct if you exit early.

Surrender charges are steepest in the first few years. A typical schedule might be 7 percent in year one, declining by 1 percent each year, until it reaches zero in year eight. Some contracts have no surrender charge at all, while others charge as much as 10 percent. The contract you signed spells out the exact schedule. If you have held the annuity for long enough that the surrender charge period has ended, no charge applies.

Some annuities also allow the insurance company to subtract administrative fees or mortality and expense charges before calculating the nonforfeiture value, though this is less common. Read your contract's section on surrender charges and nonforfeiture value to see what applies to yours.

How nonforfeiture value works with different annuity types

A fixed annuity has a straightforward nonforfeiture value: your premiums minus withdrawals and surrender charges. The insurance company guarantees this amount in writing.

A variable annuity ties its nonforfeiture value to the performance of the investment subaccounts you chose. If your investments have grown, your nonforfeiture value is higher. If they have declined, it is lower. The contract guarantees you will receive at least the premiums you paid (minus withdrawals and charges), but the actual value fluctuates with the market.

An indexed annuity credits interest based on the performance of a market index like the S&P 500, but with a floor and a cap. Its nonforfeiture value works similarly to a fixed annuity in structure — your premiums minus withdrawals and charges — but the amount you have accumulated may be higher if the index has performed well during the time you held it.

When you receive your nonforfeiture value

You receive your nonforfeiture value when you surrender the annuity contract — that is, when you ask the insurance company to cash it out and end the contract. This is different from taking a withdrawal, which leaves the contract in force.

The insurance company typically processes the payment within 30 to 60 days of your written request to surrender. Some contracts allow you to surrender without penalty after a certain period (often 7 to 10 years), while others always charge a surrender fee. Check your contract to see whether you are still in the surrender charge period.

If you die before surrendering the annuity, your beneficiary receives the nonforfeiture value as part of your estate. They do not lose it because you did not cash out the contract yourself.

Nonforfeiture value versus annuitization

You have two main paths once your annuity is ready to pay: you can surrender it and take the nonforfeiture value in a lump sum, or you can annuitize — convert it into a stream of regular income payments for life or a set period.

If you annuitize, you do not receive the nonforfeiture value as a lump sum. Instead, the insurance company calculates how much monthly or annual income your account balance will generate based on your age, life expectancy, and the payout option you choose. Annuitization is irreversible; once you start receiving income, you cannot change your mind and take the lump sum instead.

The nonforfeiture value matters most if you decide not to annuitize — if you want your money back in one payment rather than spread over years. It guarantees you will not walk away empty-handed, even if the annuity has underperformed.

How to find your annuity's nonforfeiture value

Your annuity contract contains a section titled "Nonforfeiture Options" or "Surrender Charges and Values." This section lists the surrender charge schedule and explains how the insurance company calculates your nonforfeiture value.

Your annual statement from the insurance company should also show your current nonforfeiture value — the amount you would receive today if you surrendered. If it does not, contact the insurance company directly and ask for a current nonforfeiture value calculation. Provide your policy number and ask them to show you the calculation: premiums paid, minus withdrawals, minus any applicable surrender charges.

If you have lost your contract or statement, you can request a copy from the insurance company. They are required to provide it. Some states also allow you to search for unclaimed annuity funds through the National Association of Insurance Commissioners' Life Insurance Locator Service.

Frequently Asked Questions

Can I lose my nonforfeiture value if I do not use the annuity?

No. Your nonforfeiture value is may provide by state law and your contract. It does not expire or disappear if you do not annuitize or withdraw. However, if you surrender the annuity during the surrender charge period, the charge will reduce the amount you receive. Once the surrender charge period ends, you can take your nonforfeiture value without penalty.

Is nonforfeiture value the same as cash surrender value?

They are closely related. Cash surrender value is the actual amount you receive when you surrender. Nonforfeiture value is the legal minimum you are may provide. In most cases they are the same, but your contract may allow the insurance company to pay you more if the annuity has performed well.

What happens to my nonforfeiture value if I die?

Your beneficiary receives it as part of your estate. The nonforfeiture value does not disappear at death. Your beneficiary can either take it as a lump sum or, depending on the contract, may have the option to annuitize it instead.

Does my nonforfeiture value grow over time?

It depends on the annuity type. With a fixed annuity, it grows by the may provide interest rate the contract specifies. With a variable annuity, it grows or shrinks based on your investment choices. With an indexed annuity, it grows based on index performance, subject to caps and floors. Your annual statement shows the current value.

Can the insurance company change my nonforfeiture value?

The formula and schedule for calculating it are locked into your contract and cannot be changed by the insurance company. However, the actual dollar amount changes as you make deposits, take withdrawals, and as the annuity earns (or loses) value. Surrender charges also decline over time according to the schedule in your contract.