Which of the following best describes a surrender charge?

A surrender charge is best described as a charge imposed upon surrendering a life insurance policy. This fee is typically applied when the policyholder decides to terminate the policy before a certain period, often during the initial years of the policy. Surrender charges serve as a way for insurance companies to recover costs associated with issuing the policy and to discourage early withdrawals that could disrupt the intended investment horizon.

When a policyholder surrenders their policy, they may receive a cash value based on their premiums and any accumulated value, but the surrender charge reduces this amount. It is important for policyholders to be aware of these charges, as they can significantly affect the financial return if they decide to cash in their policy.

Other options do not accurately represent the concept of a surrender charge. For instance, a fee for annual policy maintenance refers to ongoing administrative costs rather than an early withdrawal penalty, while withdrawing funds from an investment account is not specific to insurance policies and does not imply surrendering a life insurance contract. Lastly, a method of calculating premiums pertains to how insurance companies determine premium amounts, which is separate from surrender charges.