What should policyholders be aware of regarding surrender charges?

Policyholders should understand that surrender charges are designed as a deterrent against early policy termination or withdrawals. They generally decrease over the life of the policy, which incentivizes long-term policy retention. The structure often involves higher charges in the initial years of the policy, which gradually reduce as the policy ages, reflecting the insurer’s assessment of risk and the cost associated with the policy's acquisition. Eventually, many policies will have no surrender charges after a specified period, allowing policyholders more flexibility and control over their investments as they reach maturity.

The other options don't accurately reflect surrender charge realities. For instance, a fixed percentage does not universally apply, as charges can vary by policy type and insurer. Surrender charges do not apply to every withdrawal; rather, they typically come into play only when the policyholder fully surrenders the policy or withdraws above a specified threshold. Lastly, surrender charges can exist across a variety of policy types, not limited to those considered high-risk.