Understanding the Different Values in Annuities

Shawn Plummer

CEO, The Annuity Expert

Several annuity values are built into any given contract, and frankly, it can be overwhelming and confusing. This guide will break down each annuity value’s formula and how it’s calculated to make it easier to understand.

YouTube video

Annuity Contract Value: Accumulation Value

The Accumulation Value or Account Value is the current value of your annuity. Annuity accumulation is equal to the amounts in the declared interest account and index participation accounts, which are reduced by any rider fees if any, and withdrawals that are taken from your annuity. Basically, this is what your annuity is worth.

Below are common names for the Accumulation Value:

  • Account Value
  • Accumulated Value
  • Annuity Value
  • Annuity Contract Value
  • Contract Value
  • Policy Value
  • Cash Value
  • Commuted Value
  • Vested Account Value

Annuity Contract Value: Cash Surrender Value

The Cash Surrender Value is what your annuity is worth if you decide to cancel your contract before the Surrender Period is completed. The Cash Surrender Value formula is equal to the Accumulation Value less any Surrender Charges and any applicable premium taxes, but will never be less than the Guaranteed Minimum Value.

Basically, if you if cash in the annuity early, this is the value you will receive.

Below are common names for the Cash Surrender Value in an annuity:

  • Surrender Value
  • Minimum Guaranteed Surrender Value
  • Annuity Surrender Value

Key Takeaway

In a deferred annuity, the difference between the accumulation value and the surrender value is the value of your annuity before or after the annuity contract term is completed. The surrender value is your accumulation value minus surrender charges and applicable fees.

Accumulation Value – Surrender Charges = Cash Surrender Value

Once the annuity’s surrender period is completed, there are no more surrender charges, and the cash surrender value will equal the accumulation value.

Annuity Contract Value: Minimum Guarantee Value

The Minimum Guarantee Value in fixed index annuities is the minimum amount your money is worth guaranteed at any given time. The Minimum Guarantee Value is a value to protect your retirement savings in times of a long market downturn similar to that of the Great Depression.

Minimum Guarantee Value is also known as:

  • Minimum Guaranteed Surrender Value
  • Guaranteed Minimum Value
  • Minimum Guarantee Value
  • Minimum Contract Value
  • Minimum Value
  • Minimum Guaranteed Contract Value
  • Minimum Account Value

This value is what makes a fixed index annuity an insurance product, not a securities product. As a result, you’re protected from market loss.

The Guaranteed Minimum Value formula is equal to the single premium paid, less partial surrenders, and any Surrender Charges deducted for the partial surrenders, less premium taxes, if applicable, with interest at the Guaranteed Minimum Value Interest Rate stated in your contract, fewer Surrender Charges.

This value comes into play if you earn zero every year for the entirety of your annuity contract.  Think “Great Depression.”

How will the Annuity Account Value Grow?

For index annuities, the value of your annuity can grow by the interest earned under the Declared Interest Option and the performance of an external index such as the Nasdaq or S&P 500. Under the Declared Interest Option, interest is credited at a declared rate that is set in advance. This declared rate is guaranteed for one contract year. The interest rate may change each subsequent contract year (Term Period).

So which annuity value determines how much money I have?

Whenever a consumer surrenders their policy, transfers the funds, or dies, the insurance or financial company provides the highest value between the Cash Surrender, Minimum Guarantee Value, or Accumulation Value to the owner or beneficiary.

The Income Benefit Value

If you add an income rider to a fixed annuity, fixed index annuity, or variable annuity, an additional value is placed into the annuity contract. This value is called:

This value is totally separate from the 3 values mentioned above as it only pertains to the income rider on your annuity. The income value is the value your income rider accumulates.

In most cases, the income value is not a real value, and you can not walk away with the income value.

When you’re ready to turn on your income stream, the insurance company distributes a percentage of the income value to you for retirement.

Conclusion

  • Accumulation Value = Current Account Value
  • Cash Surrender Value = Cash-in Early Value
  • Minimum Guarantee Value = Protected Value
  • Income Benefit Value = Income Rider Value

Have A Question About Annuity Values?

Contact Us
First
Last

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top