The Market Value Adjustment (MVA)

Shawn Plummer

CEO, The Annuity Expert

A market value adjustment (MVA) is a term used in the insurance world to describe a situation when an investment’s or security’s current market value falls below the price initially paid for it. MVAs are common with annuities, as their values can change based on market conditions. In this guide, we will discuss how MVA’s work and what you need to know if you are considering purchasing an annuity.

What is a Market Value Adjustment (MVA)?

A withdrawal above the maximum penalty-free amount will be subject to market value adjustment (MVA) for the period the surrender charges apply. An MVA is an amount by which a full or partial withdrawal is adjusted, resulting in a positive or negative impact on the withdrawal. The adjustment will apply to any withdrawal subject to a surrender charge and applied on the withdrawal date before applying the surrender charge. MVAs will not apply to a penalty-free withdrawal amount.

How does A Market Value Adjustment (MVA) Work?

Depending on the direction interest rates move, the market value adjustment may increase or decrease benefits payable under the contract. However, in no event will the MVA reduce the cash surrender value below the guaranteed minimum. An adjustment will not apply to:

A Market Value Adjustment can be attached to a traditional fixed, fixed index annuity, or multi-year guaranteed annuity (MYGA) with a built-in interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to economic market conditions.

Most contracts have a fair value adjustment built-in as a standard feature, especially a fixed indexed annuity.

The MVA allows the life insurance company to give you higher caps and growth rates to protect against market losses.

The market value adjustment only applies when you withdraw any amount in addition to the annual penalty-free withdrawal amount or if you surrender the annuity contract before the contract terms.

  • Example #1:  You have an annual 10% penalty-free withdrawal provision of your annuity, but you pocket 15% of your annuity in a given year. The MVA will apply from 11% to 15% of that withdrawal.
  • Example #2:  You are in a 10-year annuity contract. You decide in year seven that you want to cancel the contract and move your money. The market value adjustment will apply to that cash surrender value.

If the interest rates are higher at the time of withdrawal than when the contract was purchased, a negative MVA will apply.

If interest rates are lower at the time of withdrawal than when the contract was purchased, a positive MVA will apply.

Why is there a Market Value Adjustment (MVA) in the first place?

The market value adjustment is how the insurance company protects itself from significant losses when a policy owner terminates their contract before the agreed term, specifically in varying market conditions.

The adjustment allows the life insurance company to pass down some of the risks of loss to the annuity owner due to an early surrender of the contract. In addition, the MVA alleviates expenses and allows them to offer a higher interest credit rate back to the client.

Who does the Market Value Adjustment apply?

An annuity contract owner wants to liquidate more of the cash value than they are allowed to in any given year. A contract owner wants to surrender their deferred annuity policy before the contract expiration date.

What are alternatives to an MVA?

  • Consumers can find annuities with no MVA. In addition, some states won’t allow for an MVA.
  • An annuity with extra liquidity like a Return of Premium or Accumulating Penalty-Free Withdrawals feature.
  • Shorter-term annuity.

Next Steps

If you are considering withdrawing more than the penalty-free amount, be sure to understand how an MVA could impact your decision. You can request a quote from us to get specific information about how an MVA would affect your situation. We hope this article has helped explain surrender charges and MVAs. If you have any questions, please do not hesitate to contact us.

Market Value Adjustment (Mva)

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Frequently Asked Questions

What does MVA stand for?

MVA stands for market value adjustment.

What is MVA?

If you withdraw more money than the penalty-free amount, the extra amount will be subject to a market value adjustment. This means that the withdrawal will be adjusted up or down, depending on how it affects the account. The adjustment will only apply to a withdrawal subject to a surrender charge and will be applied on the day of the withdrawal before applying the surrender charge. Penalty-free withdrawals will not be affected by this adjustment.

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. 

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