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 will be applied on the withdrawal date before applying the surrender charge. MVAs will not apply to a penalty-free withdrawal amount.
Helpful Tip: Many people confuse this fee with a “Service Annuity Adjustment,” which is a letter notifying you of a change in your regular income payments. If you received a notice about your paycheck changing, read our guide on the notice of annuity adjustment instead.
Key Takeaways
- An MVA is a financial calculation that can increase or decrease the value of withdrawals or the surrender value of an annuity, depending on the movement of a specific MVA Index.
- MVAs apply to withdrawals exceeding the penalty-free withdrawal amount and full surrenders during the Surrender Charge Period. However, they do not affect penalty-free withdrawals, death benefits, the minimum guaranteed surrender value, or any amount withdrawn after the Guarantee Period ends.
- The MVA and any applicable surrender charges will not cause the surrender value to exceed the contract value or drop below the minimum guaranteed surrender value.
How Does A Market Value Adjustment (MVA) Work?
MVAs are influenced by changes in interest rates:
- Positive MVA: If current interest rates are lower than when you purchased your annuity, the MVA will be positive, potentially increasing your withdrawal amount.
- Negative MVA: Conversely, if current interest rates are higher, the MVA will be negative, reducing your withdrawal amount.
Benefits Of MVAs
- Market Protection: MVAs offer a layer of protection against market volatility, ensuring that the insurance company remains financially stable, which in turn safeguards your investment.
- Higher Crediting Rates: Annuities with MVAs often offer higher crediting rates and growth caps, providing you with better growth potential.
Why Is There A Market Value Adjustment (MVA)
The market value adjustment is a strategy the insurance company uses to protect itself from significant losses when a policy owner terminates their contract before the agreed term, especially 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.
Market Value Adjustments: When Interest-Rate Moves Can Reduce Exit Value
Who Does The Market Value Adjustment Apply To?
An annuity contract owner wants to liquidate more cash value than they can 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?
- Annuities Without MVAs: Some annuities do not have MVAs, which might be preferable if you value liquidity and predictability.
- Shorter-Term Annuities: Opting for shorter-term annuities can provide more flexibility and access to your funds without the impact of MVAs.
- Additional Features: Consider annuities with features like Return of Premium options to protect your investment further.
Market Value Adjusted Annuity Vs. Certificate Annuity
A market value-adjusted annuity and a certificate annuity can seem similar but bear fundamental differences. For example, both offer a fixed rate of return for a specified period. However, a market value-adjusted annuity has an MVA feature, which a certificate annuity does not.
The MVA feature makes market value-adjusted annuities more responsive to changes in market interest rates, thus potentially offering higher returns (or greater risk) than certificate annuities.
The Protective Mechanism Of The MVA
The MVA serves to protect insurance companies from the risk of rate fluctuation. For example, when interest rates rise, more policyholders might want to surrender their annuities to invest in higher-yielding options. The MVA market value adjustment protects the insurance company by reducing the surrender value, thus discouraging early surrender.
However, it’s crucial to note that the market value adjustment is usually not used in the event of the annuitant’s death. In such instances, the beneficiaries typically receive the total account value or the guaranteed death benefit, whichever is higher, without any MVA.
What Happens to the Cash Value in an MVA Annuity?
The cash value of your annuity reflects:
- Account value (premiums + interest earned)
- Minus surrender charges, if applicable
- Plus or minus the MVA
If you stay invested through the whole term or only take penalty-free withdrawals, the MVA does not apply.
Does an MVA Affect the Annuity’s Value at Death?
No, a Market Value Adjustment does not apply at death.
When the annuity owner dies, the full account value is typically paid to the beneficiary, without applying an MVA or surrender charges. This exemption makes MVA annuities just as effective for leaving a legacy as non-MVA annuities.
What Beneficiaries Receive:
- The accumulation value as of the date of death
- Paid as a lump sum or spousal continuation
- No penalty or MVA deductions applied
Important Note: If the owner dies during the surrender period, the carrier still waives the MVA, so the beneficiary receives the full value. This protection is standard across most MYGAs with an MVA provision.
What Types of Annuities Include MVAs?
- ✅ MYGAs (Multi-Year Guaranteed Annuities) – Most common
- ✅ Traditional fixed deferred annuities – Some include MVA provisions
- ❌ Fixed Indexed Annuities (FIAs) – Usually do not include MVAs
- ❌ Variable Annuities – Do not charge MVA fees; they use investment-based risk
Does a Variable Annuity Charge an MVA?
No. Variable annuities do not use Market Value Adjustments. They include investment risk through subaccounts and charge various types of fees, such as mortality and expense risk charges, admin fees, and investment management fees. If you see “MVA” mentioned in relation to a variable annuity, it’s either a mistake or confusion with a separate account value fluctuation.
Final Thought
The Market Value Adjustment can reward you with a higher interest rate if you stay committed, but can penalize you if you exit early when interest rates have risen. It’s not for everyone, but it can be a powerful tool for disciplined savers seeking the highest guaranteed returns over a fixed term.
Contact The Annuity Expert for free quotes on both MVA and non-MVA annuities. Our specialists will help you find the best product for your goals—whether you want the highest interest rate or the most flexible terms. Let us help you protect your money the right way.
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Questions From Our Readers
What does MVA stand for?
MVA stands for market value adjustment.
What is an MVA?
If you withdraw more money than the penalty-free amount, the extra amount will be subject to a market value adjustment. This contract provision means that the withdrawal will be adjusted up or down, depending on how it affects the account. The adjustment will apply only to a withdrawal subject to a surrender charge and will be applied on the day of the withdrawal, before the surrender charge. Penalty-free withdrawals will not be affected by this adjustment.
What is the effect of the market value adjustment in a market value adjustment annuity?
A market value adjustment (MVA) in an annuity can have various effects. The MVA is designed to protect the insurance company from interest rate fluctuations. When interest rates rise, the MVA reduces the annuity’s market value, potentially decreasing the amount received by the policyholder upon surrender or withdrawal. Conversely, when interest rates fall, the MVA may increase the annuity’s market value, resulting in a higher surrender or withdrawal value for the policyholder. Ultimately, the effect of the MVA depends on the prevailing interest rate environment.
What happens to the cash value of a market value-adjusted annuity?
The cash value of a market value-adjusted annuity (MVA) can change based on market conditions. If interest rates rise, the cash value may decrease, but if rates fall, it may increase. This adjustment feature allows the annuity to align with prevailing market rates, ensuring potential growth or protection against market fluctuations.
Why was MVA created?
The MVA mechanism was developed to adjust yields when interest rates rapidly changed. The exact origin of MVA is unclear, but it’s generally attributed to the efforts of economists and financial experts seeking ways to protect insurance companies from interest rate risks during the 1980s, a period characterized by volatile interest rates.
Does a variable annuity charge an MVA fee?
No, a variable annuity typically does not charge a Market Value Adjustment (MVA) fee. MVAs are usually associated with fixed annuities to account for interest rate changes, while variable annuities fluctuate with the performance of underlying investments.