A market value-adjusted annuity is almost every fixed indexed annuity product today.
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 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.
A market value adjustment is basically an adjustment (positive or negative) that may be applied to your contract value if you make a full or partial surrender of your contract before the end of the term.
A Market Value Adjustment (MVA) 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 rates for growth in exchange to protect 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 7 that you want to cancel the contract and move your money. The market value adjustment will apply to that cash surrender value.
Make sense?
Do you see how a fluctuating value could affect your rate of return?
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.
Who does the Market Value Adjustment apply to?
An annuity contract owner wants to liquidate more of the cash value than allowed 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.