If you’ve spent time investigating retirement income strategies, you’ve likely stumbled across a financial product known as an annuity. Unfortunately, annuities are uniquely complex, filled with jargon that can be daunting for the average person to comprehend. Today, we’ll dive headfirst into this world, focusing specifically on ‘annuity values.’ We’ll cover several key concepts, including the accumulation value, minimum guaranteed surrender value, cash surrender value, and other crucial terms.
- Unraveling Annuity Values
- Annuity Contract Value: Accumulation Value
- Annuity Contract Value: Cash Surrender Value
- Annuity Contract Value: Minimum Guarantee Value
- How will the Annuity Account Value Grow?
- Annuity Value Adjustments and Benefits
- The Income Benefit Value
- Accumulation Value Vs. Surrender Value
- Accumulation Value Vs. Income Value
- What Value Do My Beneficiaries Receive When I Die?
- Annuity Documentation
- Next Steps
- Have A Question About Annuity Values?
- Related Reading:
Unraveling Annuity Values
Accumulation Value
The accumulation value, or account value, is the total amount of money in your annuity account at any given point. It’s the sum of your initial investment, subsequent payments, and interest earned. It’s like the balance in your savings account that continues to grow over time. For instance, if you invested $100,000 in an annuity and it grew at 5% per year, your accumulation value after five years would be around $127,628.
Minimum Guaranteed Surrender Value
The minimum guaranteed surrender value is the least amount an insurance company guarantees you’ll receive if you surrender your annuity before its maturity date. This value is usually calculated as a percentage of your premium payments minus any withdrawals or fees. For example, if your annuity contract states a 5% surrender charge and you’ve invested $50,000, your minimum guaranteed surrender value would be $47,500.
Annuity Contract Value: Accumulation Value
The Accumulation Value or Account Value is the current value of your annuity. Annuity accumulation equals the amounts in the declared interest and index participation accounts, which are reduced by any rider fees, and withdrawals taken from your annuity. 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 cancel your contract before the Surrender Period is completed.
The Cash Surrender Value formula equals the Accumulation Value less any Surrender Charges and applicable premium taxes but will never be less than the Guaranteed Minimum Value.
If you 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 prolonged 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 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 yearly for 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 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.
Annuity Value Adjustments and Benefits
Minimum Guarantee Value
The minimum guarantee value, not to be confused with the minimum guaranteed surrender value, ensures you’ll receive a certain percentage of your original investment, regardless of how the investments within the annuity perform. For example, your minimum guarantee value is 85% on a $100,000 investment. So even if the market tanks and your accumulation value drops to $80,000, you’ll still receive at least $85,000.
Market Value Adjustment
A market value adjustment (MVA) can increase or decrease the surrender value of your annuity, depending on the current interest rates compared to those when you first bought your annuity. For example, if interest rates have risen, you might receive less if you surrender your annuity. Conversely, if rates have fallen, your surrender value may be higher.
Death Benefit Value
The death benefit is paid to your beneficiary if you pass away before annuitizing your contract. This benefit typically equals your accumulation value or the greater of your minimum guaranteed surrender value and the death benefit base.
Income Benefit Value
If you add a guaranteed lifetime income rider to your deferred annuity, your contract may provide an income benefit value. This is the estimated amount of guaranteed lifetime income based on the current interest rates, your age, and other factors.
The Income Benefit Value
An additional value is placed into the annuity contract if you add an income rider to a fixed annuity, fixed index, or variable annuity. This value is called:
- Income Value
- Benefit Base
- Lifetime Income Benefit Value
- Lifetime Withdrawal Benefit Value
- Income Benefit Base Value
- Income Account Value
- GLWB Value
- Guaranteed Minimum Withdrawal Benefit Value
- Guaranteed Lifetime Withdrawal Benefit Value
- Guaranteed Living Benefit Value
- Withdrawal Benefit Value
- Enhanced Withdrawal Benefit Value
This value is separate from the abovementioned values 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 inaccurate, 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.
Accumulation Value Vs. Surrender Value
In annuities, accumulation value is your initial investment plus any interest or gains. Surrender value is the amount you’d receive if you decide to exit the annuity early, which typically includes the accumulation value minus any surrender charges or penalties. These charges may decrease over time, eventually reaching zero.
Accumulation Value Vs. Income Value
In annuities, accumulation value refers to the principal amount, plus any interest or investment gains, before payouts begin. On the other hand, protected income value is a guaranteed amount that the annuity contract will pay out periodically during retirement, even if the accumulation value is depleted due to market fluctuations or withdrawals.
What Value Do My Beneficiaries Receive When I Die?
Deferred annuities offer a simple standard death benefit: the annuity’s accumulation value or the minimum guaranteed surrender value, whichever is greater.
Helpful tip: Life insurance might be a better option if you want to leave money to your beneficiaries. Sometimes, you don’t need to take a medical examination—shop quotes to find out if you buy life insurance at an affordable rate. Coverage starts at $9.37 per month. Proceeds are tax-free too!
Annuity Documentation
Annuity Illustration
An annuity illustration is a document that shows the potential future values of an annuity based on various assumptions. If you’re considering purchasing an annuity, you should always ask for an illustration to understand how much your annuity could be worth down the road.
Annuity Prospectus
The annuity prospectus is a legal document outlining an annuity’s objectives, risks, and costs. You receive this document after you purchase the annuity and should always read through it during the free-look period.
Helpful Tip: You can always request a sample prospectus before purchasing the annuity, but the contract terms won’t reflect the actual annuity contract due to state and age variations.
Next Steps
Don’t worry if you’re feeling overwhelmed by the annuity values built into your contract, illustration, and quote, don’t worry. Use our annuity value calculator to get estimates. Contact us today to get started securing your future with an annuity, and let us help you navigate through all the numbers. We’ll work with you to find the best value for your needs and ensure you are confident in your purchase.
- Accumulation Value = Current Account Value
- Cash Surrender Value = Cash-in Early Value
- Minimum Guarantee Value = Protected Value
- Income Benefit Value = Income Rider Value
