MVA Meaning: What Is A Market Value Adjustment Annuity?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

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.

Key Takeaways

  • An MVA is a financial calculation that can either increase or decrease the value of withdrawals or the surrender value of an annuity based 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they do not affect penalty-free withdrawals, death benefits, the minimum guaranteed surrender value, or any amount withdrawn after the Guarantee Period ends.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.
Market Value Adjustment (Mva) - Annuities

Why Is There a Market Value Adjustment (MVA)

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.

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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 further protect your investment.
Mva Annuities

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.

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How We Can Help

At The Annuity Expert, we understand the complexities and concerns you may have regarding your annuity investments. Our mission is to help you find the best solutions at the lowest costs, ensuring your financial stability and growth. We have been serving as an insurance agency, annuity broker, and retirement planner for over 15 years, earning the trust and respect of our clients through our expertise and personalized approach.

Core Problem

Navigating the intricacies of annuities and understanding features like MVAs can be daunting. The main problem is the potential financial impact and confusion caused by MVAs, which can affect your retirement planning and peace of mind.

Symptoms of This Problem

  • Financial Anxiety: Concerns about how MVAs might reduce your withdrawals can lead to financial anxiety and uncertainty.
  • Complexity: The complexity of understanding MVAs and their impact on your annuity can be overwhelming.
  • Market Volatility: Fluctuations in interest rates and market conditions can add to the unpredictability of your financial planning.

Our Expertise

We specialize in providing clear, concise, and personalized guidance to help you navigate these challenges. Our goal is to ensure you feel confident and informed about your annuity choices, reducing anxiety and simplifying the decision-making process.

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What We Recommend

Clear Steps to Maximize Your Annuity Benefits

Step 1: Initial Consultation

  • What Happens: We start with a free consultation to understand your financial goals, current annuity holdings, and concerns regarding MVAs.
  • Main Benefit: Personalized advice tailored to your unique situation, providing clarity and direction.

Step 2: Comprehensive Review

  • What Happens: We conduct a thorough review of your annuity contracts and market conditions to identify the best strategies for minimizing MVA impact.
  • Main Benefit: Detailed insights and actionable recommendations to enhance your annuity’s performance.

Step 3: Implementation and Ongoing Support

  • What Happens: We assist you in implementing the chosen strategies and provide ongoing support to monitor market changes and adjust your plan as needed.
  • Main Benefit: Continuous optimization of your annuity investments, ensuring long-term growth and stability.

Features and Benefits

  • Expert Analysis: In-depth analysis of your annuity contracts to identify opportunities and mitigate risks.
  • Personalized Plans: Customized retirement plans that align with your financial goals and preferences.
  • Ongoing Monitoring: Regular reviews and updates to adapt to changing market conditions and ensure optimal performance.

Addressing Common Objections

  • Complexity Concerns: We simplify complex information, making it easy to understand and act upon.
  • Fear of Market Volatility: Our strategies are designed to protect against market fluctuations, providing you with peace of mind.
  • Cost Worries: We focus on finding the best solutions at the lowest costs, maximizing your returns without unnecessary expenses.

By working with us, you will experience financial clarity, reduced anxiety, and enhanced confidence in your retirement planning. Our personalized approach ensures that you feel valued and supported every step of the way.

Contact us today for free advice or a personalized quote, and take the first step toward securing your financial future.

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Frequently Asked Questions

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 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.

What is the effect of the market value adjustment in a market value adjustment annuity?

A market value adjustment (MVA) in a market value adjustment 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.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

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

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