If you've ever looked at an annuity contract, you may have come across the term "Market Value Adjustment" (MVA). And if you're like most people, you skimmed right past it. That's understandable — it's tucked into the fine print and rarely explained clearly. But it's worth understanding before you commit to any product that includes one.
What an MVA actually is.
A market value adjustment is a formula that can increase or decrease the amount you receive if you surrender the contract (or withdraw more than the free amount) during the surrender period. It's tied to interest rates, not the stock market.
If interest rates have gone up since you bought the contract, the adjustment is usually negative — you get a little less. If rates have gone down, it can be positive — you get a little more. The carrier is passing along the change in value of the bonds backing your contract.
When it does and doesn't apply.
- It does not apply to your free withdrawals (typically 10% a year).
- It does not apply after the surrender period ends.
- It usually does not apply to death benefits or to withdrawals under nursing-home and terminal-illness waivers.
- It does apply if you cash out the whole contract early. That's the scenario to avoid.
Why I'm telling you this.
Not because an MVA is a deal-breaker — most contracts have one, and in a falling-rate environment it can work in your favor. I'm telling you because the right answer is simple: don't put money into an annuity that you might need to pull out entirely in year three. If the money fits the timeline, the MVA is a line in the contract you'll never trigger.
If you've got a contract in front of you and can't find the MVA language, send it to me and I'll point to it.
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Author of Indexed Annuity Secrets and founder of Pacific Ridgeway Insurance Solutions in San Diego. Navy veteran. Licensed financial professional, CA #4132743.
Fixed indexed annuities are insurance products, not investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. This article is for educational purposes only and is not financial, investment, tax, or insurance advice.