What is a Market Value Adjustment (MVA)? A Market Value Adjustment is a feature found in many fixed and indexed annuities that adjusts your contract value if you withdraw more than your free-withdrawal amount during the surrender period. The MVA reflects changes in interest rates—either increasing or decreasing your value based on where rates are when you take money out compared to when you purchased the annuity.

Why MVAs Exist

Insurance companies invest your premium in bonds. If you surrender early, they may have to sell those bonds at a gain or loss, depending on current interest rates. The MVA ensures fairness for all policyholders by reflecting that change in value—rewarding you if rates drop and slightly reducing your surrender value if rates rise.

When MVAs Apply

  
• Applies: When you withdraw more than the penalty-free amount (typically 10%) during the surrender period.
  
• Does not apply: To death benefits, income payouts, or annual free-withdrawal amounts.

How a Market Value Adjustment Works

If rates have increased since your annuity began, the MVA may slightly reduce your surrender value. If rates have fallen, the MVA may increase your value. This mechanism protects the insurer’s general account and allows them to offer you higher fixed or indexed annuity rates than contracts without an MVA.

Example Scenario

Imagine you buy a 5-year fixed annuity at 5%. Two years later, interest rates are at 6%. If you withdraw above your 10% free amount, you could see a small negative adjustment. Conversely, if rates had fallen to 4%, you could benefit from a positive adjustment.

MVA vs. No-MVA Annuities

Annuities with an MVA usually offer higher crediting rates because the insurer shares less interest-rate risk. If you want predictability and expect to hold your contract to term, an MVA annuity is often a smart choice. For those who value guaranteed liquidity regardless of interest rate changes, a no-MVA option might be better—although rates tend to be lower.

Using a Bonus Annuity to Offset Surrender or MVA Charges

One strategy for clients who anticipate transferring funds or replacing older contracts is to use a bonus annuity. These contracts offer upfront premium bonuses—sometimes 10% to 20%—which can effectively offset potential surrender fees or MVA adjustments on existing policies.

For example, if your current annuity has a surrender charge of 6%, rolling those funds into a bonus annuity with a 10% premium bonus can help recover that cost immediately while improving your long-term income potential. These bonus structures are especially valuable when combined with lifetime income riders, as the bonus also increases your income base.

Example: Offsetting an MVA with a Bonus Annuity

Suppose you hold a fixed annuity purchased when rates were higher. Due to rising rates, you face a 5% negative MVA and a 4% surrender penalty—totaling a 9% reduction if you withdraw early. By transferring into a bonus annuity offering a 12% upfront bonus, you not only offset those losses but gain a net 3% advantage while resetting your contract with a stronger growth and income potential.

Who an MVA Annuity Fits Best

  
• Retirees planning to hold the contract to full term.
  
• Investors seeking higher fixed yields and willing to avoid early withdrawals.
  
• Those using annuities for lifetime income, where MVAs typically don’t apply.

Planning Tips

  
• Match your time horizon: Choose a term that fits your liquidity needs so you avoid triggering an MVA.
  
• Use laddering: Diversify term lengths across multiple annuities. Learn more in Best Short-Term MYGA Annuities.
  
• Don’t confuse with market risk: MVAs relate to interest rates, not stock market performance. For downside protection, see How Fixed Indexed Annuities Protect Against Market Downturns.

Related Topics to Explore

  
• Annuity Surrender Charges Explained
  
• Tax-Deferred Annuity Strategies
  
• Best Fixed Indexed Annuities with Lifetime Income Riders
  
• Guaranteed Lifetime Withdrawal Benefits Explained
  
• How Much Does a $1 Million Annuity Pay?