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Annuity Surrender Fees: What Is A Market Value Adjustment?

Jason Soloman

Some annuities, specifically indexed annuities, have a surrender charge that ranges from 3-15 years.  So if you are not terminally ill, require nursing care for more than 90 days, and want to withdraw more than 10% from your annuity there will probably be some monetary consequences to go along with your withdraw.  Some surrender charges are defined and won’t change; others fluctuate via their Market Value Adjustment.  So what is a Market Value Adjustment (MVA)? 

Essentially a Market Value Adjustment is the insurance company’s way to protect themselves from significant losses that occur from people who wish to terminate their contracts before the contract expires. Why do insurance companies need this protection?  In order to answer that question, you have to understand what the insurance company does with your money after you invest into a  fixed indexed annuity. 

When insurance companies provide contractually guaranteed benefits to consumers they invest a large percentage of each annuity dollar into “safe” long-term investments.  The market value of these safe investments fluctuates throughout the holding period but at the end of the term the insurance company’s capital is usually returned in full.  The fluctuating value is where the Market Value Adjustment comes in. If interest rates rise and an annuity holder surrenders a contract before the term is up, the issuing insurance company is then forced to pull out of those long-term investments before they mature causing the insurance company to forfeit position value and unnecessarily realize a loss.  This leads to an unfavorable MVA and will increase the penalty charged to the client. If rates decrease and an annuity holder surrenders a contract before the term is up, the company can get out of the investment at a profit.  This leads to a favorable MVA and will reduce the penalty charged to the client.  

In summary, Market Value Adjustments are in place to protect the insurance company from unnecessary investment losses caused by early termination of contract holders.  The market value adjustment can work in a clients favor or against them depending on what happens with interest rates between the time the client invests and the time they wish to withdraw more than their penalty free amount. 

Now what? If you have a concern about any part of your portfolio then I would suggest getting a second pair of eyes on your investments.  Let a professional learn about your investment goals and determine if the investments you have are in line with your objectives.  Of course you can call 980.233.9770 or email info@tacticalinvestmentadvisors.com and we will be happy to offer you a free 2nd opinion.

To learn more from this annuity professional, simply click here (Jason Soloman).

About the Author:

Jason Soloman began his career in 2001 while attending Western Michigan University when he took a role selling annuities and life insurance with New York Life Insurance Company. Since then, Jason has been in different positions that include managing all aspects (trading, compliance, & client relationship management) of a private hedge fund, financial planning as both a captive and independent advisor, and mentoring other financial advisors. His firm Tactical Investment Advisors, LLC was created to simplify the investment process for investors- especially retirees who are impacted most from poor investment choices.  Jason currently serves clients across the country and his practice is based in the Charlotte, NC area.

Click here and complete the short form to receive the first chapter of my e-Book titled Former Hedge Fund Manager’s 8 Steps to a Successful Retirement.  If you would like help understanding how your annuities or investments will impact your specific situation, just send me an email (jason@tacticalinvestmentadvisors.com)…. I will be honored to help you!”

 

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