Market Value Adjustment
A market value adjustment will come into effect if you surrender certain types of fixed annuity prematurely. The MVA will either credit the annuity or deduct from the annuity depending upon current market rates at that time. This is very similar to how bonds are priced in the open market. If current rates are above what your annuity is paying your annuity will be worth less, i.e., Market Value Adjusted downward. The opposite is true as well. If rates are lower at time of withdrawal then you receive more because your annuity is more valuable.
A good way to think about it is to draw a Teeter Totter and on one end put the interest rate and on the other end put the Price (cash our value). As rates go up what you own is worth less, and vice a versa. An annuity with an MVA will typically offer a higher interest rate than one without. The reason an MVA annuity will pay more is because you are sharing in the interest rate risk along side the insurnace company, and less risk for the insurance company means higher rates for you.
Not all Fixed Annuities have an MVA associated with them.
If you would like to speak further about how an annuity with an Market Value Adjustment (MVA) works, give us a call at (888) 515-7152.
Tags: Market Value Adjustment, MVA
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