What is a Market Value Adjustment (MVA)?
A Market Value Adjustment (MVA) is a financial feature often attached to fixed annuities and some life insurance policies, which adjusts the contract’s cash value if the policyholder withdraws funds early or surrenders the contract. The adjustment is based on the difference between the interest rates at the time of the withdrawal and the rates in effect when the policy was initially purchased.
If interest rates have risen since the policy’s purchase, the MVA can reduce the cash value, reflecting the loss the insurer might incur by selling underlying investments. Conversely, if interest rates have fallen, the MVA can increase the cash value, potentially providing a financial benefit to the policyholder.
The purpose of an MVA is to protect insurance companies from market interest rate fluctuations while offering policyholders the potential for higher yields. For example, if a policyholder decides to access funds early during a period of higher interest rates, the MVA will apply a negative adjustment, reducing the payout. It is an important consideration when purchasing annuities or life insurance products that include this feature, as it can impact the timing and value of withdrawals.
