Market Value Adjusted (MVA) annuity contracts have a special appeal in today’s marketplace. MVA’s offer the consumer an acceptable option to the traditional fixed annuity, the common certificate of deposit, and the broader equity market including stocks, bonds and variable insurance products. This appeal is enhanced by the inherent security provided by deferred annuity contracts in general versus most other financial strategies.
In a declining rate environment, the owner is guaranteed a minimum interest rate, common to other fixed annuities. In addition, due to the mechanics of the Market Value Adjustment feature, the Cash Surrender Value actually increases as interest rates fall, much like a bond. In this situation, current credited rates for the annuity contract are typically higher than other new money strategies which might then be available.
Likewise, when interest rates have increased over a period of time, Cash Surrender Values, like bonds, may decline. However, unlike a bond, the Owner has the guarantee that the Cash Surrender Value is never less than the total premiums paid, minus Withdrawals, accumulated at the minimum guaranteed interest rate of the specific contract form, less any applicable Surrender Charges.
The following table illustrates the effect of the Market Value Adjustment on the Cash Surrender Value of a typical Market Value Adjusted annuity, assuming future interest rates increase or decrease by 1% or 2%.
In the example, the 7th year Cash Surrender Value would be $120,271, assuming there was no change in interest rates during that time period. If new money rates decreased by 2% over that same seven year time, the Cash Surrender Value would increase to $132,534; if rates increased, however, the Cash Surrender Value would go down, as illustrated.
Effect of Future Interest Rate Changed on Annuity Cash Surrender Values
* Values assume $100,000 single premium, 5% first year interest rate and 3% subsequent rate.
During the Surrender Charge period of your contract, American Equity permits a penalty-free Withdrawal once each year, after the first Contract Year, which is not subject to any Market Value Adjustment, of up to 10%. The Market Value Adjustment would apply only to a total Surrender or a Withdrawal in excess of this 10% penalty-free partial withdrawal made during the Surrender Charge period.
Also, in the event of death, the benefits paid would not be subject to a Market Value Adjustment.
American Equity’s MVA’s provide many advantages, plus the benefits of being associated with a financially secure life insurance company.
American Equity’s Market Value Adjusted annuities are an excellent product for financial diversification.
The Market Value Adjusted annuity is an insurance product and is not guaranteed by any bank or insured by the FDIC.