MVAs & Surrender Charges — How Early Exit Costs Stack

By Editorial Team

Published April 1, 2026 · Updated May 5, 2026

A market value adjustment isn’t a penalty — but combined with a surrender charge, it can reduce your surrender value far more than either factor alone. Here’s the full picture.

Most annuity buyers understand — at least in broad terms — that surrendering an annuity during the surrender charge period costs money. What fewer understand is that many fixed and fixed-indexed annuity contracts include a second exit mechanism that can add to or subtract from the surrender value independently of the surrender charge: the market value adjustment, or MVA.

Understanding how MVAs work, when they apply, and how they interact with surrender charges and the guaranteed minimum surrender value is essential before making any decision to surrender a contract early or take an excess withdrawal.

What Is a Market Value Adjustment?

A market value adjustment is a contractual mechanism that adjusts the surrender value of an annuity to reflect changes in interest rates since the contract was issued. The economic logic mirrors what happens in the bond market: if rates have risen since you locked in your fixed-rate annuity, the insurer’s portfolio of bonds backing your contract is now worth less than it was at issue. The MVA allows the carrier to share some of that unrealized loss with you if you exit early.

The MVA works symmetrically in theory. If rates have fallen since you purchased, the carrier’s bond portfolio is worth more — and the MVA can increase your surrender value. In practice, most annuity policyholders encounter MVAs in rising-rate environments, where the adjustment reduces the surrender payout.

The MVA is not a penalty. It is an interest rate adjustment that mirrors market realities. But the distinction is largely academic to a policyholder who receives $4,000 less on a surrender because of it.

When Does the MVA Apply?

MVAs typically apply when:

• You take a withdrawal exceeding the free-withdrawal allowance (commonly 10% of account value per year) during the surrender charge period.
• You fully surrender the contract before the end of the surrender charge period.

MVAs do not apply when:

• You hold the contract past the surrender charge period — the MVA window expires with the surrender schedule.
• You take withdrawals within the free-withdrawal amount.
• The contract is annuitized (in most contracts).
• Death benefits are paid (in most contracts).
• Required minimum distributions (RMDs) are taken (in most contracts).

SILAC’s fixed annuity products are worth noting specifically here: on their Secure Savings and Secure Savings Elite products, both the surrender charge schedule and the MVA reset at each renewal period — meaning a policyholder who renews into a new guarantee period essentially starts a fresh surrender and MVA window from that point.

How the MVA Is Calculated

MVA formulas vary by carrier, but the general framework involves comparing a reference interest rate at the time of surrender to the rate in effect when the contract was issued. The most common reference rate is the U.S. Treasury Constant Maturity rate for a term matching the contract’s guarantee period.

A simplified version of North American Company’s formula illustrates the concept:

Where

i

is the reference rate at contract issue,

j

is the reference rate at surrender,

n

is the remaining years in the surrender period, and the 0.0025 spread is a small buffer in the carrier’s favor. In plain terms: if rates have risen 1% since you purchased and you have 4 years remaining in the surrender period, the MVA factor might reduce the excess withdrawal by approximately 4% before the surrender charge is applied. On a $50,000 excess withdrawal, that’s a $2,000 reduction from the MVA alone.

The Stack: MVA + Surrender Charge

Both the MVA and the surrender charge apply to the same excess withdrawal — meaning they stack on top of each other. Using a concrete example:

Contract value:$100,000

Free withdrawal (10%):$10,000 — no charges apply

Total surrender request:$100,000 (full surrender)

Excess subject to charges:$90,000

Surrender charge (6% in year 3):−$5,400

MVA (rates up 1%, 4 years remaining ≈ −4%):−$3,571

Net surrender value:$91,029 (vs. $100,000 account value)

The combined impact of a 6% surrender charge and a 4% MVA on the excess withdrawal reduces the effective payout to about 91 cents on the dollar — not the 94 cents a buyer might have expected from the surrender charge alone.

The Guaranteed Minimum Surrender Value (GMSV)

State insurance regulations require that the combination of surrender charges and MVA cannot reduce the surrender value below a minimum floor — the guaranteed minimum surrender value (GMSV). Most states set this at 87.5% of premiums paid, accumulated at a minimum interest rate (often 1–3%), less any withdrawals already taken.

In practice, the GMSV serves as a consumer protection against extreme scenarios. If rising rates produce a severe negative MVA and the surrender charge is also high, the carrier cannot reduce your surrender proceeds below the contractual floor — even if the two adjustments would mathematically suggest a lower payout.

The GMSV is relevant primarily in stress scenarios: a contract purchased at low rates that experiences a sharp and sustained rate increase, creating a large negative MVA. In normal rate environments, the GMSV rarely comes into play because the combined surrender cost doesn’t approach the floor.

Critically, the GMSV is calculated on premium paid — not account value. If the account has grown substantially, the floor based on original premium may be well below current account value, providing less protection than it appears to on a nominal basis.

Before You Surrender Early

Anyone considering surrendering an annuity before the end of the surrender charge period should request a full surrender illustration from the carrier that shows:

1. The current account value.
2. The free-withdrawal amount available without charges.
3. The applicable surrender charge percentage.
4. The MVA factor, if applicable — and whether rates are currently above or below the rate at issue.
5. The guaranteed minimum surrender value floor.
6. The net surrender proceeds after all adjustments.

Armed with the actual surrender proceeds number, you can run the income/IRR calculator on this site to determine what annualized return you have actually earned on the contract to date — and whether moving to an alternative product generates enough incremental return to justify the exit costs.