Questions – Fixed Deferred Annuities

by Steve Goodman

CPA, MBA – President & Chief Executive Officer

Contact Steve today for more info.

Q: Is there a market value adjustment (MVA) at surrender if interest rates go up or down?

A: When an annuity has a market value adjustment feature, the value you receive at surrender is adjusted up or down based on the direction of interest rates after you purchase the annuity. Note that the market value is also subject to surrender charges. If interest rates rose since establishing the policy, the MVA will be negative. Conversely, if interest rates declined, the MVA will result in a positive adjustment.

Q: For how long are surrender charges assessed and what are the surrender charges each year?

A: Annuities have different surrender charges and surrender charge periods. Make sure you understand this and compare surrender charges and surrender charge periods between different annuities.

Q: Is there an amount that can be taken out of an annuity each year without a surrender charge? If so, what is this amount, and does it carry over to the next year?

A: Most annuities allow you to withdraw 10% each year without any surrender charges or market value adjustments. Withdrawal amounts are not cumulative if not taken each year.

Q: Why are insurance carrier ratings from S&P, Moody’s, Duff & Phelps and Weiss important?

A: It’s critical that you work with a high-quality insurance company. An annuity is a long-term liability on the part of the insurer, so you want to be sure the company will be around for the long haul. Therefore, make sure you compare the ratings of various companies to determine their quality.

Q: Does it matter if an insurance agent is a captive agent of a particular insurance company?

A: If an agent is a captive agent of a particular insurance company — like New York Life, Mass Mutual, Guardian, Penn Mutual or Northwestern Mutual, for example — he or she is likely to focus on selling that company’s annuities. Instead, you should make sure you get quotes from different companies. Request a comparison of five of the top-rated insurance companies from your agent.

Q: How should I compare insurance companies?

A: Request a comparison of the top five rated companies and make sure that all the questions noted here have been sufficiently answered.

Q: Should I ask about reduced commission products?

A: Yes, ask the insurance company if there are there any reduced commission products available.

Q: Is it possible to get a refund of premium payments without interest and a surrender charge?

A: Some carriers offer a feature that allows you to get your premium payments back without surrender charges. However, you will normally forfeit your interest.

Q: What are the income and estate tax consequences if I die and own an annuity?

A: You should consult with a tax advisor about questions related to the tax treatment of annuities. If you die prior to annuitization, the annuity becomes part of your estate and the value above the initial investment will be taxable at ordinary income rates.


CPA, MBA – President & Chief Executive Officer

About Steve Goodman

For more than 30 years, Steven has provided insightful solutions to the challenges of business succession, wealth preservation and charitable planning, focusing on the needs of owners of closely held businesses and high net worth individuals.

He's been featured in the New York Times and is an accomplished speaker and has presented over the years to many organizations and professional groups on efficient business succession, estate planning issues and tax strategies. Steven is a CPA who was vice president of the Trust and Investment Division of JP Morgan Chase and a supervisor for KPMG Peat Marwick, and holds an MBA from Fordham University.

Email Steve today for the business succession planning you deserve.

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