Massachusetts Life Producer Practice Exam

What effect does surrendering a market value adjusted annuity before the guarantee period have?

1. The cash value is fixed

2. Subject to market value adjustment

3. Receive a bonus payout

4. Immediate tax penalties apply

The correct answer is: Subject to market value adjustment

Surrendering a market value adjusted annuity before the guarantee period will result in a market value adjustment. This type of annuity is designed to provide investment flexibility, while also integrating a mechanism that adjusts the value based on prevailing interest rates at the time of surrender. When an annuity is surrendered, if interest rates have risen since the purchase of the annuity, the market value adjustment can lead to a decrease in the cash value. Conversely, if interest rates have fallen, the cash value may increase. This adjustment reflects the current market conditions and impacts the amount the annuity holder receives upon surrender, emphasizing the connection between market performance and the value of the annuity. The other options do not accurately describe the process or consequences of surrendering a market value adjusted annuity. For example, while cash values and penalties may be factors in annuity contracts, they do not specifically pertain to the effects triggered by surrendering this type of annuity prior to the guarantee period.