Why Your Clients Push Back on Surrender Charges and Market Value Adjustments and How to Address Them

Surrender charges and MVA’s aren't penalties. They're the mechanism that lets the insurance company offer the guarantees your client actually wants or needs whether it be a fixed rate, a guaranteed income stream, principal protection, or a particular rider of some sort. The carrier is investing in longer-duration bonds and other assets to back those guarantees. If a client pulls money out the contract early, the carrier has to unwind that position, often at a loss. The surrender charge and MVA are how that cost gets absorbed by the person who caused it, instead of being spread across every other contract holder.

These aren't fees for leaving, they're the price of the guarantee your client is asking for. No surrender period, no MVA and you're back to a product that can't offer the same rate or protection.

Skip the abstract explanation and go straight to the number. Pull up the actual schedule for the contract you're proposing and walk through it year by year. Most clients relax once they see:

The charge declines every year, usually to zero within 5–10 years

Most contracts allow a free withdrawal, typically 10% annually, with no charge at all

The charge only applies to the amount above that free withdrawal, not the whole balance

Required Minimum Distributions are almost always exempt

A client who thinks "if I touch this money, I get penalized" is a client who's scared. A client who understands "I can take out 10% a year for free, and the rest declines every year" is a client who feels informed.

MVA’s are where advisors get more uncomfortable, because unlike a surrender charge, an MVA can theoretically increase what a client receives, not just decrease it. Most clients have never heard that part, and it's worth leading with.

The MVA adjusts the withdrawal amount based on how interest rates have moved since the contract was issued. If rates have risen since your client bought the contract, the value of the bonds backing the guarantees in the contract have fallen. Thus, an early withdrawal gets adjusted downward to reflect that. If rates have fallen, the bonds backing the contract guarantees are now worth more, and the adjustment can work in the client's favor.

A few things worth emphasizing with a skeptical client:

The MVA generally only applies to withdrawals above the free withdrawal amount, applied similarly as a surrender charge

It's tied to interest rate movement, not the stock market — this is not the same risk as a variable annuity or an equity position

It disappears entirely once the surrender period ends

It can go either way — this isn't a one-directional penalty, even though that's rarely how clients hear about it the first time

Advisors who get the least pushback aren't the ones with the best explanation. It’s the advisor who asks the question before they even get into the policy mechanics: "Is this money you need liquid, or is this money you want working for a specific goal?"

If the client is funding their contract with money they've already earmarked for 7–10 years out in the pursuit of a legacy goal, a future income need, money they've explicitly said they don't need to touch, the surrender period stops being a risk and becomes nearly irrelevant to their actual plan. The conversation shifts from "what if I need this money" to "this is money I've already decided I don't need right now."

This is the conversation that needs to happen to prevent the uncomfortable surrender charge/Negative MVA conversation.

Never bury the schedule. Show it early and clearly. Clients trust what they can see.

Use their own numbers. Run an illustration displaying actual free withdrawal amounts.

Don't over-explain the MVA math. Most clients don't need the bond-duration mechanics. Typically, they need to know that the MVA is rate-driven, it's two-directional, and it goes away after the surrender period.

Anchor back to purpose. The client didn't buy this contract to have liquid, penalty-free cash. They bought it for a guarantee. Keep focused on the purpose of why it was implemented.

If you're working through a specific case where a client is stuck on this, or want help pulling the actual surrender/MVA language for a particular carrier's contract, give us a shout and we are happy to help.

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