Bonus Annuities Explained

Bonus annuities are a type of Fixed or Fixed Index Annuity that pay an up front premium bonus. The bonus is paid as a percent of your original purchase premium. Generally, the longer you commit to an annuity the higher the premium bonus will be. If you are looking for an accumulation product that pays a guaranteed interest rate for the entire annuity contract you may want to look at fixed annuity rates instead.

For example, if you purchase a bonus annuity with a 5% premium bonus for $100,000 you would receive a 5,ooo bonus making your annuity’s account value $105,000.

 

Bonus Annuity Rates Table

CarrierAnnuityRatingMax AgeMinimumBonusTerm
Allianz Life Insurance Company of North AmericaAllianz 222 AnnuityA+80 $20,000 15%10 yrs
AthenePerformance Elite 15 PlusA73 $10,000 15%15 yrs
AthenePerformance Eliete 10A78 $10,000 10%10 yrs
EquitrustMarket Power Bonus IndexB++75 $10,000 10%14 yrs
National Western LifeNWL Ultra FutuerA86 $5,000 9%15 yrs
Fidelity & Guaranty LifePerformance Pro w GMWBA-80 $10,000 9%10 yrs
North AmericanCharter 14 PlusA+75 $75,000 8%14 yrs
American EquityRetirement GoldA-78 $5,000 8%10 yrs
Oxford LifeRoyal SelectA-80 $10,000 8%10 yrs
Ibbotson whitepaper on fixed indexed annuities download

Download the complete 23 page Ibbotson Whitepaper on Fixed Index Annuities

Things to Consider

While a bonus annuity can be a great option for the right circumstance there are also times when they are probably not the best solution. Bonus annuities typically have a longer surrender period than other fixed indexed annuities. For the most part, to get a bonus annuity you must be willing to commit to at least a 10 year contract.

Another point worth noting is the crediting component rates on bonus annuities are typically lower than an annuity without a bonus. For example, a fixed index annuity without a bonus may have an annual cap of 5%, meaning your account is credited up to 5% annually based on the performance of the market index you’ve selected. A bonus annuity of the same quality and duration may have a 4% cap. 

So, in essence, you are getting extra interest up front in exchange for earning potential in the future. This is generally not worth it if your primary objective is accumulation. However, if your objective is to use this portion of your retirement savings for guaranteed lifetime income, a bonus annuity may make sense. 

Fixed Index Annuities have a reputation for being complicated, when in fact they are very simple compared to many other investment options. However, there are many different types of index annuities so it is important to be informed prior to making any decisions. If you are considering a fixed index annuity we suggest reading FINRA’s “The Complicated Risks and Rewards of Indexed Annuities.”

Bonus Annuities Pros and Cons

 

Drawn scales on chalkboard when considering bonus annuities it is important to weigh the pros and cons

When shopping for a bonus annuity it is important to weigh the pros and cons.
 

Bonus Annuity Pros

  • Sometimes people find themselves in an investment product that no long
  • er meets their risk tolerance and but there is a penalty to surrender the contract. When that is the case bonus annuities can help offset the surrender charge and help you come out whole.
  • If you are purchasing an annuity 
  • with an income rider and plan to take income in the first few years a bo
  • nus can help boost your lifetime income payments.

Bonus Annuity Cons

  • Bonus annuities usually have long surrender charges.
  • The bonus usually has a vesting schedule; meaning if you get out of the annuity some of your bonus will be re-captured.

Bonus annuities usually have lower caps or interest rates giving 
limiting your future income potential.

Buying a Fixed Index Annuity

Available Indexes: The stock market indexes available in the index annuity. We have a list of available stock market indexes available at each insurance carrier for simplicity. 

Crediting methods (or limiting factors): used to determine what interest rate is credited to your account annually. For example, cap rate, spread, or participation rate. 

Insurer Rating: Financial Ratings are very important because they are an indicator of an insurance company’s ability to fulfill it’s obligations to it’s policyholders. 

Investment Term: Terms range from 3 years to 10 years. During that period of time, you’ll receive a guaranteed rate but will have limited access to your funds. Usually, the longer the term the higher the yield but that isn’t the case in today’s rate environment.

Liquidity: You’ll notice a column for liquidity at our annuity marketplace; there will either be 10% or interest only listed. This is the annual free withdrawal amount you can take from your annuity contract each year without a surrender penalty.  

Annuities are distributed by My Annuity Store, Inc. Guarantees are subject to the claims-paying ability of the insurer. My Annuity Store, Inc. does not advise clients on the purchase of non-fixed annuity products. The information presented here is not intended to be a recommendation to purchase a fixed annuity, fixed index annuity, variable annuity, registered index linked annuity (RILA), immediate annuity (SPIA), longevity annuity, or Qualified Longevity Annuity Contract (QLAC). 

The contract features described may not be current and may not apply in the state in which you reside. Insurance companies often issue contracts which are ‘state-specific’. Insurance companies also change their products and information often and without notice. Annuities are subject to the terms and conditions of the specific contract issued by the insurer, are not FDIC or NCUA insured, are not bank guaranteed, may lose value, and are not a deposit. Please call (855) 583-1104 if you have any questions or concerns. 

The information presented here is not a representation regarding the suitability of any concept or product(s) for an individual and it does not provide tax or legal advice. You should always consult your own financial planning, tax, and legal advisors to determine if a fixed annuity, immediate annuity, longevity annuity, or Qualified Longevity Annuity Contract are suitable in your financial situation.