Bonus Annuities

Shawn Plummer

CEO, The Annuity Expert

Among the myriad of annuity options available, the “bonus annuity” stands out as a particularly enticing choice for many. But what is a bonus annuity? How does it differ from other annuities? And who stands to benefit the most from it? Let’s dive deep into the intricacies of bonus annuities and unravel their true potential.

What is a Bonus Annuity?

At its core, a bonus annuity is a type of deferred annuity (typically indexed annuities) that offers an initial premium bonus to the policyholder. Think of it as a “welcome gift” from the insurance company to you, the investor. This bonus is typically a percentage of your initial premium payment and is added to your annuity’s account value right from the start.

For instance, if you invest $100,000 into a bonus annuity with a 5% annuity bonus rate, you’d receive an additional $5,000, making your total initial account value $105,000. This immediate boost can significantly enhance the growth potential of your investment over time.

Bonus Annuity

How Does a Bonus Annuity Work?

The mechanics of a bonus annuity are straightforward. Once you make your initial premium payment, the insurance company adds the bonus (based on the annuity bonus rate) to your account. From there, your total account value (initial premium + bonus) grows based on the interest rates or investment options you’ve chosen.

It’s essential to understand that the bonus is not “free money.” While it does provide an immediate uplift to your account value, bonus annuities often come with longer surrender periods or higher surrender charges. This means if you decide to withdraw your money early, you might face steeper penalties than with a standard annuity.

Bonus Annuities

Who Should Consider a Bonus Annuity?

Bonus annuities are not a one-size-fits-all solution. They are best suited for:

  • Long-term Investors: Given the longer surrender periods, those who can commit their funds for an extended period stand to benefit the most.
  • Those Seeking an Initial Boost: If you’re looking for an immediate uplift in your account value or recouping losses in the stock market, the premium bonus can be quite attractive.
  • Individuals Transitioning Large Sums: If you’re moving a significant amount from another investment or a lump sum from a retirement package, the bonus can add substantial value.
What Is A Bonus Annuity

The Real Value of Bonus Annuities

While the allure of an immediate bonus is undeniable, the true value of bonus annuities lies in their long-term growth potential. With compounding, the bonus can lead to significantly higher payouts during the annuitization phase. Moreover, the psychological satisfaction of seeing a larger initial account value can be a strong motivator for many.

However, it’s crucial to weigh the benefits against the potential drawbacks. Always consider factors like surrender charges, the credibility of the insurance company, and the overall terms of the annuity contract.

Insightful Analysis: Beyond the Obvious

At first glance, the premium bonus might seem like the primary advantage of a bonus annuity. But delve deeper, and you’ll find:

  • Tax Deferral: Like other annuities, bonus annuities offer tax-deferred growth. This means you won’t pay taxes on your earnings until you make withdrawals.
  • Flexibility: Many bonus annuities offer a range of investment options, allowing you to tailor your strategy based on your risk tolerance and financial goals.
  • Protection: Annuities, by design, offer a level of protection against market downturns. With the added bonus, you have an even more substantial buffer.
Annuity Bonus Rate

Annuity Bonus Vesting Schedule

In the context of bonus annuities, “vesting” refers to the process by which the policyholder gradually earns the right to the initial premium bonus provided by the insurance company. The vesting schedule itself is a timeline that outlines the percentage of the bonus that becomes the policyholder’s own money over a series of years.

For example, consider a bonus annuity with a 10% premium bonus on an initial investment of $100,000, equating to a $10,000 bonus. The contract might stipulate a 5-year vesting schedule, with the bonus vesting at 20% annually. Here’s how that would look:

  1. End of Year 1: 20% of $10,000 = $2,000 vested
  2. End of Year 2: Additional 20% = $2,000, making a total of $4,000 vested
  3. End of Year 3: Additional 20% = $2,000, making a total of $6,000 vested
  4. End of Year 4: Additional 20% = $2,000, making a total of $8,000 vested
  5. End of Year 5: Final 20% = $2,000, making a total of $10,000 fully vested

Once fully vested, the entire bonus amount is officially yours, and the insurance company cannot take it back, even if you decide to surrender the policy (though surrender charges may still apply).

Why Does Vesting Matter?

  • Commitment to the Contract: The vesting schedule encourages annuity owners to stick with their contract until the bonus fully vests. It’s a way for insurance companies to ensure policyholders remain invested for a certain period, allowing the company to manage its risks and returns effectively.
  • Impact on Surrender Values: If you surrender your annuity before the bonus fully vests, you’ll likely forfeit a portion of the bonus. Understanding your vesting schedule helps you make informed decisions about if or when to withdraw funds.
  • Strategic Planning: For retirees or those approaching retirement, knowing when bonuses vest is crucial for income planning. It allows for strategic decision-making about when to start taking income in alignment with the maximum financial benefit.

Bonus Annuity Rates

AnnuityLengthRatingBonus (Up To)
American Select Bonus Plus10 yearsB++16%
Athene Performance Elite PLUS 1515 yearsA20%
Athene BCA 12 2.012 YearsA14%
American Select 7 Series Bonus Plus7 yearsB++11%
Athene Performance Elite 10 Plus10 yearsA16%
North American Secure Horizon Plus10 yearsA+15%
Equitrust MarketPower Bonus14 yearsB++10%
Midland IndexBuilder 1414 yearsA+11%
F&G Performance Pro10 yearsA-15%
Athene Performance Elite 1515 yearsA15%
Athene Performance Elite 1010 yearsA10%
North American Charter Plus 1414 yearsA+10%
Athene BCA 10 2.010 yearsA12%
Midland IndexBuilder 1010 yearsA+7%
Americo LibertyMark 10 Plus10 yearsA7%
North American Charter Plus 1010 yearsA+8%
Athene Performance Elite 7 Plus7 yearsA6%
Athene BCA 8 2.08 yearsA6%
Fidelity & Guaranty Accelerator Plus 1010 yearsA-5%
Fidelity & Guaranty Prosperity Elite 77 yearsA-4%
Americo ClassicMark 10 Plus10 yearsA4%
AIG Power Select Builder 88 yearsA10%
American Select 10 Series Bonus10 yearsB++10%
American Select 7 Series Bonus7 YearsB++7%


Bonus annuities, with their enticing premium bonuses, offer a unique proposition for those looking to maximize their retirement income. While the immediate uplift in account value is attractive, it’s essential to approach this investment with a comprehensive understanding of its pros and cons. By doing so, you can harness the full potential of bonus annuities and pave the way for a financially secure future.

Remember, in the realm of financial planning, knowledge is power. And with this guide, you’re now equipped with the insights and expertise to make informed decisions about bonus annuities. Here’s to making your money work harder for you!

Bonus Annuities

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Frequently Asked Questions

Which annuity has the highest bonus?

The annuity with the highest bonus can vary and depends on the specific products insurance companies offer. It’s recommended to compare different annuity options to determine the highest bonus available.

What type of annuity adds a bonus?

Certain annuities, such as fixed index or variable annuities, may offer bonus features. These bonuses are typically added to the initial premium or account value to enhance potential returns.

What is the most common bonus in a bonus annuity?

The most common type of bonus in a bonus annuity is a percentage bonus, where the insurance company adds a predetermined percentage of the initial premium to the account value.

Are bonus annuities good?

The suitability of bonus annuities depends on individual financial goals and circumstances. While bonus annuities can provide initial account value boosts, it’s essential to consider the entire annuity structure, fees, and long-term performance before deciding.

What is a first-year bonus “teaser” rate?

A first-year bonus rate is a variant of the traditional declared-rate interest-crediting approach that insurance companies use to boost their marketing efforts. This type of annuity is generally referred to as a bonus annuity.

What are the best bonus annuities?

Best bonus annuities are a type of retirement investment that offers a higher upfront bonus, typically a percentage of the premium paid. This bonus can provide an immediate boost to the account value, allowing investors to potentially earn more over time. It’s important to carefully consider the terms and conditions before investing in the best bonus annuities, as they may come with higher fees or longer surrender periods.

What is a premium bonus annuity?

A premium bonus annuity is an insurance product that offers an additional bonus to the policyholder upon purchasing the annuity. This bonus is typically a percentage of the premium amount and is designed to provide an extra incentive for individuals to invest in the annuity. It can be a valuable feature for those seeking to maximize their returns and secure their financial future.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed insurance agent and annuity broker with over a decade of first-hand experience. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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