What Are Bonus Annuities?

A bonus annuity is a type of annuity that provides a bonus to the policyholder. The bonus is typically added to the premium. This results in a higher account value. Two main types of bonuses can be offered in a bonus annuity: A Premium Bonus And An Interest Rate Bonus.

What Is Bonus Annuities and How Do Bonus Annuities Work?

Are you considering a Bonus Annuity? Keep reading to see if purchasing one is the right choice for you! In this article, we’ll explain how bonus annuities work, what the pros and cons are, and cover the highest annuity bonus accounts. 

Ready to dive into the world of annuities? After reading this blog, check out our in-depth article on How Do Annuities Work?

How Do Bonus Annuities Work?

A bonus annuity is an annuity contract offered by insurance companies that provides a bonus to policyholders in addition to the regular guaranteed interest rate. The bonus is intended to encourage policyholders to purchase or keep the annuity for a longer period of time. 

By offering a bonus, insurance companies incentivize policyholders to keep their annuity for a longer period of time, thus avoiding surrender charges. The bonus can be in the form of a lump sum payment or a percentage increase in the premium.

And the bonuses are REAL MONEY. Every company does Bonus Annuities a little different but they can be extremely good for consumers.

Here are the two types of bonus annuities we see the most!

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Premium Bonus Annuity

A premium bonus is a lump sum added to the policyholder’s account value at the time of purchase. The bonus can be a fixed amount or a percentage of the premium paid. It is designed to increase the policyholder’s account value. This is used to generate a higher income stream in the future. 

Interest Rate Bonus Annuity

An interest rate bonus is an additional amount of interest added to the regular guaranteed interest rate offered by the annuity. This bonus can be a fixed amount or a percentage of the regular interest rate and is designed to increase the income the policyholder will receive in the future.

When Do Bonus Annuities Make Sense?

A bonus annuity can be a great option for those looking to maximize their investment returns while also having some level of security. But there are certain scenarios where bonus annuities can make more sense.

Ideal Scenarios To Purchase Bonus Annuities

Bonus annuities can be a good option for those looking for a guaranteed source of income during retirement. They are especially suitable for individuals who want to receive a lump sum payment while ensuring they have a steady income for the rest of their lives. 

Bonus annuities are particularly attractive to individuals who have a long time horizon and are not in immediate need of their money, as these annuities typically offer higher payouts to those who are willing to commit their funds for a longer period of time.

In addition to being a good option for those who have a long time horizon, bonus annuities can also be a good choice for individuals who are looking for a guaranteed rate of return. 

This can be particularly important for those who are concerned about the volatility of the stock market and want to ensure that they have a steady stream of income during retirement.

The Pros and Cons of Annuities Infographic (Tax-deferred growth, guaranteed income, diversification, fees, restrictions, inflation risk).

Pros Of A Bonus Annuity

A bonus annuity is a type of annuity contract that offers an additional bonus in addition to the traditional interest earned on the investment. Bonus annuities can provide a number of benefits to investors from higher growth to more flexibility.

Here Is A List Of Bonus Annuity Benefits:

Higher Guaranteed Growth

One of the biggest advantages of a bonus annuity is guaranteed growth. The bonus, which is typically added to the account value at the time of purchase, helps to boost the overall return on investment. This can be especially helpful for those looking to grow their savings over time.

More Flexibility

Another advantage of a bonus annuity is that it provides more flexibility than other types of annuities. For example, many bonus annuities allow investors to withdraw or take loans against the account value without penalty. 

Peace Of Mind

Investing in a bonus annuity also provides peace of mind, as the bonus is guaranteed to be added to the account value regardless of market conditions. 

This reduces the stress and uncertainty associated with investing, especially for those who are new to investing or who are risk-averse.

Bonus Can Offset Surrender Charge

In some cases, the bonus from a bonus annuity can be used to offset any surrender charges incurred if the annuity is surrendered or canceled before the end of the contract term. 

This can help to reduce the out-of-pocket expenses associated with canceling the annuity and make it easier for investors to access their savings if necessary.

Reducing Your Out-Of-Pocket Expense

Investing in a bonus annuity can also help to reduce out-of-pocket expenses. 

The bonus, along with the guaranteed interest earned on the investment, can help to offset the costs associated with purchasing the annuity, including any fees or charges that the insurance company may assess.

What Are The Cons Of Bonus Annuities?

Bonus annuities are financial products that offer a guaranteed rate of return, as well as an additional bonus rate that is added to the contract at the time of purchase. While these annuities can offer several benefits, there are also some drawbacks. 

Limited Benefits

One of the biggest drawbacks of bonus annuities is that they typically have limited upside potential. The extra bonus payments come with a tradeoff of lower overall returns compared to other annuity options.

Fewer Riders And Benefits

Bonus annuities may also come with fewer riders and benefits than other annuity options. Riders are add-ons to your policy that provide additional benefits, such as long-term care coverage or death benefits. If these riders are important to you, a bonus annuity may not be the best choice.

Longer Surrender Periods

Another drawback of bonus annuities is that they often come with longer surrender periods. If you decide to cash out your annuity before the end of the surrender period, you may face significant surrender charges.

Extended Vesting Schedule

In some cases, the bonus on a bonus annuity may also have a vesting schedule, meaning that you may have to wait a certain amount of time before you’re eligible to receive the bonus payments.

Lower Rates

Bonus annuities often have lower interest rates than other annuity options. This means that your money will grow more slowly over time, which may not be ideal if you’re looking for a way to grow your wealth quickly.

Looking For An Annuity Bonus? Questions To Ask

When considering surrendering one annuity for a bonus annuity, it’s important to understand the terms of the new annuity, including the bonus structure and any surrender charges. While a bonus annuity may seem like a good option, it may not be the best choice for everyone. 

Before making any decisions, it’s important to consult a financial professional who can help you understand the implications of surrendering your existing annuity and entering into a new one.

If you’re considering purchasing a bonus annuity, it’s important to consider several factors to ensure that it aligns with your financial goals and objectives. Here are 4 questions to ask yourself:

  1. What Are My Financial Goals? A bonus annuity may be a good option if your primary goal is to secure a steady income in retirement. However, if you’re looking for more growth potential, it may not be the best option for you.
  1. What Is My Risk Tolerance? Bonus annuities offer a higher level of security compared to other investment options, as they guarantee a minimum return. However, the growth potential is limited. Consider your comfort with risk when deciding whether a bonus annuity is right for you.
  1. How Long Do I Need My Money To Last? Bonus annuities typically come with longer surrender periods, meaning you may have to wait several years to access your funds without incurring a penalty. Consider your time horizon and ensure a bonus annuity is a good fit for your long-term financial goals.
  1. What Is My Overall Financial Situation? Bonus annuities are just one piece of a larger financial puzzle. Consider your overall financial situation, including your retirement savings, investment portfolio, and other sources of income, to determine if a bonus annuity is a good fit for you.


A bonus annuity is a type of annuity that offers an additional bonus on top of the regular interest rate. Bonus annuities can be a good choice for those who are looking for an investment with a guaranteed return and who don’t mind tying up their money for a set period of time.

There are some drawbacks to bonus annuities that should be considered. Some bonus annuities have limitations on the upside potential, offer fewer riders and benefits, have longer surrender periods, and come with extended vesting schedules. Additionally, some bonus annuities may have lower interest rates than traditional annuities.

When considering an annuity rollover or exchange, it’s important to carefully weigh the pros and cons and consider the tax implications. You also need advice from a financial advisor or tax professional to help you make an informed decision.

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