Annuity Bonuses: What's the Catch?

By Greg Stevens · 3 min read

"Get a 10% bonus on day one!" It sounds like free money. Annuity bonuses are real: the insurance company adds a percentage to what you put in. A few things usually come with them, though, and they're worth understanding before you sign.

1. The bonus may vest over time

Many bonuses vest over several years. If you leave early, you can lose part of the bonus, on top of any surrender charge.

2. The surrender period is often longer

Bonus products usually commit your money for more years than similar products without a bonus. A ten-year commitment is very different from a five-year one if your plans change.

3. Growth caps can be lower

On fixed indexed annuities, a bonus product may have lower caps or participation rates than a comparable product without one. Over a decade, a lower cap can quietly give back more than the bonus added.

So is a bonus ever worth it?

Yes. I've recommended bonus annuities when the numbers worked, especially when the money was clearly long-term and the product's terms held up against alternatives. The only way to know is to compare the actual numbers side by side over the period you'll own it, not the headline.

Ask: what happens to the bonus if I leave early, how long is the surrender period, and what are the caps compared to the same company's non-bonus version? Those three answers tell you most of what you need.