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Bonus Annuity

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To know if a bonus annuity is a good option for you, you have to understand what it actually means and what are the risks involved in it. Very simply put, a bonus annuity is a contract that gives a premium enhancement on your invested amount. The bonus is provided by the insurance company when the investor deposits his money.

For Example: If a company offers you a 10% premium bonus/enhancement, on $100,000, your value is now $110,000.

Usually the additional money that is offered by the insurance company ranges from 3% to 5% that is added to every premium payment that you make on your investment. This means a growing balance amount that keeps adding to your investment.

But you might wonder why an insurance company would do something like that. Well, the point to be noted here is that in return for this bonus addition to your funds, the insurance company will probably ask for a longer surrender period. The usual surrender period for annuities is 7 years where as in these annuities, the surrender period can range from 8 to 9 years. Also, every premium enhancement that is made subsequently may also have its own surrender period of 8 to 9 years. Most insurance companies allow for withdrawal of a part of the premium payments without earning any penalty. In fact, you can usually withdraw around 10% of the accumulated value each year.

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Most importantly, you should always check the track record of the insurance company before investing in any annuity to see if they charge you any extra fees as compared to their other non bonus fund options. Some companies charge extra fees to pay for the bonus on premium. In case you are not satisfied with the information you posses regarding a particular insurance company, you can always contact an Annuity FYI expert to clear all your doubts.

As far as the insurance companies are concerned, as an investor, you should understand that the organizations themselves also benefit from offering bonuses. They get prolonged surrender periods and often greater demand for annuity from public. Therefore, it is a win-win situation for both sides involved in the transaction.

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