Is an annuity bonus really free money?
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Short answer: Not usually. A premium bonus adds a percentage of your deposit to a fixed indexed annuity up front, but bonus contracts often have longer surrender periods, higher surrender charges or lower caps and participation rates, and the bonus may vest over several years. Judge the whole contract, not the size of the bonus.
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How a premium bonus works
The NAIC Buyer's Guide describes a premium bonus as a lump sum the insurance company adds when you buy the annuity or add money, usually a set percentage of what you put in. It also warns that you may not be able to withdraw some or all of the bonus for a set period, and you could lose it if you take money out within that period.
Example: you put $100,000 into a fixed indexed annuity (FIA) with a 5% premium bonus. Your starting account value is $105,000.
Where the cost shows up
Insurers aren't charities, as Kiplinger put it in a July 2023 piece. A bonus has to be paid for somewhere. Common trade-offs:
- Lower crediting terms. A bonus FIA may have lower caps or participation rates than a similar contract without one.
- A longer surrender period, and often higher surrender charges.
- Vesting. The bonus may become fully yours only after several years. Leave early and you can lose part or all of it.
Example: Contract A has no bonus and a 7% cap. Contract B has a 5% bonus and a 5% cap. If the index rises 10% a year for 3 years, A credits 7% a year and grows $100,000 to about $122,504. B starts at $105,000 and credits 5% a year, reaching about $121,551. The bonus looked bigger on day one but didn't keep up.
Bonuses on the benefit base
Some bonuses go only to an income rider's benefit base, not the account value. That can raise future lifetime income, but it isn't money you can withdraw. See is the benefit base real money?
Don't swap annuities just for a bonus
A common pitch is to replace an annuity you already own with a new one that has a bonus, sometimes to "cover" your surrender charge. FINRA's annuities page says to only make a change when it's better for you, not just for the person recommending the new product, and notes that a new contract usually restarts the clock on surrender charges. Kiplinger's advice is blunter: 'It's rarely worth paying the penalty.'
When a bonus can make sense
A bonus FIA can be the right pick when, after comparing caps, surrender schedule and any rider terms side by side, it still comes out ahead for your goals. Kiplinger calls the bonus a potential tie-breaker, not the reason to buy.
Questions worth asking
- Is the bonus added to the account value, the benefit base, or both?
- Does the bonus vest? Over how many years?
- How do caps and the surrender schedule compare with the same insurer's no-bonus version?
- If I'm replacing an annuity, what will I pay to leave it, and when does the new surrender period end?
Plain-English FAQ
Can I withdraw the bonus right away?
Often not. Many bonuses vest over several years, and leaving early can mean losing part or all of the bonus on top of any surrender charge.
Is it worth surrendering my current annuity to get a bonus?
Rarely. A new contract usually starts a new surrender period, and the bonus may only offset what you pay to leave. Compare both contracts in writing first.
Does a bigger bonus mean a better annuity?
No. Bigger bonuses often come with lower caps or participation rates and longer surrender periods. Compare the whole contract.
Is the bonus added to my account value or my benefit base?
It depends on the contract. Some add it to the account value, and some add it only to an income rider's benefit base, which isn't cash you can withdraw.
Ready for your number?
Every contract has its own caps, fees and surrender schedule, so the general rules on this page only go so far. You can get a free one-minute income quote at quote.garycosby.com, and if you choose, talk with one of our licensed agents about how a specific contract works. It's your money and your decision.
More guides
- What is a fixed indexed annuity?
- Is the benefit base on an FIA income rider real money?
- Can I cancel a fixed indexed annuity after I buy it?
Sources
- NAIC, "Buyer's Guide for Deferred Annuities" (2022 edition; checked October 23, 2026). https://content.naic.org/sites/default/files/publication-anb-lp-consumer-annuities-fixed.pdf
- Kiplinger, "Are Bonus Annuities a Good Deal?" (July 10, 2023; checked October 23, 2026). https://www.kiplinger.com/retirement/are-bonus-annuities-a-good-deal
- FINRA, "Annuities" investor page (page date not shown; checked October 23, 2026). https://www.finra.org/investors/investing/investment-products/annuities
All figures on this page come from the dated sources above. Dollar amounts and percentages labeled Example are illustrations, not rates, quotes or predictions.