Some annuities with surrender charges reward the investor by offering a bonus: the insurance company adds an average of 3% to 5% to each of your premium payments, which can make for an excellent head start. For example, if you invest $10,000 in a bonus annuity the insurance company will add $300 to $500. The trade-off is that with a bonus annuity the surrender period is usually longer (eight to nine years in most cases versus the typical seven-year surrender) and each subsequent bonus payment will have its own eight or nine year surrender period.

Most bonus annuities allow you to withdraw 10% to 15% of your premium payments per year without a penalty, and some allow you to take the greater of all earnings or 10% to 15% of premiums (although any withdrawal from an annuity may be subject to taxes and a 10% federal penalty if taken prior to 59½ years of age).

There are a few other things to be aware of when exploring bonus annuities. First, bonus annuities typically pay the broker a lower upfront commission — a broker or agent may not volunteer that bonus annuities are available to you, so ask! Second, be certain to compare the annual fees and track record of the fund compared with the company’s standard, non-bonus product — sometimes the life insurance company will raise their fees to pay for the bonus. If you have any questions, you can always call an Annuity FYI Expert to make sure that you pick the best annuity to meet your needs.