We receive several requests from fixed and indexed annuity shoppers about which insurance companies offer the best premium bonuses on first year and subsequent yearly deposits.
Interest rates and bonus amounts are constantly changing, so it is best to give us a call in order to compare current yields and illustrations as one size does not fit all with these investments.
You may be looking for an annuity rollover and in need of a first year bonus to help recoup losses from an under-performing variable annuity or mutual fund. We can help.
However, it’s important to understand how annuity bonus accounts work and what can be expected before investing in one that offers the highest first year bonus. While there are plenty of accounts offering 10% premium bonuses or more, they don’t all operate in the same fashion. Some annuity accounts offer a 20% premium bonus for example, but they require a future annuitization.
Most fixed and indexed annuities offer a one-time bonus on all premiums deposited in the first year. The bonus amount is usually tied to the term of the annuity. That is to say, the longer the term (in years), then the larger the first year bonus.
First year only bonus accounts are usually appropriate for consumers who are looking to exit an under-performing investment. Maybe they have lost money in mutual fund or wish to exchange a variable annuity for a safer investment like a fixed or indexed account.
Upfront bonuses can help recoup investment losses helping to ease the pain of exchanging a variable annuity that’s lost value in the stock market. The accumulated value of the new account (including bonus) can help match the death benefit value or initial investment value of the undesirable variable instrument. We see this transaction work with life insurance plans as well.
Not quite as common as a first year bonus, accounts offering multi-year bonuses are popular for those who are saving for the long haul – one year at a time. A select few annuity providers will offer premium bonuses (some as high as 10%) on all deposits made in the first seven years of the account.
This can be very valuable for those who are slowly divesting from another investment. One example would be someone who was systematically converting his or her traditional IRA to a Roth IRA. The advantage is that the income tax liability created by the Roth IRA conversion would be spread out over more than one year.
Multi-year annuity accounts are also appropriate for those who are saving toward retirement. If larger deposits will be made over a 2-7 year time period, then the account owner can take advantage of the bonus opportunity providing a much larger principal amount to draw from during their retirement years.
Income riders are gaining in popularity with many investors who desire a guaranteed income stream during retirement.
When the rider is attached to certain fixed and indexed annuities, then the income account value will also be credited with the bonus amount.
Those who want to divest a portion of their portfolio from the ups and downs of the overall markets are using guaranteed annuity income riders (with or without a bonus) as a simple, but effective means to create a future lifetime stream of income. When a 10% bonus is added to the account value, future income streams can be larger.
The first and most obvious one is time. In order to secure a large first or multi-year bonus, you must be willing to commit your dollars for a longer period of time. Any account offering a 10% or greater bonus will usually require at least a ten year surrender term.
It is important to understand that annuity owners will always have penalty-free access to a portion of their invested funds. However, if you choose to withdraw all of your money before the annuity term is up, early surrender penalties will likely be encountered.
Early surrender penalties are not assessed on regular income withdrawals, yearly principal (usually 10%-20%) or RMD disbursements, withdrawals for health reasons, during annuitization, or at death. Annuity investors with longer surrender periods have several ways to access their funds for any number or reasons without facing penalties.
It’s also important to know if your annuity bonus vests over time – some do and some do not. If you withdrawal your funds early, then the bonus might not be fully vested with some accounts. Vesting rules can also come into play when the owner passes away. Should the account owner pass away prematurely, the bonus value may not be fully vested with some insurance companies.
Buyers of annuities may also want to ask if the first or subsequent year bonuses will mitigate future interest gains. In many cases a fixed account with no bonus, but offering a guaranteed multi-year rate may offer better growth in the long run than one offering a larger first year bonus.
Consumers should always ask about the guaranteed interest rates offered by the insurance company over the life of the contract depending on the type of annuity purchased.
Annuities offering the best bonus opportunities may not be the same for every person and in every situation. And some may simply not be appropriate at all for certain investors. It is always wise to speak with an expert to make sure that all variables are thoroughly understood before investing.
Hyers and Associates, Inc. is a full service, independent insurance agency specializing in fixed, indexed, and immediate annuity accounts. We help consumers all over the country with rollovers, 1035 exchanges, and retirement planning.