Bonus annuities usually offer a high first year interest rate and thereafter the rate goes down. Bonus annuities were intended for people to make back past losses or to help offset surrender charges that were incurred by surrendering a policy before the policy term ended. Some brokers/agents use the easy sell of a premium bonus to entice a client to buy an annuity from them.
Fixed Bonus Annuities
Some fixed annuities offer a 1-3% bonus on the first year and a rate thereafter. The “base rate is the interest rate that the company projects it will pay in the second year of the policy but the base rate is not guaranteed in most annuities.
A “renewal rate” or “portfolio renewal rate” are rates that are renewed on an annual basis. Some refer to them as “trust me rates.” You do not know what you rate is going to be and you have to trust the insurance company every year to declare a competitive interest rate.
The first year bonus is used as an inducement to move large sums of money into these annuities.
Fixed Index Annuities
Some Fixed Index Annuities (FIA’s) offer a premium bonus on the initial premium or on additional premiums for the first 5 years. This is also used as an inducement to buy the annuity because people like free money.