Retirement and Planning – Is a Bonus Annuity Really a Bonus?

Saving money and planning for retirement has been drilled into us through the generations, and there are lots of ways to do it — savings accounts, 401Ks, IRAs – the list goes on and on. One popular method is an annuity contract through your life insurance company. As most people have life insurance, this path to retirement savings is an easy transition.

According to CNN Money, with an annuity “you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.”

How much you receive depends on the type of annuity you choose. A Fixed Annuity has a guaranteed payout sum, and a Variable Annuity offers a payout stream dependent on the performance of the annuity’s underlying investments. Many individuals select an annuity because they can receive payments for the rest of their or their spouses’ lives, providing them with a regular stream of income.

Moreover, there are two basic types of annuities: immediate, which means you can start receiving money right after investing, and deferred, wherein your money is invested for a period of time until you’re ready to begin withdrawals. Deferred is most commonly used for retirement.

Bonus Annuities

So why buy annuities? The biggest advantage is that they allow you to save money and defer tax payment on it. However, while annuities can be beneficial retirement tools, they can also be a poor investment choice for some due to their high expenses and withdrawal penalties. There is no early access to the money. Should a senior need the money tied up in a deferred annuity, how would they access it?

The question, then, is why would anyone choose an annuity with a surrender charge?

Financial planners and insurance companies know this, so they tack on bonus annuities. A bonus annuity is the amount added by the insurance company to the premium payments of fixed, deferred annuities that have withdrawal penalties. This bonus “rewards” the investor by adding on an average of three to five percent to the principal amount. For example, with a $10,000 investment in a bonus annuity the insurance company will immediately add $300 to $500 to the annuity.

There are things to be wary of, however, when exploring bonus annuities. Brokers or insurance dealers may make it seem like an investor is getting free money for their investments, but in reality they make up for this through other fees. Sometimes the life insurance company will cover the cost by raising their fees. And often times companies won’t even mention that bonus annuities are available as they often pay a broker lower upfront commissions. And for the investor with a bonus annuity the surrender period is usually a few years longer.

In the case of bonus annuities, investors should do their homework. You should compare it to standard products and make sure the higher expenses don’t outweigh the benefit of the bonus credit offered.

Join a Free Annuity Fraud/Life Insurance Class Action Lawsuit Investigation

If you or your loved were told that a life insurance policy or annuity was an appropriate investment and it did not turn out as promised, you may need to have an investment fraud lawyer review the policy, the payments and the potential benefits. You may be surprised at what they find, and you may even qualify for financial compensation beyond what the policy promised.

Submit your information to a skilled investment fraud lawyer for a free review of your case. You will not be charged, and any consultation is free. Submit your information now!

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