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Choosing an Annuity? What Rate is Most Important: Bonus, Roll-up, Pay-out, Caps?

John P. Grimes

In the years before Indexed annuities were offered (pre 1995), fixed annuities had only one rate you needed to know to compare policies; the fixed interest rate. Assuming the companies had similar financial strength ratings it was pretty easy to pick the best annuity for your needs: Who was offering the highest interest rate? Fortunately (or unfortunately if you long for simpler times), annuities today come with many moving parts. Riders that provide guaranteed lifetime income, long term care benefits and enhanced death benefits are common in today’s market. Before I answer the question posed in the title, let me give you a little primer on each of the rates.

  • Bonus Rate: this is typically a percentage of the initial premium paid with rates ranging from 5% up to 10%. For example, $100K investment into an annuity with a 10% bonus rate would receive a $10K bonus added to the policy.
  • Roll-up Rate: this is the interest rate credited to the Income Rider Account value, currently in the 5% to 7% range. These rates can last up to 20 years.
  • Pay-out Rate: refers to the percentage of the account value that is paid out in the form of lifetime income. As an example, a $100K account value with a 5% pay-out rate would generate $5K per year of income. Pay-out rates generally increase as you get older.
  • Cap Rate is the maximum amount you can earn on the index strategy you’ve selected. So if the cap rate is 5% and the index was up 10%, your policy would be credited 5%, anything between 0% and 5% would get that % return and anything below 0% would get a 0% for the year.

Now to answer the question: Which rate is most important? It depends. That’s not a cop-out, it really does depend. It depends on what you want the annuity to do for you. If you’re just looking to accumulate the most money you can and have no plans to draw a steady stream of income then the bonus and cap rates are most important. If, on the other hand, you plan on taking income; the roll-up, bonus and pay-out rates all come into play. Don’t get blinded by an annuity offering a big upfront bonus or roll-up rate and assume this will give you the highest pay-out. It’s the combination of these 3 rates that determine how much income you can expect to receive. It’s also important to know that bigger bonuses usually come with longer or higher surrender charges and there is an annual expense charge associated with the roll-up rate. If you would like help in determining which annuity offers the best solution for your situation just click on the link to send me an email: or visit my website: to get a free copy of the e-book, ‘Savior Retirement’.

To learn more from this annuity professional, click here (John P. Grimes).

About the Author:

John founded Nicholas Financial Group in 1997 as an independent planning firm. We strive to help our clients achieve their financial goals by offering prudent advice and easy to understand solutions to their financial problems. Consider us a guide through the confusing maze of financial products and services.

We specialize in using conservative strategies to grow and protect the assets you’ve worked so hard to accumulate while reducing risk. We’ll also show you how to generate guaranteed lifetime income and efficiently transfer your assets. If you would like to contact John, call him at (508) 881-8500 or send an email to


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1 Comment

  • joanna says:

    Please advise:
    what is better for :Security Benefit Strategic Growth FIA ?
    -cap or Part rate , Bonus or no Bonus?

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