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What’s The Truth About Bonuses On Indexed Annuities?

Stan The Annuity Man

Question: Every agent I meet with is pushing a bonus as the main reason to buy the indexed annuity they are recommending.  They make it sound like it’s free money, but I’m skeptical.  What’s the truth about these upfront bonuses?
Robert from Muncie, Indiana

Answer: Phenomenal question Robert, and so important in the current over hyped annuity environment and the unregulated wild wild west of annuity internet promoters.  Upfront bonuses really became popular around 5 years ago as an obvious way for insurance companies to attract potential annuity buyers.  As you have experienced firsthand, agents love pushing these bonuses to the detriment of the annuity industry as a whole in my opinion.  Let’s look at the realities of these upfront bonuses, and how to understand their true value.

Nothing is free

The majority of upfront bonuses come with an annual fee for the life of the policy.  If you just use you common sense on that factual statement, it will put into perspective the true value of a bonus.  Nothing in life is free, and that includes an upfront bonus.  Indexed annuities (aka: “hybrids” or what I call “hype-brids”) typically have the highest upfront bonuses, and that high percentage number is used by too many agents along with a high income rider number to sell the annuity dream.

A bonus is only one part of the overall calculation

Never buy the annuity dream, and always buy the contractual realities.  As I always say, “Own annuities for what they WILL DO, not what they might do.”  The WILL DO is the contractual guarantees. With that being said, and upfront bonus is just one part of many contractual calculations that you need to take into account when deciding if an annuity fits your specific situation.

For example, when you are looking to calculate a future income stream using an income rider and an upfront bonus, there are many parts to arrive at that contractually guaranteed calculation.  Some of those are:

  • Upfront Bonus percentage
  • Income Rider guaranteed annual percentage growth
  • How many years you are going to defer before taking income
  • Your date of birth
  • The date of birth of the person you might be setting up a joint income stream (i.e. spouse)
  • The actuarial percentage that is applied to the total by the annuity company when you take income

Get the picture?  The bonus is just one of many crucial parts of the overall calculation…..nothing more, nothing less.

If it sounds too good to be true…….

To finish the sentence….it is too good to be true.  It always is.  Upfront bonuses are typically vested, which means that in order to get to all of that bonus you will have to stay for the full surrender period.  With indexed annuities, that is typically 10 years.

I always say that buying an annuity for the bonus is like buying a car for the stereo system.  It makes no sense.  Upfront bonuses can be a positive if looked at as just one of many parts of the contractually guaranteed calculations needed to make an informed decision.  However, these over-hyped bonuses should never be looked at as a standalone reason to buy an annuity.  That is an annuity fact that consumers (and agents) need to know.

*If you have a question for Stan The Annuity Man, please send your question to  He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog.

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About the Author:

Stan The Annuity Man is a nationally recognized annuity expert and annuity critic, and has been called the national consumer advocate for annuities… and a walking middle finger of annuity truth.  He is a weekly RetireMentor columnist for The Wall Street Journal’s, and is the exclusive annuity contributor for  His highly acclaimed book, The Annuity Stanifesto, is a top seller in its category, and is known as the go to resource for all things annuity.

Stan The Annuity Man has clients nationwide, and is considered one of the top independent annuity agents in the country.  You can learn more at


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