Bonus annuity is an annuity product that offers an upfront premium bonus or additional credited interest"often a percentage of the initial or subsequent premiums"designed to enhance the contractTMs starting value. Bonuses are common in fixed indexed annuities and some fixed or variable annuities and may apply to the account value, income base, or both. While attractive on the surface, bonus annuities often carry longer surrender periods, higher fees, or lower ongoing interest-crediting terms that offset the upfront benefit. Bonuses can also be subject to vesting schedules or recapture if the contract is surrendered early, especially in the first several years.

Advisors evaluate bonus annuities carefully, comparing the long-term economics of bonus and non-bonus versions of similar products. They explain to clients that a 7 or 10 percent bonus does not automatically make an annuity superior; instead, they assess surrender charges, caps, spreads, income rider costs, and projected values over time. Compliance expects clear disclosure of bonus vesting and recapture provisions and scrutiny when replacing existing annuities with new bonus products. Advisors may position bonus annuities when they fit specific goals, such as offsetting surrender charges or jump-starting income bases, but only after full analysis. Understanding bonus annuities helps advisors avoid bonus sizzle sales and focus on total value and suitability.