High-bonus annuities sound great on paper. 20%… 25%… sometimes even more.
But are these bonus annuities actually good, or are they “too good to be true”?
Today, I’ll break down exactly how they work, when they are worth it, and when you should stay far away.
Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)
Tip: See how much an annuity could pay you using our annuity calculator.
What Are Bonus Annuities—and Why Do They Sound So Good?
Bonus annuities give you an upfront boost—sometimes 10%, 20%, even 25%—when you add money into the contract.
Sounds amazing, right? But here’s the truth most advisors won’t tell you:
A big bonus almost always means the insurance company throttles your future growth.
If your goal is pure growth (no income rider), bonus annuities usually cap you around ~3% average growth per year.
💡 Pro Tip: If anyone pitches you a high bonus and “amazing growth,” 99% of the time the growth numbers are based on hypothetical back-tests, not real-world results.
👉 Want help choosing an annuity for long-term growth? Book a call here.
When Bonus Annuities Do Make Sense
There are situations where bonus annuities are genuinely great tools.
✔️ Roth Conversions
If you’re converting a large IRA and the bonus offsets the tax hit, a 20%+ premium bonus can be extremely valuable.
Example: Convert $1,000,000 → 20% bonus adds $200,000 instantly. That can offset a large portion of your tax liability.
✔️ Replacing an Existing Annuity With Surrender Charges
If you’re switching contracts and need to cover a surrender fee, a premium bonus (actual money added to your account) is required.
Not an “income bonus.”
Not a “benefit base bonus.”
A premium bonus.
✔️ You Need the Highest Lifetime Income
Some bonus products use the bonus to grow the benefit base, not the account value. That can result in higher guaranteed lifetime income—if structured correctly.
👉 Need to replace an existing annuity? Schedule a call and I’ll compare your options for free.
Why Bonus Annuities Often Fail for Long-Term Growth
If you’re buying an annuity for growth only, bonus products are almost never the top choice.
Here’s why:
- They throttle your participation rates.
- They put you in “brand new” back-tested indexes with sky-high projections.
- They charge rider fees that drag down real returns.
- Bonus vests over 10 years—you can’t touch it upfront.
Some illustrations even project a million-dollar account doubling or tripling in 10 years.
Realistic?
Absolutely not.
If you want real-world growth, choose:
- 1-year point-to-point strategies
- Real indexes (S&P 500, Dividend Aristocrats, etc.)
- Companies with stable participation rates (Lincoln is a great example)
These give you steady, consistent long-term results—not fantasy marketing projections.
👉 Want to see which annuity actually performs long-term? Click here to schedule a call.
How Income Bonuses Really Work (and Why High Numbers Can Be Misleading)
Two products can show:
- 25% bonus
- 8% bonus
…and the 8% bonus product can STILL give higher lifetime income.
Why?
Because:
- Withdrawal rates matter more than the bonus.
- The benefit base multiplier matters more than the bonus.
- Roll-up rates matter more than the bonus.
Example from the above video:
- A product with a smaller bonus (8%)
- + a higher multiplier
- + a higher withdrawal rate → produced more lifetime income than the flashy 25% bonus product.
The lesson?
Income = math, not marketing.
👉 Want the highest lifetime income? Schedule a call and I’ll show you the top payouts for your age.
Premium Bonus vs. Income Bonus (Critical Difference Most People Miss)
Not all bonuses are equal.
Premium Bonus
- Real dollars added to your cash value
- Used for Roth conversions or policy replacements
- Helps offset surrender fees
- Vests over time
Income Bonus
- Only increases your income benefit base
- Does not increase your actual cash value
- Helps produce higher lifetime income
- Cannot be cashed out
For most retirees, income bonus = more income.
For Roth conversions / replacements, premium bonus = essential
👉 Not sure which type you need? Book a call with me and I’ll help.
Why High-Bonus Annuities Use “Too Good to Be True” Indexes
Many high-bonus contracts put your money in:
- Newly created indexes (0 real-world history)
- Back-tested models (which always look perfect)
- Two-year crediting periods (risking capturing the ups and downs)
These are engineered to illustrate huge growth…
But hardly ever perform in the real world.
That’s why I typically recommend:
- Real indexes
- 1-year strategies
- Top carriers that maintain strong participation rates
This leads to more stable, realistic, and long-term growth.
Conclusion
Here’s the honest truth:
Bonus annuities are great IF…
✔️ You’re doing a Roth conversion
✔️ You’re replacing an existing policy with surrender fees
✔️ You’re focused on lifetime income
✔️ You need a benefit base boost
✔️ You use the right carrier and structure
Bonus annuities are bad IF…
❌ You want long-term growth
❌ You’re chasing the “big bonus” excitement
❌ You’re being shown unrealistic back-tested projections
❌ You choose the wrong index option
The bonus is not the benefit. The long-term performance is.
Need help with finding the best annuity for your retirement?
Click here to schedule a call with me.
On the call, I can help you:
- Determine what type of annuity is best for you
- Find the highest paying annuities for your unique situation
- Answer any other questions you may have