Get the Basic Facts About Choosing Ohio Bonus Annuities
Investing for the future helps people maximize their income during retirement and ensure security in the years to come. With a variety of options to consider, a one-size-fits-all strategy does not work. Consumers must work with an educated agent and do research to make the most sensible choices. A smart approach is to learn about Ohio bonus annuities and if they could be the right decision for you.
What is a Bonus Annuity?
As the name implies, there is something extra for people who purchase a bonus annuity. The product offers an upfront premium bonus or an interest rate bonus during the first year. Typically, premium bonuses are attached to fixed indexed annuities while the interest rate bonus is with traditional fixed annuity products.
What is an Upfront Bonus?
An upfront bonus clearly states what it gives to the purchaser. When you buy the annuity or add funds, a lump sum amount is paid. An investor who deposits $200,000 into an annuity with a 5 percent upfront premium bonus would get an additional $10,000 added into their annuity. As a result, the value of the policy on its issue date would be $210,000. The $210,000 would then earn interest.
A bonus annuity states explicitly how much extra the purchaser will receive. And this added amount becomes part of the interest-earning value of the annuity. Indexed annuities with higher bonus rates usually have a longer surrender period.
What is a Fixed Year Interest Rate Bonus?
During the first year, a set percentage of interest is added to the base rate of the annuity. As a result, added interest over the base rate is earned for the first year of the contract. In the years to come, the interest rate is reduced to the regular rate. Usually, this rate is declared annually by the insurance company. The annuity contract guarantees a set minimum, so the rate never goes lower than what is specified in the contract. A person who has a base interest rate of 3 percent who gets a bonus rate of 4 percent will earn 7 percent interest on the premium deposit during the initial year.
Is a Bonus Always Better?
Each bonus annuity product differs. Consumers must compare the benefits and determine the best one for their investment needs. If the bonus is substantial, other adjustments will be made, so the issuing insurance company also benefits from the arrangement. For example, the interest might be somewhat lower in the future than a similar non-bonus annuity.
Bonus annuities are not for everyone. Some require long commitments. And if the bonus is very high, the interest earning potential will usually be lower in the subsequent years. Nothing in life is for free, so investors have to weigh how much the upfront bonus might be worth over the long haul.
What About the Surrender Period?
If a massive bonus is offered, the surrender period will be extended. And surrender charge penalties might be significant if the purchaser decides to withdraw the funds early. Some issuing insurance companies have a vesting schedule. This means the money must stay in the annuity for a designated number of years to get the full benefit. If the funds are withdrawn early, the bonus could be partially or completely lost.
And in other cases, the insurance company might require that the contract be annuitized in order to receive the full bonus. This means the entire sum (principal, bonus and interest) must be withdrawn over a set number of years – or a lifetime. Required annuitization further extends the contract and gives the insurance company more time to hold your funds.
Get to Know the Features
Read the contract and know the features provided by the annuity you purchase. A bonus annuity may offer the best benefits, as compared to non-bonus annuities. Keep your financial objectives in mind. Determine how long the funds can be tied up to avoid paying charges or penalties. Get the smartest mix of benefits to suit your needs and ensure the product is profitable without future hassles.
A bonus can be tempting and encourage people to make decisions that might not be in their best interest. The contract outlines the terms, which should be carefully weighed before making a choice. An insurance agent can help you read the contracts, compare the benefits, and select an annuity that works for your budget and specifications.
The goal of buying an annuity is to make the most money for future income. People purchase annuities in the present to take care of having a guaranteed income later. Review the income rider to check the upfront bonus, roll-up rate, and the percentage that will be paid out. All of these factors are crucial when determining if a bonus annuity offers the future benefits you want.
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Category: Annuities
Last updated on August 21st, 2018