Excellent Return on a Bonus Annuity

Most people who have considered indexed annuities have seen some astronomical illustrations and I’m not a big fan of that.  The point of indexed annuities is to beat the fixed rate or a MYGA.  The most reasonable comparison to other investments is bonds for those considering secure options.  Those who want less volatility than the stock market need to understand they will likely receive less yield over time but without potential losses.  Anyone who sells it differently is biased toward their own commission and it happens more often than not.  

Last week I shared a sales pitch that is fairly common in the industry but explained that it comes with conditions and is only appropriate in certain circumstances.  A fellow advisor, Bob, who listens regularly and has become a good friend shares the same thoughts about this industry both good and bad.  He called last week after seeing the podcast, concerned that I might be going to the dark side.  I explained that it’s something that a lot of consumers see so they might as well learn all about it from me.  Anyone who wants to do it is going to get a better education here than anywhere else and a good plan to go with it.

The idea came to me because I have a new client that did this last year, albeit for different reasons.  When I saw his first year results it looked like something that needed to be reported.  No crazy indexes or astronomical returns, just an indexed annuity doing what it’s supposed to do.  We replaced a couple of annuities to do it so there are a couple of parts to this and it’s something that always makes me nervous.  Therefore, I take extra time to disclose everything material and make sure to answer everything honestly on the application so that we stay within regulations.  When it all works out the way it did we get extra confirmation that it was done right and I’m glad to share the success with everyone but mostly just happy for the client.

Dan was referred to me by his son Dan.  Not only do both Junior and Senior have the same name, they also sound pretty similar on the phone.  I get them mixed up sometimes but we always sort it out.  Dan Sr. had a couple of indexed annuities that he bought when rates were low and hadn’t done very well.  He wanted to see if he could improve the outlook for a chunk of money he is planning to leave to his kids.  Surrender charges are obviously involved so we have to follow the rules.  A bonus annuity is required to offset the losses so we have more rules to follow and want to do it right.

Both contracts had a combined cash value of about $410,000 and a surrender value of $381,000 so he’d lose close to $30K to get started.  The only product I recommend in this case is the Index Builder from Midland National.  It’s the product I mentioned last week that has a 14% initial bonus, although at the time it was only 13%.  It’s the best true bonus contract in my opinion and would bring his starting cash value up to $430,000.  He’d be ahead from the get go and also run with cap and participation rates more than twice as high as his current contract.  He doesn’t plan on using the money and only wants to keep it safe and grow it so he went with the option.  Another part of this is that the previous agent hadn’t been in regular contact with Dan so it’s my responsibility to make sure he gets better service going forward.

He had the option to take a fixed rate to increase yield even more and have it guaranteed the first year, like I talked about last week.  Or, he could take a shot and allocate the funds to the S&P 500 with a cap rate, which is what he did.  The purpose of an indexed annuity is to grow when the market grows but not lose money when the market drops.  Why not take a shot?

When I got the statement a couple of weeks ago it made me smile.  Dan made a good decision one year ago and was handsomely rewarded for it.  Sure he added some time to his surrender schedule by starting over but his total cash value was increased by nearly 20% to over $456,000.  That’s the first important metric to see but in comparison to what he surrendered it’s even more dramatic.  The previous cash value was around $410K and he increased that more than 10%.  Given the growth potential of the previous contracts it would have taken him at least four years to do the same thing.  He’s well ahead of the game now and swapping to the new contract will prove to be a valuable move.

The IndexBuilder from Midland National is, in my opinion, the best bonus annuity available.  The company is rated A+ and customer service is exceptional, although you don’t have to worry about that if you have the right advisor.  The bonus is currently 14% credited immediately to the contract and can go up to 21% if you want to pay a fee for additional benefits that include 20% free withdrawal following a year when 10% was not taken the prior year and return of premium without surrender penalty after the fourth contract year.  I have always felt that it’s not worth paying the fee but I have a couple of clients who found the additional benefits to be important enough to take the extra bonus.

Cap and participation rates on the S&P 500, NASDAQ 100, and other blended indexes are right inline with other competitive bonus products.  Key features related to the bonus and free withdrawals set this apart from other options so it’s worth looking at this if you are considering a bonus annuity for any of the advantages I’ve mentioned in the past couple of weeks.  Get on my calendar if you want to talk specifics.

Have a great weekend!

Bryan

Watch Episode 193: Strong Returns with this Bonus Annuity

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Last Updated on September 5, 2025 by Bryan Anderson