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Variable Annuity and its Bonus Credit Feature

Variable Annuity comes with some unique features. Some insurance companies offer the investment contract with Bonus credit. They promise to add extra bonus to your contract value when you agree to make the initial purchase payment. The value of the bonus credit is usually dependent on a specified percentage of the purchase payment you make.  It can be as from 1% to 5%. Let’s take a look at a typical example.

You may decide to purchase a Variable Annuity contract that offers a bonus credit of 3%. If the contract amount is $15,000; the insurance company will give you 3% of the amount which will be $450. This will help you to have extra cash in your investment account.

Well, you have to play the game with caution.  Several Variable annuities that come with bonus credits do have their negative aspects.  In most cases, some insurance companies offering such bonus credits use that to lure clients into purchasing the annuities. At the end of the purchase, the bonus credit given to you may also be deducted through other hidden charges.

Oftentimes, a Variable annuity with bonus credits attracts higher expenses and charges. They do come with high management fees as well. The higher expenses will eventually outweigh the benefit of the bonus credit offered initially. The insurance company you’re dealing with may decide to charge you for the bonus credit offered in diverse ways. You may be asked to pay higher surrender chargers.  Sometimes, the surrender charges may even be higher that the bonus credit offered initially. It might even be higher than the offers you get in a variable annuity that has no bonus credit.

Again, your insurer may also use longer surrender periods to gain back the bonus credit offered initially.  Through this, the purchase payments you made may be subject to the surrender charges for a longer period. This may not be the case when you go for a Variable Annuity without any bonus credit.

There may also be higher mortality and expense risk charges in variable annuities with bonus credit.  The higher annual mortality and expense risk charges may be deducted without your notice. The percentage amount may be very small but with time, it’s going to build up.

From the above, it’s very clear that many variable annuities that come with bonus credit offers are likely to attract higher charges in diverse ways. This is true as many insurance companies are out for business. No single penny of theirs goes out to customers just like that. They will always find a way to recover the money.

In any case, there are may be some  reliable insurance companies that also offer bonus credit for  Variable Annuity without  using  hidden means to  recover the money back. Such insurance companies still exist but you have to take time to locate them. Before you agree to go for an annuity with bonus credit, make sure you know a lot about the company involved. Ask questions as regards the charges and the processes involved. This will save you from future problems as you go ahead to pay for the investment option.