A bonus credit is a special feature present in some variable annuity contracts. With this perk, the issuer adds extra money to your account based on a specified percentage (typically, 1% to 5%) of purchase payments.
For example, assume you purchase a variable annuity with a bonus credit of 3% on each purchase payment. Your initial purchase is $200,000. With the bonus credit, the issuer will automatically add another $6,000 to your account.
Bonus credits are appealing, but annuities that offer them usually impose higher fees and expenses. The additional expense can outweigh the benefit.