What’s Covered in this Lincoln National Covered Choice 5 Annuity Review?In today’s review, I’ll be covering the following information on the Lincoln National Covered Choice 5 Single Premium Deferred Fixed Indexed Annuity:
- Product Type
- Current Rates
- Realistic long-term return expectations
- How this annuity is best used
- How it is most poorly used
Annuities can be complex. That’s where having an Annuity Investigator who loves math comes in. We make the complex, simple.
For anyone who is in the process of looking for an annuity that can keep principal safe and provide the opportunity to grow funds based on the performance of an underlying market index – as well as offer a lifetime stream of income in retirement – may want to consider taking a closer look at the Lincoln National Covered Choice 5 Single Premium Deferred Fixed Indexed Annuity. But, before you go out and make a long-term commitment on this – or on any – annuity, it is always a good idea to first take a closer look at how the product works, and how it may or may not work in your particular situation. Over the past few years, fixed indexed annuities have become extremely popular, in large part because they can offer you a guaranteed stream of income during retirement, which can, in turn, provide you with peace of mind in knowing that you won’t run out of income, regardless of how long you may live. Due to the increased popularity of these types of annuities, the number of insurance and financial services reps who are offering them has expanded a great deal. However, this may not be a positive thing. One reason for this is because, while these professionals typically work hard to offer the best possible information for their clients, because fixed indexed annuity products are complex and have a lot of moving parts, even the insurance and financial advisors who sell them may not always be all that familiar with the intricate details about them. However, because fixed indexed annuities – or for that matter, any annuities – can often times require a large percentage of your overall savings, you really need to know how the product will work because if you change your mind later and want to get out of it, you will find yourself paying a pretty hefty surrender penalty.
Annuity and Retirement Income Planning Advice that You Can Actually TrustIf you’ve never visited our website before, then please allow us to personally welcome you here to AnnuityGator.com. We are a team of annuity experts who are highly focused on offering in-depth, yet non-biased, annuity reviews. We have been doing this for quite some time now – much longer than our competitors – and because of that, we have come to be a trusted source of annuity information. If you have been looking for details about annuities via the Internet, then it is probable that you have run across a lot of very conflicting opinions about them. This, however, is not really all that surprising. That is because there are many different annuity products available, and many people – both consumers and financial advisors alike – will often have differing thoughts. It is possible that you may also have recently attended an annuity seminar where, in return for a free lunch or dinner, the presenter provided you with a great deal of information about the Lincoln National Covered Choice 5 or some other similar annuity. You might even have set a follow-up meeting with the presenter, which in turn, has led you here to the Internet in search of more detailed information about this (and/or other annuities). Even though there are many very good websites out there online that are keyed in on offering annuity products and information, there are some that will attempt to “lure” visitors in by making some pretty bold claims, such as the following:
- Lowest fees
- Highest income payouts
- Guaranteed lifetime income
- Top-rated companies
Lincoln National Covered Choice 5 Annuity at a Glance
|Covered Choice 5
|Lincoln Financial Group
|Type of Product
|Fixed Indexed Annuity
Opening Thoughts Regarding the Lincoln National Covered Choice 5 AnnuityThe Lincoln Financial Group was established back in 1905. Over the past 110+ years, Lincoln has grown into a well-respected financial and insurance provider. Lincoln Financial Group consists of several entities, including the following:
- Lincoln National Life Insurance Company (Fort Wayne, Indiana)
- Lincoln Life and Annuity Company of New York
- Lincoln Financial Distributors
- Lincoln Financial Advisors
- Lincoln Financial Securities Corporation
- Lincoln Financial Foundation
- AA- from S&P
- A1 from Moody’s
- A+ from Fitch
- A+ from A.M. Best Company
Before we get into the gritty details, there are some required legal disclosures here…This is an independent annuity product review. It is not a recommendation to purchase or to sell an annuity. Lincoln National has not endorsed this review in any way, nor do we receive any type of compensation for providing this review. This annuity review is meant solely to be an independent review at the request of our readers so that they may see our perspective when breaking down the positives and the negatives of this particular annuity. Prior to committing to the purchase of any type of insurance and/or investment vehicle, it is critical that you do your own due diligence, and that you also talk with a properly licensed professional if you have any questions that relate to your specific situation. All of the names, materials, and marks that have been used in compiling this annuity review are the property of their respective owners. For additional information on how to compare fixed annuities so that you can decide which may be the best one for you, click here in order to obtain our free annuity report.
How Lincoln National Describes the Covered Choice 5 Fixed Indexed AnnuityThe Lincoln Covered Choice is a single premium deferred fixed indexed annuity. This means that, while the annuity offers a fixed account, the return can also be based on the performance of an underlying market index. The Covered Choice Advisory is the new fixed indexed product, which is available with a five-year option, as well as a seven-year option. There is the Lincoln Covered Choice 5 and the Lincoln Covered Choice 7. These annuities both follow the performance of the S&P 500 index. The Covered Choice 5 offers a five year guaranteed rate on the fixed account, with a tad higher interest rate for those who pay in more than $100,000. Investors can then choose between a performance triggered indexed account, or a one-year point-to-point indexed account. With the performance triggered indexed account, the value of the S&P 500 index will be compared at the beginning and the end of the one-year indexed term. If the percentage change is zero or positive, then the investor will receive a specified rate of indexed interest. If, however, the difference is negative, then the account will be credited with a 0%. If the investor chooses the one-year point-to-point indexed account, this has a one-year indexed interest cap. Here, the value at the end of the one-year indexed term is compared to the value at the beginning of the indexed term. If the percentage change is positive, the account will earn the full percentage change – up to an indexed interest cap. If, however, the difference is negative, then the account will be credited with a 0%.
How an Advisor Might Pitch this AnnuityOver the past several years – especially since the 2008 U.S. recession – the safety of principal has been a key concern for many investors, particularly as they inch their way towards retirement. Unfortunately, the more traditional “safe” financial vehicles, such as CDs and regular fixed annuities, can offer safety, however, their rates are so painfully low that they can’t even come close to meeting future inflation, much less beating it. But enter the fixed indexed annuity. Because this product can offer the opportunity to return higher than a traditional fixed annuity, while also keeping principal safe – regardless of what happens in the market – advisors have been pitching these “best of all worlds” scenarios. The icing on the cake is the fact that, if the lifetime income option is chosen, the worry about running out of money in retirement has also been taken off the table. But even though this can make it sound like all of your troubles have been wiped away, there is some small print you need to read over before you dive in head first. For example, because the return on the Covered Choice annuity is “capped”, it is essentially limited in so far as it can rise. As an example, if an indexed annuity has a cap of 5%, but the underlying index that the annuity is tracking has a stellar year and it returns closer to 10 or even 15%, the return that is credited to the annuity account will be capped at 5. So, while you do have the opportunity to end up with a higher return than a regular fixed annuity with a set rate of interest, the reality is that the 7 or 8% returns that are touted by some of the annuity marketing websites are not all that likely – especially on an ongoing basis. Also, as with most other fixed indexed annuities, the index that is used is basically a price index, and it will not reflect the dividends that are paid on the underlying stocks in that index. And then there are the fees…..
What About the Fees on the Lincoln Covered Choice 5 Fixed Indexed Annuity?The Lincoln Covered Choice 5 and Covered Choice 7 each offer options that charge an up-front sales commission, as well as an option for fee-based financial advisors. This way, an investor can choose which model is best for them. If that happens to be the version with an upfront sales commission, you will be starting out with a negative return and may find yourself swimming upstream for quite a while, depending on how the underlying index performs, and the cap that is imposed on the return. There is also the surrender charge to contend with if you need to withdraw more than 10% of your money from the annuity during the given surrender period. The Covered Choice 5 and 7 each have a surrender charge that starts at 9%, and then gradually grades down until eventually reaching 0%. If you do have to take funds out of the annuity, be aware that, if you are under the age of 59 1/2, then you can also face an additional 10% “early withdrawal” penalty from the IRS. This can lessen your overall return even more.
The Annuity Gator’s End Take on the Lincoln National Covered Choice 5 Fixed Indexed AnnuityWhere it works best: This particular annuity will usually work the best for those who are looking for:
- Safety of principal
- The opportunity for index-linked growth
- Guaranteed lifetime income in retirement
- Need access to most or all of your money within the first several contract years
- Do not intend to use the lifetime income feature of the annuity