Independent Review of the Lincoln ChoicePlus Assurance Variable Annuity – [Updated November 2018]
What’s Covered in this Review
In this review we’ll cover the following information on the Lincoln ChoicePlus Assurance Variable Annuity:
- Product Type
- Current rates
- Realistic long term investment expectations
- How it is 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.
The ChoicePlus Assurance Variable Annuity offers many benefits today’s retirees are looking for built right into the name of the product which by design can inspire many warm and fuzzy feelings. However, as a consumer, you want to have a solid understanding of how these features actually work because they can affect the long-term success of your retirement in ways you might find not so appealing.
Annuities have been gaining in popularity as more and more people are retiring without traditional pensions. These products offer investors a way to roll over money from their IRA or 401(k) into a vehicle that can grow their money while also structuring it for income. This can be very desirable, but as an investment, this particular annuity is a long-term commitment with a surrender period of 10 years, which means you want to know exactly what you are getting into before you buy.
This can be difficult because annuities are confusing products. Some of them offer principle guarantees while others do not, and many of the optional features that guarantee lifetime income go by different names depending on the company that sells them, which means things can get pretty complicated pretty quick.
The biggest reasons for the confusion, however, has less to do with the products themselves and more to do with how they are sold to consumers. Which is where we come in.
Annuity And Retirement Income Planning Information That You Can Trust
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If you’ve been searching for annuity information on the web or heard them talked about by friends or family, you’ve no doubt encountered a lot of conflicting opinions. Many reputable websites devoted to marketing their annuities do a terrific job of getting your attention so they can collect your contact information. They make claims such as:
- Highest Payouts
- Lowest Fees
- Top Rated A+ Companies
- Guaranteed Income For Life
- Get Your Quote Now!
- Get 7-8% Returns With NO Market Risk
Sounds great, but are any of these claims actually true? You’ve come to the right place – and dare we say maybe the only place – where you can actually find out.
Advisors selling variable annuities often make it sound as if these products can easily earn you 7 to 8% returns with no risk to your principle, but there are many things they aren’t telling you. The returns promised are usually NOT on money you can actually take out as a lump sum, and signing up for one benefit can negate or works against another.
This doesn’t mean that the annuity they are trying to sell you is bad, it just means that as an aspiring retiree with one shot at allocating this money right, you have to know why you are purchasing the annuity. This review is here to help you decode the fine print so you can better understand whether or not this annuity can help you achieve your goals.
Ready to get started? Let’s jump right in.
Lincoln ChoicePlus Assurance at a Glance
Product Name ChoicePlus Assurance Variable Annuity
Type of Product Variable Annuity
Standard & Poor's Rating AA- (4th highest of 22)
Phone Number 888-868-2583
Opening Thoughts on the Lincoln ChoicePlus Assurance Variable Annuity
The Lincoln National Life Insurance Company (or Lincoln Life) got its start in 1905 when a group of Fort Wayne business leaders was granted permission by Abraham Lincoln’s son to use his father’s name and likeness for their company. Such a visage inspires confidence, and it seems the company has lived up to its name, having won Best Life Insurance Company in America by World Finance magazine in 2010 and 2015. Because your annuity is only as strong as the claims-paying ability of the insurance company, this is definitely a good thing.
And Lincoln National Corporation is considered to be very strong and stable. In fact, the company is ranked as #205 on the 2018 Fortune 500 list by revenue, and #24 by assets. Likewise, Lincoln is also ranked as #316 on the 2018 Barron’s 500 list, based on the most revenue growth and cash returns.
In fact, as of June 30, 2018, Lincoln had assets under management of $256 billion, and total adjusted statutory capital of approximately $9.1 billion, with cash and invested cash of roughly $484 million. During the second quarter of 2018 alone, Lincoln brought in net income of $385 million.
Lincoln presently rants as #1 in variable universal life insurance sales, as well as #2 in universal life sales, and #3 in total life sales. It is also ranked as #2 in variable annuity sales, #14 in fixed indexed annuity sales, #17 in total fixed annuity sales, and #4 in total annuity sales.
Another highlight of note is that the company completed its acquisition of Liberty Mutual group’s benefits business during 2018’s second quarter.
The demand for annuities – which are always backed by life insurance companies – has been increasing since market volatility has become the norm in today’s global economy. The fear of running out of money is what has many retirees looking for a place to put their savings where it can earn returns while also being protected. Variable annuities like this one are often sold as the solution because they can do two things:
- Grow your money.
- Provide guaranteed income.
The problem is, in spite of its very reassuring name, the ChoicePlus Assurance variable annuity doesn’t do either of these things very well, and the fees make it an expensive investment to own. If you want a significant portion of your retirement funds to achieve BOTH these goals, then rolling the money into this variable annuity will most likely leave you disappointed. The reason why all goes back to a problematic word built right into the annuity name: variable.
The significance of this word is best understood by a direct quote from the Lincoln Financial Group website:
“The value of the annuity will fluctuate and when withdrawn, it may be worth more or less than the original premiums paid.”
As an investment, this variable annuity does admirably live up to its name “Choice Plus” by giving investors access to a suite of managed funds that span a range of asset classes and styles they call The Lincoln Elite Series of Funds. But here’s what you want to keep in mind: you are charged a fee for the management of each fund you choose. The value of the fund can also go up or down on any given day, hence the word variable.
In order to get the “assurance” promised in the annuity’s name, you need to take advantage of this annuity’s Living Benefit Rider feature. For a fee, this is what will guarantee you a withdrawal amount or income for you and your spouse if you so choose. These Living Benefit Riders are one of the more attractive features offered by this annuity, but the percentage of income payout – 3.5% to 5% depending on your age according to the prospectus – is not what advisors talk about when trying to sell you this annuity.
If income is the main reason you have for purchasing this annuity, make sure you ask your advisor, “How much income will I actually get?” This question is important to ask because no matter how much your variable annuity earns, it is the percentage of the income payout which dictates how much money you will actually receive.
In a variable annuity, the two goals of income and growth are basically working against each other. To understand why, think of it from the insurance company’s point of view: If you put $100,000 in a variable annuity, it could be worth $70,000 in 10 years’ time if it suffers a loss, or it could be worth more. Either way, there is a risk. So if the company is going to put itself on the hook and guarantee you a certain amount of income from an account whose value is going to fluctuate, they will protect themselves.
How do they do that? By promising you a smaller amount of income than what other safer, non-variable investments can provide.
As people are living longer, more and more insurance companies are exiting the guaranteed income business. Lincoln Financial Group is no exception. Five of the guaranteed income options once offered by their Living Benefit Riders are no longer available. Once again living up to its name, this annuity still offers a nice selection of income and income-for-life options, but again, the fee on these riders is higher than those on other income-producing annuities, and you will be restricted by “Investment Requirements” as specified by the prospectus.
Before we get into the gritty details, here are some legal disclosures…
This is an independent product review, not a recommendation to buy or sell an annuity. Lincoln Financial Group has not endorsed this review in any way nor do we receive any compensation for this review. This review is meant to be an independent review at the request of readers so they could see our perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are the property of their respective owners.
How Lincoln Describes The ChoicePlus Assurance Variable Annuity
Lincoln Financial Group describes the benefits and features of this annuity on their website as follows:
- *A long-term investment designed for your retirement savings
- *Potential for growth that can outpace inflation
- *Tax-deferred growth (as provided by all annuities)
- *Income choices for retirees, including options that can give you income for the rest of your life.
There are a few other perks, but that covers the highlights. If you want to find the website and/or prospectus, you can click HERE.
How Financial Advisors Might “Pitch” This Annuity
As an educated consumer, you’ve probably noticed that financial companies do a fine job of making their products sound enticing. You could read over that bulleted list of benefits and think to yourself, Great, this is just what I need! If you are making this decision under the guidance of an advisor who stands to earn a commission or fee from the sale of this annuity, then you’ll probably hear this annuity explained in terms of fantastic rates of return.
Here are the three main concepts you’ll hear advisors talk about when they explain this variable annuity, followed by an explanation of what that means to you.
- This investment performs better than other annuities out there.
- It will give you downside protection by providing a guaranteed lifetime income.
- This income will grow or step-up every year that you wait to access it.
First, let’s take a look at the fund’s performance. Nothing in the prospectus revealed returns that were anything exceptional, furthermore, the fund’s performance must be looked at in terms of the fees that will eat into those returns. We’ll talk in more detail about these fees later, but know this: because a variable annuity is basically a securities product backed by a life insurance company, you, the investor, are going to get hit on both ends when it comes to fees.
What you’ll likely hear from your advisor, however, is that these annuities, “have the ability to perform much better than other annuities.” They can say this because, in their mind, they are adding the 5% enhancement you get with the purchase of a Living Benefit Rider.
For example, if the fund in your variable annuity is up 4 percent for the year – which is a realistic return – the advisor selling you this annuity might promise you a 9% rate of return or higher. Really they are talking about the fund return PLUS the enhancement guaranteed by the purchase of the Living Benefit Rider.
So let’s talk about this Living Benefit Rider that guarantees lifetime income. This variable annuity is being sold as an investment that promises no limit to the upside with better returns than other annuities. If you purchase the ChoicePlus Assurance variable annuity and structure it to give you guaranteed lifetime income, are you going to get that unlimited upside in exchange for all those high fees?
Sorry, but in order to give you the “assurance” part of the Assurance variable annuity, a limit will be placed on your earnings AND on your choice of funds. You will be restricted by “Investment Requirements” as specified by the prospectus. A cap or limit that works very much like the capped gains offered by fixed indexed annuities will also be applied, but with one notable difference: you get to pay the fund fees. Will your advisor tell you this?
Probably not. He or she will more likely be more focused on the step-up feature of the enhanced income benefits. These income benefits do address the problem of lifetime income for individuals and married couples who want to protect their spouse. With this specific annuity, Lincoln Life promises those who purchase a Living Benefit Riders a guaranteed 5% annual increase or “enhancement” during the 10-year period after the rider is purchased. This is a nice benefit that will grow your income account by 5% as dictated by the terms of the contract.
Sounds like protection, doesn’t it? But this is where you really have to pay attention because one of the key points to take away from this review is that this enhanced rate of 5% is NOT a promised interest rate on money you can withdraw as a lump sum, nor is it the return percentage on your money. It is the Income Base used to calculate your income amount. The riders do not guarantee the investment results of the funds, and you still take the risk of loss from the securities in your funds’ portfolios, which would decrease the amount applied to any payout option and related payments.
The bottom line is this: Investments inside this variable annuity work against the goal of guaranteeing income and will ultimately result in a lower income payout than what you could get from other annuities. If you’re wondering if this annuity is right for you, or if you have questions and need a little help getting pointed in the right direction; just reach out via our secure contact form here.
What About the Lincoln ChoicePlus Assurance Annuity’s Fees?
Variable annuities are one of the most expensive kinds of annuities that you can own, and the Lincoln ChoicePlus variable annuity is right up there with the best of them.
It’s also interesting to note that after 2010, Lincoln lowered many of their fees, perhaps in response to the fact that if you shop around, you can get many of these same benefits for less by using other solutions. Let’s take a look at these lowered fees according to the 2015 prospectus:
The mortality and expense risk charge and administrative charges are 0.75% to 1.25% annually, depending on your death benefit enhancements. If you want that “assurance” advertised in the name, it will cost you a managed risk fee and of course the fee for the Living Benefit Rider for the income which starts at .65% and is as high as 2.10% but could go higher.
For those professionally managed options advertised by the Lincoln Elite Series, you will be charged operating expenses for each mutual fund you choose inside the annuity. These fees average around 1% with a minimum of .46% and a maximum of 1.95% per fund, which is on the high side. Hold onto your hat, though, we’re not through.
The insurance company is also going to charge you a front-end load sales charge or administrative charge (in addition to the mortality and expense risk charge) that is deducted from your account the day you purchase the annuity. This charge ranges from 1% to 5.50% depending on the deposit amount. For example, if you put $49,999 into the annuity, right from day one your balance drops down to $47,249 because of this fee.
What does all of this mean to you? Here is a breakdown of all the fees:
- M&E: .65% to 1.15%
- Administrative Charge: .10%
- Sales Charge: 1.00% to 5.50%
- Rider Charge: 1.05% to 2.10%
- Fund Fees: .46% to 1.95%
Fee Total: 3.26% to 10.80%
For a full rundown of the fees for the Lincoln Choice Plus Assurance fees, as well as the list of investments that are found in the annuity, check out the prospectus HERE.
You can also find the Lincoln ChoicePlus Assurance Annuity Disclosure by going HERE, too.
The Annuity Gator’s End Take on the Lincoln ChoicePlus Assurance Variable Annuity
Where it works best:
For investors who have a high tolerance for risk.
- For investors who have a high tolerance for risk.
- As an income source for investors who have a longer time line.
- As a source of guaranteed income delivered by a reliable company.
- For income benefits for married couples that will continue when one spouse passes away.
- For investors with ample funds who are not concerned about fees and efficiency.
Where it works worst:
- For investors who need access to their money.
- For investors who need an income in a shorter timeframe.
- For those who do NOT need a guaranteed source of income.
- For investors who don’t need to take on additional risk in their portfolio.
Annuities, in general, are a long-term investment designed to appeal to investors who need income and want to capture the growth of market gains. Unfortunately, as a single product, the Lincoln ChoicePlus Assurance Variable Annuity doesn’t meet either of these goals as well as other more specialized products.
In terms of growth, the income growth rate of 5% on the income base promised by advisors who sell this annuity is NOT an interest rate on money you can withdraw as a lump sum.
As an income producing investment, you might say that the variable annuity is something of a crippled investment because all the market risk it’s exposed to makes it difficult to provide the guarantees required by the income producing component.
So what does all this mean to you? If producing income is your goal, then know that for every dollar you put into this variable annuity, it’s going to promise you LESS income than if you put that same dollar into a fixed annuity that doesn’t have that risky, variable component.
If you’re wondering if this annuity is right for you, or if you have questions and need a little help getting pointed in the right direction; just reach out via our secure contact form here.
Have Questions on the Lincoln ChoicePlus Assurance Variable Annuity? See any Mistakes?
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