Our Professional Opinion on the Lincoln Covered Choice 5 II Annuity
Lincoln Covered Choice 5 II is a good five-year fixed indexed annuity and is worth considering when its locked S&P 500 cap is competitive. It fits several qualities we want in an accumulation annuity: an acceptable insurer, a traditional public index, annual point-to-point crediting, a five-year cap lock that matches the surrender period, no ongoing base-contract fee, and first-year liquidity.
Lincoln Financial is a good annuity company. The Lincoln National Life Insurance Company is rated A by AM Best and has operated for more than a century. The company meets our A- minimum standard for a long-term annuity recommendation.
Our preferred strategy is the one-year S&P 500 cap with the five-year lock. The cap is contractually protected for the initial five years, so Lincoln cannot reduce it while the owner remains subject to the five-year surrender schedule. That directly addresses one of the biggest weaknesses in many FIAs: attractive first-year terms followed by lower renewal rates.
The locked strategy still needs to be competitive when the contract is issued. A locked cap rate is valuable only when the starting cap provides enough upside. A weak cap does not become a good deal merely because it is guaranteed.
We are less enthusiastic about the five-year S&P 500 participation strategy. Its participation rate is guaranteed for the five-year term, but interest is not credited annually. A withdrawal before the term ends can prevent the withdrawn amount from receiving index interest. We generally prefer an annual point-to-point strategy that locks gains every year.
The Dual Trigger is the product’s most unusual option. It can credit interest in a mildly negative year when the index decline is smaller than the declared trigger rate. That is a legitimate feature, but the trigger rate is declared annually rather than locked for all five years. It should be treated as a supplemental allocation rather than the main reason to buy the annuity.
Do not rely on a historical illustration that assumes the same trigger rate every year. The actual declared rate can change at renewal. A hypothetical backtest can show what a formula would have done under a constant rate; it cannot guarantee the contract will receive those same terms. This is one reason to understand the difference between illustrated and realized FIA returns.
The Capital Group Dividend Value ETF strategy also needs context. The annuity uses the ETF’s price return as a benchmark, but the owner does not own ETF shares and does not receive the ETF’s dividends. We would compare that strategy carefully with the traditional S&P 500 before allocating money to it.
Bottom line: Covered Choice 5 II is a competitive design, especially for someone who wants a five-year S&P 500 cap lock. We would recommend it when the locked cap compares favorably with other cap-lock FIAs. We would not choose it solely because Lincoln offers a large trigger rate, a high participation rate, or an attractive hypothetical illustration.
What We Like
- Five-year surrender period: The commitment is shorter than many 7- or 10-year accumulation FIAs.
- True S&P 500 option: The contract includes a transparent traditional index rather than relying entirely on manufactured indexes.
- Five-year cap lock: The one-year S&P 500 cap strategy protects the cap for the full initial surrender period.
- Annual gain locking: The locked cap strategy credits qualifying interest at the end of each one-year term.
- Dual Trigger: The contract can earn interest in an up, flat, or mildly negative index year.
- No ongoing base-contract fee: The accumulation design does not deduct a normal annual product charge.
- First-year liquidity: Up to 10% of account value is generally available each contract year without a surrender charge or MVA.
- Additional premium flexibility: Limited additional deposits can be made and later reallocated from the fixed account.
- Health-related waivers: Qualifying nursing-home confinement or terminal illness can provide additional access.
- Minimum death-benefit protection: Beneficiaries receive the greater of account value or the applicable guaranteed minimum value before annuitization.
What We Don’t Like
- The locked cap must still be competitive: Contractual certainty does not make a low starting cap attractive.
- Most strategies still renew annually: The fixed rate, Dual Trigger, Performance Trigger, annual cap, and annual participation terms can change.
- Locked accounts are issue-only: Money generally must be allocated to the five-year lock or five-year participation strategy when the contract is issued.
- The locked accounts terminate after five years: The money must then be reallocated to whatever choices Lincoln makes available.
- Five-year participation delays interest: The strategy does not provide annual credited gains and is less suitable for money that may be withdrawn.
- The Capital Group ETF does not pay dividends to the annuity owner: The credit uses price return, not the ETF’s distributed income.
- Withdrawals can erase an unfinished index credit: Money removed before a term ends generally receives no index interest for that term.
- Market Value Adjustment: An excess withdrawal can be increased or reduced by changes in market interest rates.
- No immediate return-of-premium guarantee: An early full surrender can return less than the original deposit.
- No GLWB: The contract offers annuitization choices, but it is not designed around a flexible guaranteed lifetime withdrawal benefit.
What Is the Lincoln Covered Choice 5 II Annuity?
Lincoln Covered Choice 5 II is a flexible-premium fixed indexed annuity issued by The Lincoln National Life Insurance Company. It provides a five-year surrender period and offers a fixed account plus several index-linked crediting strategies.
The contract does not invest directly in the S&P 500 or the Capital Group Dividend Value ETF. Lincoln uses the performance of the selected benchmark and the contract’s cap, trigger rate, or participation rate to calculate interest.
A negative index return does not directly reduce the indexed account. However, the amount available after surrender can still be reduced by withdrawals, surrender charges, taxes, and a negative MVA.
Covered Choice 5 II Product Details
| Issuing company | The Lincoln National Life Insurance Company |
|---|---|
| Product type | Flexible-premium fixed indexed annuity |
| Issue ages | Generally 0 through 85, subject to firm and state limits |
| Minimum initial premium | $10,000 |
| Maximum premium without prior approval | $2 million |
| Additional premiums | Up to $25,000 per contract year, subject to minimum and cumulative limits |
| Surrender period | Five years |
| Standard surrender schedule | 8%, 8%, 7%, 6%, 5% |
| Annual free withdrawal | Up to 10% of account value beginning in the first contract year |
| Market Value Adjustment | Applies to applicable excess withdrawals and full surrender during the surrender period |
| Traditional index | S&P 500 |
| Other benchmark | Capital Group Dividend Value ETF |
| Locked strategies | One-year S&P 500 Cap 5 Year Lock and five-year S&P 500 Participation |
| Death benefit | Greater of account value or guaranteed minimum value before annuitization |
How the Crediting Strategies Work
Covered Choice 5 II offers several ways to calculate interest. They should not be judged by the headline rate alone because each formula behaves differently.
Fixed Account
The fixed account receives a declared one-year interest rate. Lincoln can change the rate at each anniversary, subject to the contractual minimum.
S&P 500 Dual Trigger
The Dual Trigger credits the full declared rate when the index is positive or flat. It can also credit a partial amount when the index is negative by less than the trigger rate.
For example, if the declared rate were 8% and the index declined 3%, the formula would credit 5%. If the index declined 8% or more, the credit would be zero. The actual rate is declared by Lincoln and can change annually.
S&P 500 Performance Trigger
The Performance Trigger credits the declared rate when the S&P 500 is flat or positive at the end of the year. A small gain and a very large gain receive the same credit. A negative result receives zero.
S&P 500 Annual Cap
The annual cap strategy credits positive S&P 500 price growth up to the declared maximum. The ordinary version can reset annually. The five-year lock version protects its cap for all five initial contract years.
Annual Participation Strategies
The S&P 500 and Capital Group ETF annual strategies multiply positive benchmark performance by the declared participation rate. These rates can change at renewal.
Five-Year S&P 500 Participation
This strategy applies a guaranteed participation rate to the S&P 500 result measured over the full five-year term. It may provide strong upside if the index performs well, but the contract does not credit annual gains during the term.
We prefer annual crediting for most buyers because it locks gains more frequently and is easier to coordinate with future withdrawals.
Why the Five-Year Cap Lock Matters
Most FIA caps and participation rates are renewable. The insurer can lower them while the owner remains subject to surrender charges. Learn how FIA renewal rates work before choosing an annual strategy.
The Covered Choice cap lock solves that problem for one strategy. The minimum cap shown in the issued contract remains protected for the five-year lock period.
That does not guarantee a positive credit every year. It guarantees the cap applied when the S&P 500 has a positive annual result. Compare the contract with other products designed to avoid renewal-rate drops.
The Capital Group Dividend Value ETF Strategy
The Capital Group Dividend Value ETF is an actively managed ETF benchmark. The annuity owner does not purchase ETF shares and cannot redeem them.
The indexed strategy uses price return, so distributions paid by the ETF do not increase the annuity credit. The word “Dividend” in the benchmark name should not be mistaken for dividend income being paid into the contract.
Use the site’s framework to compare every index option before buying an FIA. The traditional S&P 500 is generally easier to understand and monitor.
The 0% Floor Does Not Guarantee Your Surrender Value
The indexed accounts will not receive a negative index credit. That does not mean the owner can surrender the contract at any time and receive the original premium.
The contract has several different annuity values. Account value reflects credited interest and withdrawals. Cash surrender value reflects applicable surrender charges and the MVA. The guaranteed minimum value creates a contractual floor but can still be less than the original premium during an early exit.
Liquidity, Surrender Charges, and the MVA
Covered Choice 5 II generally allows a penalty-free withdrawal of up to 10% of account value during each contract year, beginning in year one.
Amounts above that allowance can be reduced by surrender charges and a Market Value Adjustment. The MVA can increase or decrease the amount received based on changes in interest rates.
Withdrawals are deducted from the fixed account first. After the fixed account is exhausted, money is removed proportionally from the indexed accounts. Amounts removed before an index term ends generally do not receive the pending interest credit.
Nursing-Home and Terminal-Illness Waivers
Qualifying nursing-home confinement or terminal illness can provide access without the normal surrender charge or MVA. These crisis waivers are subject to contract definitions, waiting periods, state availability, and medical documentation.
The waivers release existing account value. They do not create extra money for care and are not a substitute for long-term care insurance.
Death Benefit and Money Left to Family
Before annuitization, beneficiaries generally receive the greater of the account value or the guaranteed minimum value. The beneficiary does not receive the future value of an unfinished index term on money withdrawn before term end.
This is a standard contract-value benefit, not an enhanced legacy multiplier. Someone whose main objective is leaving more money to family should compare annuities with enhanced death benefits.
Income Options Are Annuitization, Not a GLWB
After the five-year surrender period, the owner can withdraw the full value or select an income payout option. A lifetime option can create income that cannot be outlived.
This process is annuitization. It normally converts the account value into an irrevocable payment stream. It is different from a GLWB that preserves a contract value and provides scheduled lifetime withdrawals.
Compare annuitization versus lifetime withdrawals before using this contract for retirement income.
Tax Treatment
Interest in a nonqualified annuity grows tax-deferred and is generally taxed as ordinary income when withdrawn. A taxable distribution before age 59½ may face an additional 10% federal early-withdrawal penalty unless an exception applies.
An IRA already provides tax deferral. Using IRA money in Covered Choice should be justified by the protected growth design, locked cap, liquidity, and beneficiary provisions—not by additional tax deferral.
Review the complete rules for annuity taxation before choosing qualified or nonqualified funding.
Who Should Consider Covered Choice 5 II?
- A conservative saver seeking a five-year accumulation FIA.
- Someone who wants a true S&P 500 cap locked for the full surrender period.
- A buyer whose current locked cap compares well with other A- or better-rated insurers.
- Someone who can leave the money in place for five years.
- A buyer with enough liquid savings outside the annuity to avoid an excess withdrawal.
- Someone who values an A-rated insurer and a shorter commitment.
Who Should Avoid It?
- Someone who can obtain a materially better locked cap from another acceptable insurer.
- A buyer who may need more than 10% of account value during the surrender period.
- Someone relying on the five-year participation strategy for annual liquidity.
- A consumer who assumes “Dividend Value ETF” means dividends are credited to the annuity.
- A buyer selecting the product mainly because of a hypothetical trigger illustration.
- Someone seeking a flexible guaranteed lifetime withdrawal benefit.
- A consumer who wants direct stock-market returns and dividends.
Other Insurance Coverage to Consider
- Long-term care insurance: Creates a dedicated benefit for home care, assisted living, and nursing-home expenses.
- Life insurance: Can provide a larger income-tax-free legacy when family protection is the main objective.
- Medicare Supplement coverage: Helps control medical expenses separately from the accumulation decision.
Alternatives to Compare
Oceanview CapLock: The Oceanview CapLock FIA locks caps on the S&P 500, Nasdaq-100, and Russell 2000.
Sagicor Sage Accumulator: The Sagicor Sage Accumulator offers traditional-index cap locks over five- and seven-year periods.
Lincoln OptiBlend: The Lincoln OptiBlend provides additional term and index choices, including income versions when lifetime withdrawals are needed.
A MYGA: Better when the buyer wants a known guaranteed return rather than uncertain index-linked interest.
Compare the current fixed indexed annuity rates and caps before selecting Covered Choice.
Our Final Recommendation
We recommend considering Lincoln Covered Choice 5 II when the five-year S&P 500 locked cap is competitive. The shorter term, true S&P 500, annual cap crediting, first-year liquidity, and A-rated issuer create a good accumulation foundation.
We would not make the five-year participation strategy or annual Dual Trigger the default allocation. Use the locked annual S&P 500 cap first, compare the projected surrender values with other cap-lock products, and keep enough liquid money outside the contract.
Contact The Annuity Expert for free quotes and a no-obligation comparison of Lincoln Covered Choice 5 II with other five-year accumulation FIAs. We will compare the locked S&P 500 cap, participation terms, trigger rates, renewal guarantees, surrender values, liquidity, MVA, death benefit, and insurer strength before you buy coverage.
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Frequently Asked Questions
Is Lincoln Covered Choice 5 II a good annuity?
Yes. It is a good five-year accumulation FIA when the locked S&P 500 cap is competitive. The lock is the strongest reason to consider the product.
Does Covered Choice lock its S&P 500 cap?
The one-year S&P 500 Cap 5 Year Lock protects the issued cap for the initial five-year period. The ordinary annual cap can still change at renewal.
How does the Dual Trigger work?
It credits the full declared rate when the index is up or flat. It can credit the difference between the trigger rate and a mild negative return when the decline is smaller than the trigger rate.
Is the Dual Trigger rate locked?
No. The rate is generally declared annually. A historical illustration that uses one constant trigger rate should not be treated as the contract’s future result.
When is interest credited on the five-year participation strategy?
Interest is credited at the end of the five-year term. Money withdrawn before term end generally does not receive the pending indexed interest.
Does the Capital Group Dividend Value strategy pay dividends?
No. The annuity uses the ETF’s price return as a benchmark. The owner does not own ETF shares and does not receive distributed dividends.
Can I withdraw money during the first year?
Up to 10% of account value is generally available without surrender charges or an MVA beginning in the first contract year. Taxes and the effect on pending index credits still need to be considered.
Does Covered Choice provide lifetime withdrawals?
It provides annuitization options after the surrender period. It is not built around a GLWB that preserves flexible access to a remaining contract value.