Introduction
Fixed Index Annuities are contracts between the annuitant and an insurance company in which the insurance company promises to credit interest based on the performance of a certain stock market index. Fixed Index Annuities have an inbuilt capital protection feature, so your principal will remain safe even if the index goes down.
Annuities are complex products, and many advisors try to missell them without properly understanding the buyer’s needs. Thus, you must educate yourself on these products and not solely depend upon the annuity agent’s high-pressure sales pitch.
This article provides an in-depth review of the Atlantic Coast Income Navigator Fixed Indexed Annuity. The Atlantic Coast Income Navigator is a deferred, fixed-indexed annuity that may be a good option if you are seeking tax-deferred growth and downside protection, with a core focus on premium bonus and lifetime income withdrawals. While this annuity is not optimized for accumulation, it does fairly well in delivering secure income features. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Atlantic Coast Income Navigator Fixed Indexed Annuity will be broken into multiple subcategories:
| Product Name | Atlantic Coast Income Navigator |
|---|---|
Issuing Company | |
AM Best Rating | B++ (5th of 13 ratings) |
Withdrawal Charge Period(s) | 10 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $5,000 |
Premium Bonus | 7% premium bonus on the initial premium |
Crediting Period and Strategies |
|
Plan Types |
|
Indexes | S&P 500 Index |
Free Withdrawals | 10% of the annuity’s Accumulated Value per year |
Death Benefit | Upon the annuitant’s death, the beneficiary will get full Account Value without any surrender charges |
Riders | Optional, paid guaranteed lifetime income rider |
Surrender Value | Account Value less any withdrawal charges/MVA |
RMD Friendly | Yes |
Product Policy
How does the Atlantic Coast Income Navigator Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the Atlantic Coast Income Navigator Fixed Indexed Annuity with a minimum initial purchase amount of $5,000, and in return, they will earn market index returns (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, there are various events that may trigger earnings credit: On free withdrawals, for a long-term care event or terminal illness or injury event, or when a death benefit is payable. The annuity offers a premium boost and an optional paid rider that helps the annuitant secure lifetime withdrawals they cannot outlive. We will discuss this further in the latter section of this annuity review.
The Atlantic Coast Income Navigator Fixed Indexed Annuity allows the annuitant to choose from four indexing strategies based on the S&P 500 index. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of five strategy options.
1. S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time. It is very important to note that, similar to most other annuities, the Atlantic Coast Income Navigator Fixed Indexed Annuity offers the S&P 500 index with cap rates in place, meaning that your actual interest credited will be lower compared to the actual index return. These rates change frequently; I will discuss the rates in detail shortly.
In addition to allocating the funds to the S&P 500 index, the annuitant also has the option to allocate funds at a fixed interest. These Fixed Rates change from time to time. The 1-year Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 2.75%.
Rates and Costs
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. The company has a few rates and caps in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked on the company’s website.
Let’s have a look at the Atlantic Coast Income Navigator Fixed Indexed Annuity rate sheet (as of October 2024) to understand how the earnings are determined.
| Index | Strategy | Rate |
|---|---|---|
1-Yr Fixed Interest | Fixed Rate | 2.75% |
S&P 500 | 1-Yr Pt-to-Pt Cap | 4.00% |
1-Yr Monthly Average Cap | 4.00% | |
1-Yr Daily Averaging Cap | 4.00% | |
Monthly Sum Cap | 1.70% |
From the above rate chart, you will notice five interest crediting options (one fixed and four indexed) along with an initial premium bonus. Let’s take a closer look at the various terms the company uses in the Atlantic Coast Fixed Indexed Annuity rate chart:
- Point-to-point with Cap Rates: This refers to the rate at which your interest-earning capacity is capped. For example, if an index returns 12% but the contract’s cap rate is 6%, the annuitant will be eligible for an interest credit of 6% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest that can be earned is the cap rate.
- One-Year Monthly Index Average with Cap Rate: This strategy begins by recording the initial value of a selected index at the onset of the contract term. Subsequently, the index's value is captured monthly. After a one-year duration, these monthly index values are aggregated and then averaged by dividing the total by 12. This average, capped by a cap rate, helps decide the interest added to the annuity.
- One-Year Daily Index Average with Cap Rate: On each policy anniversary, the daily values of the S&P 500 index since the previous anniversary are averaged to determine the ending value, which is then compared to the S&P 500 index value from the last anniversary (the beginning value). If the ending value is higher than the beginning value, the policy is credited with the percentage increase, up to the annual cap. If the ending average value is lower, no interest is credited, but no loss occurs either, as the contract value is protected by a 0% floor.
- Monthly Sum Cap: On each policy anniversary, the S&P 500® index value at the end of each month over the past 12 months (ending value) is compared to the index value at the beginning of that month (beginning value) to calculate the monthly percentage change. Monthly percentage increases (up to a specified cap) are added to monthly percentage decreases (which have no cap) over the 12-month period. If the total for the 12 months is positive, the full amount is credited to the contract. If the total is negative, no interest is credited, but no loss is incurred, as the contract value is protected by a 0% floor.
- Fixed Account Rate: If you opt for a fixed account rate, you simply earn the fixed rates for a particular period specified by the company before your policy begins. These rates are usually low/at par as compared to other fixed avenues, such as CDs and MYGAs, so you should avoid fixed rates in a general scenario. The 1-year fixed rate on this policy at the time of writing this article was 2.75%.
The rate chart indicates that this annuity may not be the best option for growth and accumulation; however, its primary value lies in the Income Rider it offers, which we will explore in detail later in the review.
Among these strategies, I would suggest the S&P 500 Monthly Sum with a Cap strategy, as the other options have limited growth potential due to their very low cap rates.
Initial Premium Bonus
In a fixed indexed annuity (FIA), the initial premium bonus is a percentage of the amount you invest, added to your account value at the time of purchase. This bonus is designed to provide a head start on growth, enhancing the initial value of your annuity. The bonus is typically offered as an incentive to choose a particular annuity product and can boost the long-term accumulation potential of your annuity.
For example, if you purchase a fixed indexed annuity with a 7% initial bonus and invest $100,000, the insurance company will add an extra $7,000 to your account. As a result, your account value will immediately be $107,000. This bonus will continue to grow along with your account value based on the performance of the chosen crediting strategies (fixed or indexed), potentially enhancing your future income or withdrawal benefits.
The bonus vests over a 10-year period. The vested amounts of the bonus are the portions you do not forfeit due to an early partial withdrawal or surrender. The bonus is fully vested in the death benefit and the optional guaranteed lifetime withdrawal benefit payment. However, it's important to note that withdrawals may reduce the vested bonus amount.
If you take a partial withdrawal or surrender, you will receive the vested portion of your bonus according to the schedule below. Any partial withdrawals or surrenders exceeding the penalty-free amount during the first ten policy years will result in the forfeiture of some non-vested bonus amounts.
Bonus Vesting Schedule
| Policy Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
Vested & | 0% | 0% | 0% | 0% | 0% | 10% | 20% | 40% | 60% | 80% | 100% |
It’s important to review any conditions or restrictions related to the bonus, as there might be limitations on accessing it early or specific withdrawal provisions that could reduce its impact.
However, as with most financial products, there are no free lunches. This bonus is compensated by slightly lower cap and participation rates compared to similar products that don’t offer a premium bonus. The trade-off here is between getting an immediate boost in your account value through the bonus or potentially achieving higher long-term growth with better crediting rates. The decision ultimately depends on your financial goals and whether you prioritize short-term gains or long-term growth potential.
Surrender/Early Withdrawal Charge
Should your needs change unexpectedly, and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies, although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for the Atlantic Coast Income Navigator Fixed Indexed Annuity.
| Policy Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
Issue Age 0-57 | 12% | 11% | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 2% | 0% |
Issue Age 58+ | 9% | 8.5% | 7.5% | 6.5% | 5.5% | 4.5% | 3.5% | 2.5% | 1.5% | 0.5% | 0% |
Market Value Adjustments - In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period. The surrender charge schedule is different for the different tenures of annuities and also changes for some states. The surrender charge of Atlantic Coast Income Navigator Fixed Indexed Annuity is slightly higher than that of other annuity issuers.
Contract/Administrative Charge
The Atlantic Coast Income Navigator Fixed Indexed Annuity levies no annual contract or administrative fees. However, if you opt for the lifetime income rider, an annual charge of 1.50% applies, which is calculated and deducted from the account value. We will discuss this rider in more detail in the next section.
Riders
The Atlantic Coast Income Navigator Fixed Indexed Annuity offers annuitants the option to choose an additional paid Income Rider. The Income Rider in the Atlantic Coast Income Navigator Fixed Indexed Annuity is designed to provide annuitants with a secure stream of income that they cannot outlive. This rider ensures long-term financial stability, particularly during retirement, by offering guaranteed lifetime withdrawals. Below are the key features of this rider:
Key Features:
- Issue Limit: The issue age for this rider is up to 85 years, based on the age of the covered person. This ensures that individuals nearing or at retirement age can take advantage of the lifetime income benefits.
- Waiting Period: Income withdrawals under this rider can begin anytime after the first contract year, provided the owner has reached age 55. This allows the annuitant to start receiving lifetime income as soon as they meet these requirements.
- Income Account Value (Benefit Base): The Income Account Value grows for 10 years based on a 7% premium bonus, plus a guaranteed 7.00% roll-up rate applied on each anniversary for 10 years. This compounding growth ensures that the income account value increases over time, which, in turn, increases the potential lifetime income available. Note that the Income Account Value is only used to calculate the income withdrawal amount — it’s not available at surrender, death, or annuitization.
- Annual Rider Charge Rate: A 1.50% annual charge applies to the rider. This charge is calculated based on the account value and is deducted each year. While this fee may reduce the account balance, the rider's guaranteed income benefits can offset this impact over time.
Rider Termination
- Surrender of the contract
- Election of a settlement option under the annuity provision of the contract
- Death of the owner prior to lifetime withdrawal election (unless continued by the surviving spouse)
- Upon the death of the last covered person after lifetime withdrawals have begun
- Change in ownership or annuitants, unless continued by the surviving spouse
- Reaching the maturity date if lifetime withdrawals have not commenced
Calculating Income Withdrawal Amounts
Your payments will be calculated based on this equation:
On each contract anniversary, your lifetime income withdrawal amount will be recalculated as the greater of the previous year's income withdrawal amount or the original income withdrawal percentage multiplied by the current Benefit Base (Income Account Value).
The income withdrawal percentage (payout factor) is determined by your age at the time you first elect to receive income withdrawals. This payout factor is communicated to the annuitant at the time of policy purchase.
Example:
Let’s say you elect to start your income withdrawals at age 55 on a single-life basis. According to the Income Rider Single Life Payout Factors table, the withdrawal factor at age 55 is 4.50%. If your Income Account Value (Benefit Base) is $107,000 at the time of election, your annual lifetime income withdrawal would be:
Suppose you wait 10 years; during this time, both the Income Account Value and the payout factor increase. If the Income Account Value rises to $210,485 and the payout factor at age 65 is 5.70%, the annual payout amount would be $11,998.
What Makes This Product Stand Out?
The Atlantic Coast Income Navigator Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are:
- Free 7% premium bonus for initial premium payment
- Optional lifetime withdrawal rider
- 7% premium bonus and 7% roll-up for Income Account Value if you opt for the Income Rider
- No annual contract, mortality & expense, or administrative fees
- Multiple Payout Options: Lump-sum or Annuitization option with Life Only, Life with Period Certain, Joint and Survivor Life, etc
What I Don't Like
Some of the features I don't like about the policy are:
- The absence of a free Nursing Home and Terminal Illness Waiver, which is commonly offered by most fixed-indexed annuities
- Low rates on the indexing strategies.
- A relatively high income rider charge compared to other annuities that offer similar benefits
- No provision for a Minimum Guaranteed Surrender Value, which is typically between 87.5% and 115% as offered by other annuity providers
Company Details
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Atlantic Coast Life Insurance Company
Atlantic Coast Life Insurance Company has been in the business since 1925. It is one of the oldest providers of fixed and fixed-indexed annuities in the US.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | B++ |
Although the rating is not the best, it is not even that bad. The company is privately managed by Advantage Capital post its sale in 2015. It is considered to be strong and stable financially. As of year-end 2022, some of the other financial highlights for Atlantic Coast Life Insurance Company include its:
- $903 million in total sales / direct written premium
- $91.6 million of capital and surplus
- $16.14 million in net operating income
- $693 million in total assets
Conclusion
With the advancement in healthcare and technology, the average person today is living longer than ever. So, it’s very important to have a stream of income that can grow safely and steadily and have the ability to provide a guaranteed income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
The Atlantic Coast Income Navigator Indexed Annuity is primarily geared toward providing lifetime income through its Income Rider, but it may not be the best choice for those focused on accumulation due to its limited growth potential. Additionally, the rider charges are relatively high, and the annuity does not carry the best credit ratings. Annuitants may want to consider other annuities for lifetime income that offer stronger financial ratings, potentially providing greater security and value over the long term.
We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Dive deeper into our extensive reviews.