Lincoln Covered Choice 5 II Fixed Indexed Annuity In-depth Review

How does the Lincoln Covered Choice 5 II Fixed Indexed Annuity 5 policy work?

Any annuitant (maximum age at the time of policy issue: 85) can purchase the Covered Choice 5 II Fixed Indexed Annuity with a minimum initial purchase amount of $10,000, 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 Lincoln Covered Choice 5 II Fixed Indexed Annuity offers the annuitant the option to choose from one or more crediting strategies tied to the S&P 500 Index to determine their earnings crediting formula. The plan includes three indexing strategies and one fixed-rate guaranteed interest strategy, resulting in a total of four strategy options. 

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, serving as a barometer for the overall U.S. equity market. It is a reliable index and has often succeeded in the test of time. 

It's important to understand that the Lincoln Covered Choice 5 II Fixed Indexed Annuity links to the S&P 500 index, but with certain limitations. It features caps, a performance trigger, and a dual-trigger mechanism, which means you won't receive the full return of the S&P 500 index. Instead, your potential earnings from the index are subject to rate limits. These rates can change frequently, and I will provide more details about them shortly.

Note: In addition to allocating the funds in the following indexes, the annuitant also has the option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The first-year fixed rate for the 5-year withdrawal charge period at the time of updating this article was 3.75%.

Rates and Costs associated with the Lincoln Covered Choice 5 II Fixed Indexed Annuity

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. There are a few rate limitations (in the form of caps and other rates) that the company has 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 or with your trusted financial advisor.

The formula to calculate the earnings credited is as follows:

For Point-to-point Strategies with Caps: Index return over a given crediting period with a maximum potential of earning the cap rate.

For Trigger rate strategies: Trigger rate is credited if certain conditions are met (to be discussed shortly).

Let’s have a look at the Lincoln Covered Choice 5 II rate sheet (as of July 2025) to understand how the earnings are determined.

The above table shows that the Covered Choice II 5 fixed indexed annuity offers the annuitant the ability to choose from 4 crediting options. We can see that there are a number of crediting strategies, such as cap rate, performance triggered, and dual trigger; Plus, there is also an option for a fixed account rate. Let's discuss these crediting strategies and see how they work. 

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.

It is noteworthy that the company offers a relatively good cap rate (8.50%) for the S&P 500 Index when compared to other similar policies.

Performance-Triggered Index Option with Declared Rate: A flat or positive index return triggers the declared interest rate to be credited to the contract value. If the index return is negative, no interest is credited, but there will be no loss, and the contract value will remain the same. Suppose the change in the value of the index during that one year is zero or positive. In that case, the declared index gain interest rate is multiplied by the option’s account value to determine the index interest credits. The index interest credits pursuant to this option will never be less than zero. The declared interest rate is set at contract issue and applies for the entire withdrawal charge period. In this case, the performance-triggered rate for the S&P 500 Index is 8.00%. It means that if the S&P Index doesn’t go negative for a given 1-year period (even if the growth is 0% and not negative), the interest credited will be 8.00% irrespective of the S&P 500's actual return. It is noteworthy that the company offers a very good performance triggered rate for the S&P 500 Index when compared to other similar policies.

Dual Trigger: At the end of the one-year indexed term, if the index has a positive change or remains flat, your account is credited with the trigger rate. If the index change is negative but less than the value of the trigger rate, the difference is credited. If the index is negative by the value of the trigger rate or more, your account is protected from loss, but no interest will be credited. At first glance, this appears to be a more logical choice than selecting the Performance-Triggered index option; however, the trade-off is a lower trigger rate compared to the Performance-Triggered option (7.50% vs 8.00%).

Fixed Account Rate/Declared Rate: If you opt for a fixed account rate, you simply earn the fixed rate for a particular period specified by the company before your policy begins. These rates usually tend to be very low 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 3.75%.

I believe that choosing the 1-year S&P 500 performance trigger or the 1-year S&P 500 with caps is the best option at this time. For these two options, the company is offering relatively good rates when compared to the competitors.

Surrender/Early Withdrawal Charge

Each year, you are allowed a 10% free withdrawal of your contract value without incurring charges, fees, or penalties.

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 Lincoln Covered Choice II 5 Fixed Indexed Annuity.

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. For a quick comparison of surrender charges across different Lincoln products, you may visit their annuities product page here.

The surrender charge of Lincoln Covered Choice II 5 Fixed Indexed Annuity is in line with all the other annuity issuers. 

Contract/Administrative Charge

The Lincoln Covered Choice II 5 Fixed Indexed Annuity levies no annual contract or administrative fees

Riders

The Lincoln Covered Choice II 5 is a plain-vanilla annuity that does not offer any optional paid riders. In my opinion, this actually appeals to many people who don’t understand or do not want to dive deep into the complex methodologies the riders often come up with. However, as with most annuities, the Covered Choice II 5 FIA has free in-built nursing home and terminal illness waivers.

Nursing Home Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is confined to a Qualified nursing home for at least 90 consecutive days. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.

Terminal Illness Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is diagnosed with a terminal illness with a prognosis of 12 months or less. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.

What Makes This Product Stand Out?

The Lincoln Covered Choice II 5 Fixed Indexed Annuity offers some features that not many fixed-indexed annuities offer. The ones that I like the most are

The plan offers the S&P 500 Index with decent crediting strategies

This is a very straightforward indexed annuity product

No annual contract, mortality & expense, or administrative fees

Free  Confinement and Terminal Illness Waiver Benefit: This no-fee rider is automatically included for owners under age 65 and includes both a Qualified Nursing Care and Terminal Illness Benefit:

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

This product is generally good for those seeking a straightforward indexed annuity for growth. However, there are some features that could enhance its value for the annuitant. Here are a few aspects of the policy that I find less favorable:

There are no optional riders to choose from

I couldn’t find any provision for Minimum Guaranteed Surrender Value in the product’s brochure

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.

Lincoln National Life Insurance Company

Lincoln National Life Insurance Company has been in the business since 1905. It is one of the largest and oldest providers of fixed and fixed indexed annuities in the US and has been regularly in the top ten Fixed Indexed Annuity Sales.

It is rated as follows by the rating agencies:

Lincoln National Life Insurance Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. In 2024, the company paid out nearly $7.9 billion in claims and benefits. As of year-end 2024, some of the other financial highlights for Lincoln National Life Insurance Company include its:

$18.44 billion in total sales / direct written premium

$8.26 billion of stockholders’ equity

$1.7 billion in comprehensive income

$390.8 billion in total assets

Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with Lincoln National Life Insurance Company.

Conclusion

With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of 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 Lincoln Covered Choice 5 II FIA is one such annuity that helps you grow your retirement account with much less risk. Through its relatively higher cap and trigger rates, it offers faster growth with principal protection. The product’s plain vanilla nature (no paid riders or complex calculations) might also appeal to people who don’t like to deep-dive into the complex methodologies often associated with the riders. If you are considering buying a simple fixed indexed annuity that is purely growth-oriented, the Lincoln Covered Choice 5 II FIA may be a decent product to look at.

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. To delve deeper into our extensive reviews, click here.