Lincoln Launches FIA With 7-Year Surrender Schedule

Contracting sales of fixed indexed annuities (FIAs) in the third quarter weren't enough to deter Lincoln Financial from expanding its FIA product line, a company executive said.

Lincoln’s latest addition to the FIA market, Covered Choice 7, delivers immediate or deferred income.

The new product also offers a seven-year surrender schedule and will be distributed through wirehouses, banks and independent agents.

“This is an expansion of our product offering,” said Brain Kroll, head of Annuities Solutions for Lincoln Financial. “I don't know if there's a good or bad time to do it.”

Third-quarter indexed annuity sales fell 10.5 percent to $12.79 billion over the year-ago period, Wink’s Sales & Market Report said.

Despite the blip, industry experts expect FIA sales to stabilize as agents and distributors familiarize themselves with key aspects of the Department of Labor’s (DOL) fiduciary rule.

Among annuities, FIAs and variable annuities were affected the most by the rule, which raises investment advice standards into retirement accounts.

Retirement income needs remain high as defined-benefit pensions disappear, annuity and retirement product experts say.

Indexed-linked annuities such as FIAs offer people in or approaching retirement the potential to earn higher returns than they would earn in government-insured bank products, particularly when the stock market is rising as it has been this year.

FIAs sold a record $58 billion last year, Wink reported.

Covered Choice 7 Details

Covered Choice 7, a commission-based FIA, joins its older sibling Covered Choice 5, which was launched in 2015.

FIAs with seven-year surrender periods are rising in popularity.

In the third quarter, 23 percent of indexed annuity sales went to FIAs with a seven-year surrender period. This was an increase of four percentage points compared to with the third quarter 2016, according to Wink.

Shorter surrender charge products pay lower commissions to agents than FIAs with surrender schedules of 10 years or more. Agents aren’t surprised that shorter-term annuity products will become more widespread in the future.

Compared with Covered Choice 5, Covered Choice 7 offers higher rates and caps and comes with a higher minimum premium, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink.

Covered Choice 7 offers one fixed account and two indexed accounts so it’s a very simple product, but it must be bought with one of two available riders for which Lincoln Financial charges 95 basis points, Kroll said.

One of those riders, Lincoln Lifetime Income Edge, calculates income using one-year age bands instead of five-year age bands.

For each age between 50 and 95, the income factor bands rise by 0.10 percent, according to Lincoln.

Covered Choice FIAs, through their mix of simplicity and distribution channels, dwell “in the middle” of Lincoln Financial’s FIA neighborhood populated with four other FIA families, Kroll said.

A fee-based version of Covered Choice 7 is already in the market, he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].