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 discusses an in-depth review of the Delaware Life Growth Pathway Fixed Indexed Annuity. Delaware Life Growth Pathway is a deferred, fixed-indexed annuity that may be a good option if you are looking for a no-frills fixed indexed annuity with a core focus on growth and the safety of the principal. This annuity offers some good indexing options, which have the ability to provide reasonably expected (good but not the best) returns in the market. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Delaware Life Growth Pathway Fixed Indexed Annuity will be broken into multiple subcategories:
- Product Description
- Rates and Costs Associated with the Growth Pathway Fixed Indexed Annuity
- What Makes This Product Stand Out?
- What I Don’t like
- Company Details
Product Description - Delaware Life Growth Pathway Fixed Indexed Annuity
The Delaware Life Growth Pathway is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without having to incur the risk of market downside. This is a suitable plan for people who are looking for a plain vanilla fixed indexed annuity (with no optional paid riders such as enhanced lifetime income, enhanced death benefit, etc.) and aim to grow and protect their retirement savings.
Let’s have a look at the high-level fine print of the Delaware Life Growth Pathway Fixed Indexed Annuity, and then we will discuss each point in detail.
|Delaware Life Insurance Company
|AM Best Rating
|A- (4th of 13 ratings)
|Withdrawal Charge Period(s)
|5 and 7 years
|Maximum Issue Age
|Minimum Initial Purchase Amount
|Surrender Charge Schedule
|Varies for different tenure policies
|Crediting Period and Strategies
|1-year point to point with participation rate and/or spreads, 1-year point-to-point with caps, 1-year performance trigger, or 1-year fixed with interest rate guaranteed
|IRA, Roth IRA, Nonqualified Account, SEP IRA, SIMPLE IRA, 401(a), etc.
|S&P 500 Index, Morgan Stanley Global Opportunities Index, First Trust Capital Strength Barclays 5% Index, and RBA Select Equity Yield CIBC 5% Index
|10% of the annuity’s Accumulated Value; per year.
|Upon the annuitant’s death, the beneficiary will get greater of (i) Account Value or (ii) Surrender Value
|Free Nursing Home and Terminal Illness Waivers
No optional paid riders
|Guaranteed Minimum Account Value (GMAV)
|Guarantees that your annuity’s account value will be at least 115% of the initial premium, less any withdrawals, at the 5th/7th anniversary
|Greater of Account Value (less any withdrawal charges/MVA) and the Minimum Guaranteed Value
The Growth Pathway Fixed Indexed Annuity is almost identical for both policy tenures, except the crediting strategies and surrender charge schedule. For ease of discussion and better clarity, we will discuss the Growth Pathway Fixed Indexed Annuity 5 for the rest of the article.
How does the Delaware Life Growth Pathway Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the Delaware Life Growth Pathway Fixed Indexed Annuity with a minimum initial purchase amount of $10,000, and in return, he 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 Delaware Life Growth Pathway Fixed Indexed Annuity offers the annuitant to choose from one or more of the four indexes (S&P 500 Index, Morgan Stanley Global Opportunities Index, First Trust Capital Strength Barclays 5% Index, and RBA Select Equity Yield CIBC 5% Index) to determine his earnings crediting formula. The S&P 500 index has 4 crediting strategies, and the other three indexes have one strategy each. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 8 strategy options. We will discuss each available index briefly:
- 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 Delaware Life Growth Pathway Fixed Indexed Annuity offers the S&P 500 index with cap rates, participation rates, spreads, or performance-triggers in place, meaning that your interest-earning capacity is capped. These rates tend to change frequently; I will discuss more on the rates shortly.
- Morgan Stanley Global Opportunities Index: The Morgan Stanley Global Opportunities index represents the performance of a portfolio that offers diversified access to global opportunities by tracking multiple asset classes of equities, fixed-income rates, and commodity futures. The index includes markets outside of the U.S. and commodities and uses a trend-following strategy.
The Index tries to limit long-term realized volatility to 5% or less, dynamically adjusting the allocation between the underlying traded instruments and cash. While these volatility controls may result in less fluctuation in rates of return when compared with indexes that don’t use them, they also may reduce the overall rate of return compared with those other indexes. The company offers this index with a participation rate option. We will discuss more about rates in the next section of this article.
- First Trust Capital Strength Barclays 5& Index: The First Trust Capital Strength® Barclays 5% Index aims to provide stable growth with a diversified portfolio that provides exposure to U.S. equities and Treasurys and targets a 5% volatility. The index creates a diversified portfolio by combining U.S. stocks selected based on capital strength methodology with a portfolio of four Barclays U.S. Treasury futures indexes.
Similar to the previous index, the Index tries to limit long-term realized volatility to 5% or less, dynamically adjusting the allocation between the underlying traded instruments and cash (which can reduce the overall rate of return compared with indexes without a volatility control mechanism).
- RBA Select Equity Yield CIBC 5% Index: The RBA Select Equity Yield CIBC 5% Index seeks to enhance returns through a targeted set of reliable and sustainable dividend-paying equities. The index selects 100 of the top U.S. dividend-paying stocks through a methodology based on leading market research and fundamental analysis of financial factors. Index volatility is managed at 5% using custom volatility control strategies, which shift a percentage of assets into and out of cash as required. Leverage is also capped at 150%. Again, this also limits the return earning potential of the index compared to indexes without volatility control mechanisms.
Out of the indexes offered by this plan, I believe the wisest decision would be to choose an S&P 500-based indexing strategy for its transparency, proven returns, and global importance. All the other indexes have a volatility control mechanism in place, which limits the overall return earning capacity of the index.
It is very important to note that the Growth Pathway Fixed Indexed Annuity comes with cap rates, participation rates, performance triggers, etc., for these indexes, meaning that you will be credited only a part of the index return to your annuity. These rates tend to change frequently; I will discuss more on these rates more 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 Fixed Value Rate for the 5-year withdrawal charge period at the time of writing this article was 4.00%.
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 rates, caps, spreads, and triggers 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.
Let’s have a look at the Delaware Life Growth Pathway Fixed Index Annuity rate sheet (as of 31 July 2023) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 8 interest crediting options (1 fixed and 7 indexed). Let’s have a look at different terms that are used by the company in the Growth Pathway FIA chart rate:
- Participation Rate (PR): Participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 150%, and the index returned 4% over the agreed time. In that case, the annuitant will be eligible for 150% of the return, i.e., 6%.
- Cap Rates: It means at what rate your interest-earning capacity is capped. For example, if an index returned 12% but the contract’s cap rate is 6%. In this situation, 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.
- Performance-Trigerred 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% (for premium > $25,000). It means that if 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 actual return.
- Spread: The amount of interest that the Company will credit is based on a declared spread on the selected index on an annual point-to-point basis. Once the index gain is determined (if any), the spread amount is subtracted. The remaining amount is what is credited to the contract for that term. In the current case, the company offers this option with both spread and participation rate, which limits the actual S&P 500 return significantly. You should never opt for the Spread + Participation index crediting strategy.
- 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 usually tend to be 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 4.00%.
- Bailout Provision: For the S&P 500 1-year point-to-point strategy with cap, if the company lowers any rate below the Bailout Cap rate, you’ll have full access to withdraw your annuity’s accumulated value - free of any charges or Market Value Adjustments.
Amongst these indexes, I would prefer the S&P 500 Index with a cap option or performance trigger option. I would avoid any S&P 500 strategy with a participation rate because the company offers a very low participation rate for the S&P 500 index. You can also go with the RBA Select Equity Yield CIBC 5% Index with a 145% participation rate (for premium > $25,000) if you want to take less risk, however as discussed earlier, this may result in a relatively lower return as compared to the S&P 500 index.
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 Growth Pathway 5 Fixed Indexed Annuity.
|Completed Contract Years
|Surrender Charge %
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 Delaware Life Growth Pathway Fixed Indexed Annuity is in line with all the other annuity issuers.
The Delaware Life Growth Pathway 5 Fixed Indexed Annuity levies no annual contract or administrative fees.
The Growth Pathway 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 deep-dive into the complex methodologies the riders often come up with. However, as with most annuities, the Growth Pathway has a 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 apply 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 apply 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 Growth Pathway Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are
- Low minimum premium - An annuitant can buy a policy with a minimum premium of $10,000. Similar annuities of competitors usually require $25,000 as a minimum premium.
- The plan offers S&P Index with multiple crediting methodologies
- Decent Caps, Performance-trigger, and Fixed Rate: Caps on the equity indexing strategies are a bummer! However, the good thing with the Growth Pathway Fixed Indexed Annuity is that it provides decent caps, even for a very popular index like the S&P 500. Similarly, it also offers a performance-trigger rate than many of its competitors. It also offers competitive fixed rates.
- 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:
- High Guaranteed Minimum Surrender Value: The Guaranteed Minimum Surrender Value is equal to 115% of premium prior withdrawals. This is one of the highest Guaranteed Minimum Surrender Values I have seen, while for other popular annuities, this rate is usually only 87.5% of the premium accumulated.
- Multiple Payout Options: Lumpsum or Annuitization option with Life Only, Life with Period Certain, Joint and Survivor Life, etc.
What I don’t like
This product is a decent product for people looking for growth and safety; still, there are some features that I believe could add more value for the annuitant. Some of the features that I don’t like about the policy are
- No optional riders to choose from
- Although the annuity offers good strategies on the S&P 500 Index, I don’t like the other three indexes that the company offers for the interest crediting strategy. The other three indexes that the company offers have a volatility control mechanism that limits the overall return of the index.
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.
Delaware Life Insurance Company
Delaware Life Insurance Company was founded in 2013 and is a subsidiary of Group 1001 Insurance Holdings, LLC. Group 1001 is a dynamic network of several insurance businesses. It is a relatively newer player, but is rapidly growing and making its name in the market. In 2022, Delaware Life was top-rated in Barron’s 100 Annuities list.
It is rated as follows by the rating agencies:
Although the ratings are not the best when we compare it with bigger players, we can still say they are good enough for you to consider buying an annuity.
Delaware Life Insurance Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. As of June 2022, the company had assets of $41.8 billion and liabilities of $39.7 billion, with more than 320,000 active annuity and life insurance policies.
Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with Delaware Life Insurance Company.
With the advancement in healthcare and technology, the average American today is living 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 to mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
The Delaware Life Growth Pathway FIA is a decent annuity that helps you grow your retirement account with much less risk. Through its higher caps and performance-trigger rates, It offers faster growth with principal protection. The product’s plain vanilla nature (with no optional paid riders) might also appeal to people who don’t like to deep-dive into the complex methodologies associated often associated with the riders.
If you are considering buying a Fixed Indexed Annuity that is purely growth-and-safety oriented, the Growth Pathway 5 FIA is a decent product to look after.