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, such as the S&P 500. 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 Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity. The PrimeStart Bonus 10 is a relatively new indexed annuity that may be a suitable option for those seeking an initial “boost” to their account value through a 10% premium bonus. It is designed for annuitants focused on accumulation, tax-deferred growth, and principal protection. The annuity offers several indexing options that have the potential to deliver reasonable returns in line with market performance. After conducting extensive research and due diligence, I present an unbiased and thorough analysis of this product.
The review of the Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- What Makes This Product Stand Out?
- What I Don’t Like
- Company Details
- Conclusion
Product Description
The Delaware Life PrimeStart Bonus 10 is a Fixed Indexed Annuity (FIA) that provides annuity investors the opportunity to earn returns linked to a market index without the risk of market downturns. This plan is well-suited for individuals seeking a fixed indexed annuity that offers an initial “boost” to their account value, with a focus on accumulation, tax-deferred growth, and principal protection.
Let’s have a look at the high-level fine print of the Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | PrimeStart Bonus 10 |
|---|---|
Issuing Company | |
AM Best Rating | A- (4th of 13 ratings) |
Withdrawal Charge Period(s) | 10 years |
Maximum Issue Age | 80 Years |
Minimum Initial Purchase Amount | $25,000 |
Crediting Period and Strategies |
|
Plan Types |
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Indexes |
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Free Withdrawals | 10% of the annuity’s Accumulated Value per year. |
Death Benefit | Upon the annuitant’s death, the beneficiary will get greater of (i) Account Value or (ii) Surrender Value |
Free Benefits |
|
Surrender Value | Account Value less any withdrawal charges/MVA |
RMD Friendly | Yes |
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Product Policy
How does the Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the Delaware Life PrimeStart Bonus 10 fixed indexed annuity with a minimum initial purchase amount of $25,000, 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. All these interest credits are credited to a bucket called “Account Value.” This bucket is your annuity account balance, and all your withdrawals take place from it. A 10% premium bonus is added to all premium payments made within the first 60 days of the annuity issue, and this bonus vests over a period of 10 years.
The Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity offers the annuitant to choose from one or more of the five indexes (S&P 500 Index, S&P 500 Dynamic Intraday TCS Index, First Trust Capital Strength Barclays 10% Index, Goldman Sachs Canopy Index, and Franklin SG Select Index) to determine their earnings crediting formula. The S&P 500 index has 6 crediting strategies, and the other four indexes have two strategies each. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 15 strategy options. We will discuss each available index briefly:
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 Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity offers the S&P 500 index with cap rates, participation rates, and performance-triggers in place, meaning that your interest-earning capacity is capped. These rates change frequently; I will discuss the rates in detail shortly.
2. S&P 500 Dynamic Intraday TCA Index
The S&P 500 Dynamic Intraday TCA Index is a financial index designed to provide exposure to the S&P 500 through the use of E-mini S&P 500 futures. This index employs a dynamic approach, utilizing 13 observation windows throughout the trading day to adapt to changing market conditions. By doing so, it aims to offer a more stable volatility experience for investors. The index combines a trend-following mechanism with the capability to rebalance multiple times during the day, allowing it to respond swiftly to market movements and optimize performance.
3. Goldman Sachs Canopy Index
The Goldman Sachs Canopy Index is a USD excess return index designed to combine a traditional asset allocation strategy with an alternative investment approach. It aims to diversify returns by providing exposure to two distinct portfolios: (i) A long-only "Core Portfolio" consisting of traditional assets like equities, U.S. Treasury bonds, Treasury Inflation-Protected Securities (TIPS), commodities, and gold. (ii) A long-short "Satellite Portfolio" employing market-neutral strategies.
The index adjusts the weights of assets in the Core Portfolio based on market growth and inflation signals, while maintaining fixed weights for the alternative assets in the Satellite Portfolio. It also incorporates a volatility control mechanism targeting 8% volatility. Launched in March, 2024, the index aims to provide exposure to market performance while offering potential diversification benefits through its alternative investment component.
4. First Trust Capital Strength Barclays 10% Index
The First Trust Capital Strength® Barclays 10% Index aims to provide stable growth with a diversified portfolio that provides exposure to U.S. equities and Treasurys and targets a 10% 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. The Index tries to limit long-term realized volatility to 10% or less, dynamically adjusting the allocation between the underlying traded instruments and cash, which can reduce the overall rate of return compared to indexes without a volatility control mechanism.
5. Franklin SG Select Index
The Franklin SG Select Index is designed to deliver stable returns by dynamically adjusting its investment strategy across changing market conditions. It offers exposure to top-performing large and mid-cap U.S. stocks selected from Franklin Templeton's mutual fund universe. The index employs a multi-factor investing approach, focusing on value, quality, and momentum to identify stocks with strong growth potential. To manage risk, the index incorporates a volatility control mechanism targeting 5% annual volatility and adjusts its exposure by shorting an ETF tracking the S&P 500 Index. Additionally, it diversifies with 10-year U.S. Treasuries, adjusting bond allocations based on market conditions to further stabilize returns. This approach aims to protect against market downturns but also limits the index upside.
It is very important to note that the PrimeStart 10 Bonus 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 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 change from time to time. The 1st year Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 3.10%.
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. There are a few rates, caps, 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 PrimeStart Bonus 10 Fixed Index Annuity rate sheet (as of September 2024) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 15 interest crediting options (1 fixed and 14 indexed). Let’s have a look at different terms that are used by the company in the PrimeStart Bonus 10 FIA chart rate:
- 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.
- Participation Rate (PR): The 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%.
- Flex-lock Participation Rate: Flex-lock index account options guarantee that the initial crediting rate set at issue will not change for the length of the surrender charge period. These options are only available at issue and may not be available with all index options.
- 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 a particular 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 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 5.00%. 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 to the annuity will be 5.00% irrespective of the S&P 500 actual return.
- Point-to-Point with Flex-Lock Participation Rate, Boost, and Knockout: This index strategy adds a Boost Rate to the return of an index at the end of the term if a Knockout has not occurred. If a Knockout has not occurred, the company will compare the index value at the end of the term to its value at the beginning of the term and add a Boost Rate to the percentage change in the index. A Participation Rate is then applied to the boosted index return to determine the amount of interest credited. A Knockout is an event that cancels an index interest credit and occurs if the index value drops below the Knockout Barrier at any point during the term. If a Knockout occurs, you will not receive an interest credit and may not transfer your index value to another index strategy until the end of the term. For example, If the index value at the beginning of the term is 2000 and the Knockout Rate is 98%, then the Knockout Barrier value would be 1960.
- 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 3.10%.
- 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.
- Enhanced Index Options: Enhanced Index Options offer annuitants the opportunity to benefit from higher crediting rates, such as increased cap or participation rates, in exchange for an additional annual fee. This fee is calculated by applying an enhancement fee rate to the index account value at the start of the term and is deducted at the end of the term. The initial enhancement fee rate is fixed at the contract issue and guaranteed for the first index term, with a new rate declared at the beginning of each subsequent term. In this case, by opting for an Enhanced Index Option with an annual fee of 1.00%, an annuitant can access an enhanced cap rate of 8.50% on the S&P 500 index, compared to the standard cap rate of 6.25%. This allows for potentially higher returns, depending on the performance of the selected market index.
Amongst these indexes, I prefer the S&P 500 Index with a cap/enhanced cap option or performance trigger option. I 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. The Franklin SG Select Index is also a good indexing option if you are willing to take on some risk—if the knockout barrier isn’t hit, you get a very good participation rate plus an additional boost.
Lowest Starting Index Value
The "Lowest Starting Index Value" is a no-cost feature designed to enhance the potential for earning interest on funds allocated to an index account option. This feature sets the initial starting index value using the lowest index value observed during the first 90 days after your contract issue date. By calculating the starting value based on the lowest daily index value within the first 90 calendar days of the annuity contract, this feature reduces the risk of your investment being applied at a market high point. This approach increases both the likelihood and the potential size of an interest credit, making it a valuable tool for optimizing returns on your initial premium allocation during the first contract year.
The charts and table below illustrate a hypothetical example of how a $100,000 initial premium payment in the PrimeStart Bonus 10™ Fixed Index Annuity can kick-start, recover, and accelerate your retirement savings. With built-in features like a 10% premium bonus (an additional $10,000) and the Lowest Starting Index Value, you are better positioned to:
- Leverage the combination of a premium bonus and tax-deferred growth to enhance your index returns when markets perform well.
- Potentially increase both the size and likelihood of index gains.
Free 10% Bonus and Associated Trade-Offs
The PrimeStart Bonus version comes with some trade-offs that investors should consider. While it provides a 10% initial bonus to the Account Value, which can be appealing for those looking to boost their savings early on, there are certain compromises. A detailed review of the rate charts reveals that this bonus version generally offers slightly lower participation rates, cap rates, and other crediting factors compared to the non-bonus version. These lower rates can impact the overall growth potential of your annuity, especially in strong market conditions. Therefore, while the 10% bonus adds immediate value, it's important to weigh this benefit against the potential for lower returns over the life of the contract. This trade-off may affect your long-term financial goals, depending on your market outlook and investment strategy.
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 Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
10-yr | 9% | 8% | 7.25% | 6.50% | 5.50% | 4.75% | 3.75% | 3% | 2% | 1% | 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 Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity is in line with all the other annuity issuers.
Contract/Administrative Charge
The Delaware Life PrimeStart Bonus 10 Fixed Indexed Annuity levies no annual contract or administrative fees.
Riders
The PrimeStart Bonus 10 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 PrimeStart Bonus 10 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 PrimeStart Bonus 10 Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are:
- 10% Premium Bonus: The 10% Premium Bonus, paid on all premium payments received within the first 60 days of the contract issue, provides an excellent opportunity to jumpstart your account value, giving you a fast start toward your financial goals.
- Lowest Starting Index Value: The Lowest Starting Index Value feature calculates the starting index based on the lowest daily index value within the first 90 days of the annuity contract. This reduces the risk of your investment being applied at a market high, increasing the potential for favorable returns.
- The plan offers the S&P Index with multiple crediting methodologies.
- 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: Lupsum or Annuitization option with Life Only, Life with Period Certain, Joint and Survivor Life, etc.
What I don’t like
This product is decent for people looking for growth and safety; still, there are some features that 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
- While the annuity provides good strategies for the S&P 500 Index, I’m not as keen on the other four indexes available for the interest crediting strategy. These other indexes include a volatility control mechanism that restricts the index's overall return potential.
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.
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 2024, Delaware Life was top-rated in Barron’s 100 Annuities list.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A- |
S&P | BBB+ |
Fitch Ratings | A- |
Although the ratings are not the best when we compare them with bigger players, 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 December 2023, the company had assets of $46.1 billion and total adjusted capital (TAC) of $2.8 billion, with more than 310,000 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.
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 PrimeStart Bonus 10 Fixed Indexed Annuity offers a robust combination of features designed to enhance your retirement savings. With its 10% premium bonus, flexible index options, and built-in safeguards like the Lowest Starting Index Value and Flexible Index Account Lock, this product provides a solid foundation for both growth and protection. Additionally, the lack of annual fees and the inclusion of valuable riders like the Free Confinement and Terminal Illness Waiver make it an appealing choice for those seeking a well-rounded, secure annuity option. However, it's important to weigh the potential trade-offs, such as slightly lower participation and cap rates, which may affect long-term growth compared to other options without the initial bonus.
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. Delve deeper into our extensive reviews.