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 Target Growth Fixed Indexed Annuity. Delaware Life Target Growth is a deferred, fixed-indexed annuity that may be a good option if you are looking for a fixed-indexed annuity that offers tax-deferred growth and downside protection with a core focus on income growth. 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 Target Growth Fixed Indexed Annuity will be broken into multiple subcategories:
- Product Description
- Rates and Costs Associated with the Delaware Life Target Growth Fixed Indexed Annuity
- What Makes This Product Stand Out?
- What I Don’t Like
- Company Details
Product Description - Delaware Life Target Growth Fixed Indexed Annuity
The Delaware Life Target Growth 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 fixed-indexed annuity that offers tax-deferred growth and downside protection with a core focus on income growth.
Let’s have a look at the high-level fine print of the Delaware Life Target Growth Fixed Indexed Annuity, and then we will discuss each point in detail.
|Product Name||Target Growth 10|
|Issuing Company||Delaware Life Insurance 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||1-year point-to-point with participation rate, 1-year point-to-point with caps, 1-year performance trigger, or 1-year fixed with interest rate guaranteed|
|Plan Types||IRA, Roth IRA, Nonqualified Account, SEP IRA, SIMPLE IRA, 401(a), etc.|
|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|
|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||Guaranteed Minimum Account Value (GMAV) Nursing Home and Terminal Illness Waivers|
|Surrender Value||Account Value less any withdrawal charges/ MVA|
How does the Delaware Life Target Growth Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the Delaware Life Target Growth Fixed Indexed Annuity with a minimum initial purchase amount of $25,000, 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 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 Target Growth Fixed Indexed Annuity offers the S&P 500 index with cap rates, participation rates, performance-trigger rates, or spreads in place, meaning that your actual interest credited will be lower compared to the actual index return. 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 these 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 like other Fixed Indexed Annuities, the Delaware Life Target Growth 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 10-year withdrawal charge period at the time of writing this article was 4.25%.
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 Target Growth 10 Fixed Index Annuity rate sheet (as of October 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 Target Growth 10 FIA chart rate:
- 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.
- 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%.
- Participation Rate with Spread: This indexing strategy applies BOTH participation rate and spread to determine the index interest credit. Let’s take an example where the participation rate is 60%, the spread is 2%, and in a given year, the index returned 10%. In this case, the interest credited to the annuity account would be 60% of 10% (PR), less 2% (SP), i.e., 4%. Ideally, You should never opt for the Spread + Participation index crediting strategy.
- 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 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 7.50%. 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 to the annuity will be 7.50% irrespective of the S&P 500 actual return.
- 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 4.25%.
- 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 155% participation rate if you want to take less risk.
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 Target Growth 10 Fixed Indexed Annuity.
|Completed Contract Years||1||2||3||4||5||6||7||8||9||10||11+|
|Surrender Charge %||10%||10%||10%||10%||10%||9%||8%||7%||6%||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 Delaware Life Target Growth Fixed Indexed Annuity is in line with all the other annuity issuers.
The Delaware Life Target Growth 10 Fixed Indexed Annuity levies no annual contract or administrative fees.
The Target Growth 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 Target Growth 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 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.
Besides the Nursing Home Waiver and the Terminal Illness Waiver, the company also offers a Guaranteed Minimum Account Value (GMAV) provision.
Guaranteed Minimum Account Value (GMAV) - The Guaranteed Minimum Account Value (GMAV) provision ensures that the account value of your annuity will be no less than 125% of the initial premium, adjusted for any withdrawals, upon reaching the 10-year milestone.
Suppose you invest an initial premium of $100,000 in an annuity product that offers a GMAV feature. Over the course of 10 years, you make withdrawals totaling $20,000.
Initial Premium: $100,000
Total Withdrawals: $20,000
Net Account Value (Initial Premium - Withdrawals): $80,000
The GMAV feature guarantees that your account value will be at least 125% of the initial premium, less any withdrawals, at the 10th anniversary.
125% of Initial Premium = 1.25 * $100,000 = $125,000
Adjusted for Withdrawals: $125,000 - $20,000 = $105,000
Therefore, at the end of the 10-year period, the GMAV ensures that your account value will not be less than $105,000, regardless of market conditions or investment performance.
What makes this product stand out?
The Delaware Life Growth Target Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are
- The plan offers S&P Index with multiple crediting methodologies.
- Decent Cap and Participation Rates
- Free GMAV Provision
- 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 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
- 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.
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 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 Delaware Life Target Growth 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 often associated with the riders. However, if you are someone who is looking for enhanced lifetime withdrawals, you should consider checking out our review on Delaware Life Target Income Fixed Indexed Annuity.
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.