Delaware Life Target Income Fixed Indexed Annuity Review

Product Policy

How does the Delaware Life Target Income Fixed Indexed Annuity policy work?

Any annuitant (maximum age at the time of policy issue: 85) can purchase the Delaware Life Target Income 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 Income Stages Fixed Indexed Annuity offers the annuitant to choose from one or more of the five indexes (S&P 500 Index, Invesco QQQ ETF, First Trust Capital Strength Barclays 10% Index, Janus Henderson Adaptive Market Leaders U.S. Index, and Franklin SG Select Index) to determine his earnings crediting formula. The S&P 500 index has 3 crediting strategies, and the other four 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:

It is very important to note that like other Fixed Indexed Annuities, the Delaware Life Target Income 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 these rates more briefly.

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 Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 3.40%.

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 Target Income 10 Fixed Index Annuity rate sheet (as of August 2024) 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 Income 10 Fixed Indexed Annuity 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%.
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 4.50%. 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 4.50% 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 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 3.20%.

Out of the indexes offered by this plan, the wisest decision would be to choose the S&P 500 and Invesco QQQ-based indexing strategies for their transparency, proven returns, and global importance. All the other indexes have a volatility control mechanism in place, which limits the index's overall return earning capacity.

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 Income 10 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.

The surrender charge of Delaware Life Target Income Fixed Indexed Annuity is in line with all the other annuity issuers.

Contract/Administrative Charge

The Delaware Life Target Income 10 Fixed Indexed Annuity levies no annual contract or administrative fees. However, it comes with a compulsory paid rider, Guaranteed Lifetime Withdrawal Benefit (GLWB), that, at the time of writing this article, costs 1.05% of the benefit base, deducted from your account value. This is discussed in the next section.

Riders

The built-in rider is the most important discussion of this annuity. The Delaware Life Target Income Fixed Indexed Annuity comes with a compulsory paid GLWB (Guaranteed Lifetime Withdrawal Benefit) rider. The GLWB riders offer the annuitant to establish a benefit base with a 20% bonus on first-year premiums and a subsequent roll-up interest credit of 10% of their first-year premiums each year.

Rider Cost: An annual cost of 1.05% of the benefit base for both Single or Joint Life

An example of a benefit base with a first-year premium of $100,000 is shown below:

In this hypothetical scenario, the client invests $100,000 in the annuity, and they immediately receive a 20% ($20,000) premium bonus to their benefit base. The premium bonus is in addition to the 10% annual roll-up and helps accelerate the growth of their income benefit.

After the first contract anniversary, the client can turn on income at any time, and their benefit base is calculated as of that day—without waiting until a contract anniversary to see an increase in their income/benefit base. This feature adds more flexibility for an annuitant to turn on lifetime payments; most other annuities increase the benefit base only on the contract anniversary. Remember that the benefit base is only used to calculate the lifetime income payment; it is different from your account value, and unlike your account value, you cannot withdraw money from your benefit base.

Your lifetime income payment depends on your benefit base at the time you start lifetime income withdrawals. Thus, the later you start your lifetime income withdrawals, the more your lifetime income withdrawal amount.

Benefit Base at the time of first withdrawal * GLWB Lifetime Payout Factor

The lifetime income withdrawal percentage is based on how late you begin your lifetime income withdrawals and whether you opt for single-life or joint withdrawals. At the time of writing this article, the following Lifetime Income Withdrawal Percentage was applicable (for single life):

For calculating joint life withdrawals, subtract 0.65% from the Single Life withdrawal percentage to determine the Joint Life withdrawal percentage. Joint payouts are based on the Attained Age of the younger life.

Important: Do note that Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges, or Market Value Adjustments (MVAs) reduce the contract’s Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop, and the rider will terminate. If you do not make excess withdrawals, your Lifetime Income will continue for the rest of your life, even if your annuity’s accumulated value becomes zero.

Also, as with most annuities, the Delaware Life Target Income 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 Delaware Life Income 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 the S&P Index with multiple crediting methodologies.
The Target Income plan offers greater flexibility in terms of taking lifetime withdrawals from your account. Typically, in an annuity plan with a lifetime income rider, you have to wait until the contract anniversary to get your interest credited to your benefit base to receive a higher lifetime withdrawal amount. In this plan, your benefit base is credited with a pro-rata interest credit on the day you start taking lifetime income withdrawals.
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: 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:

Higher Surrender Charges: This annuity imposes relatively higher surrender charges than other similar annuities.
The built-in GLWB rider comes at an annual cost of 1.05% of the benefit base, which, in my opinion, is on the higher side.
The plan offers lower cap and participation rates on its indexing strategies compared to other Delaware Life Fixed Indexed Annuities. If you are looking for a Delaware annuity that works best for growth and accumulation, check out our reviews for the Delaware Growth Pathway and Delaware Retirement Stages Select Fixed Indexed Annuities.

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:

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 advancement in healthcare and technology, the average American 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 Income is a fixed-indexed annuity that helps you grow and accumulate your savings with much less risk. Through its GLWB rider, it provides the annuitant with greater flexibility and a safeguard against unforeseen circumstances by allowing them to turn on income payments at any time they wish without forgoing the pro-rata interest credit in the benefit base.

If you are considering buying a Fixed Indexed Annuity that is flexible, provides protection, and wants to take lifetime withdrawals that you will never outlive, the Delaware Life Target Income may be a decent product to look after. Although, you must keep in mind that this is not the best annuity for someone who is looking for growth and accumulation.

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.