diff --git a/pkg/reconciler/managed/policies.go b/pkg/reconciler/managed/policies.go
index 24de639bb..cdba90b21 100644
--- a/pkg/reconciler/managed/policies.go
+++ b/pkg/reconciler/managed/policies.go
@@ -82,6 +82,9 @@ func defaultSupportedManagementPolicies() []sets.Set[xpv1.ManagementAction] {
 		// is not deleted when the managed resource is deleted and the
 		// spec.forProvider is not late initialized.
 		sets.New[xpv1.ManagementAction](xpv1.ManagementActionObserve, xpv1.ManagementActionCreate),
+		// Like ObserveOnly, but the external resource is deleted when the
+		// managed resource is deleted.
+		sets.New[xpv1.ManagementAction](xpv1.ManagementActionObserve, xpv1.ManagementActionDelete),
 	}
 }