The emergence of financial products like digital annuities has made retirement planning and long-term savings more accessible for everyone. As part of the digital transformation of annuities, these products offer numerous benefits to investors, and they continue to improve as fintech progresses.. In this blog post, we'll explore the ins and outs of digital annuities, how fintech is improving them, and how you can take advantage of these products.
First, let’s talk about annuities and how they work. Annuities are financial products insurance companies sell, where investors make payments during an accrual period. In return for these payments, the policyholder will get consistent, guaranteed payouts or a lump sum payout at a predetermined period of time.
The payments made during the accrual can be tax-deferred. Annuities can also earn tax-deferred investment income for the policyholder. There are many types of annuities, giving investors various options to choose which is best for their financial goals or needs.
Although they can be used in other ways, annuities are often utilized to grow retirement savings. They can provide a steady stream of income in the future and offer additional benefits like protecting income against inflation, providing finances for loved ones if you pass, and more.
Traditionally, purchasing annuities can be a complicated and overwhelming. Investors would need first to find a reputable provider and then decide what type of annuity is best for them. Even if you find a reputable provider, the fees and confusing structures of annuities can make them intimidating. In fact, this is why there are many misconceptions about annuities despite their usefulness.
The manual work required for traditional annuities can be slow, expensive, and arduous. However, with the rise of the digital transformation with annuities, digital annuity platforms significantly reduce the cost and time of these manual processes, making them a more attractive option for investors and providers alike.
Fortunately, digital annuities are here to revolutionize the annuity landscape. Digital platforms offer an intuitive way to access and buy annuities anywhere. Platforms like Gainbridge® prioritize simplifying the annuity-buying process while also promoting transparency. Using a digital annuity platform, consumers can clearly understand their annuity contract. This empowers them to make the best informed financial decisions for their needs. It also allows investors to buy annuities direct, getting rid of broker commissions or planner fees, putting the power, and higher returns, back into investors' hands.
Digital annuities offer several significant advantages over traditional annuities, including:
AI and machine learning technologies have rapidly advanced in recent years and have become more accessible in mainstream applications. AI and machine learning are great finance tools, too, offering consumers highly personalized solutions. AI and machine learning applications can offer suggestions based on a user’s risk profile, suggest financial products that fit their investment portfolio, and much more.
The benefits of AI and machine learning extend far beyond personalization, as these technologies can also analyze massive amounts of data and provide predictive models for financial firms. This can aid in financial decision-making, and financial firms can pass these tools on to their customers. AI and machine learning are already making digital annuities more accessible and viable as a financial product for many people, and it will be interesting to see how these technologies continue to progress in the coming years.
Blockchain is another rapidly evolving technology that has recently broken into the mainstream finance world. Blockchain technology provides a decentralized ledger that permanently records every transaction. Blockchain applications and services are able to take advantage of this technology to offer investors highly secure and transparent investment products, like digital annuities.
The unalterable nature of the blockchain digital ledger greatly reduces the risk of fraudulent activity and provides a transparent transaction trail. Blockchain technology also offers operational benefits through smart contracts. Smart contracts are self-executing contracts that initiate when predetermined conditions and terms are met. This provides various use cases for the financial industry by providing efficient and transparent automation of typically arduous processes.
While blockchain isn’t overly present in the digital annuity landscape, that could easily change in the future. Investors have expressed interest in getting exposure to cryptocurrencies through their annuity contracts. For instance, investors meeting certain requirements could allocate some of their variable annuity to a cryptocurrency like Bitcoin. Of course, it’s important to remember that crypto is highly volatile, so it might not be ideal for those who want security for their retirement income.
Blockchain technology is not perfect. Blockchain is relatively new, and regulations and compliance laws in decentralized finance are constantly evolving and changing. Blockchain also has unique tax considerations compared to fiat-based finance products. Most importantly, digital assets are highly volatile. This means there may be better solutions for risk-averse investors.
The rapid emergence and adoption of digital annuities comes with the need for new regulatory and compliance measures. This is a positive for consumers, and these regulatory and compliance laws ensure more transparency in the annuity process and more security for their investments. For example, these compliance and regulatory measures help ensure consumer data is secure and private, which helps protect it from potential breaches. It also helps consumers avoid bad actors who use digital finance to sell scams or fraudulent products.
Regulatory bodies are continually implementing and adjusting new standards for digital financial products. Companies offering digital annuities need to prioritize compliance to protect their customers and avoid hefty compliance fines and penalties.
While digital annuities offer various benefits, there are some challenges and considerations. Some common challenges of digital annuities include:
Overall, the future of digital financial products like digital annuities looks bright. As new trends emerge, fintech companies should make sure they’re staying up to date. Here are a few trends to look out for in the coming years:
Digital annuities are the best and most convenient way to access annuity products today. But, the choice of provider still matters. Gainbridge® built annuities meant for the 21st century. Through an online platform, you can buy annuities direct, getting rid of the commission or fees a broker would take, putting the power, and higher returns, back in your hands.
