Introduction
It is no secret that our world is becoming more and more digitized and connected. We see this everywhere from how we consume our entertainment to how we work and do school. However, one area that is just beginning to be more digitized is the annuity (and insurance industry as a whole) industry. Granted, for insurance companies there are barriers to digitization due to privacy and regulation. But the digital revolution moves on, nonetheless.
The purpose of this article is to give a brief introduction to the digital annuity, its benefits, how they work and whom they may be fore.
What Is a Digital Annuity and How Could it Work?
Before we can talk about digital annuities, we should first define a traditional annuity. An annuity is, “a contract between you and an insurance company. In exchange for a lump sum or a series of payments, the company promises to provide you with a steady stream of income either immediately or at some point in the future.”
The only real difference between a traditional annuity and a “digital” is that the digital annuity is completely executed online, from purchasing to management and disbursement. This could look like researching annuities in the car while you wait during your spouse’s doctor appointment. An AI chatbot for one of the large insurance carriers helps you after you upload a few details about your life and financial goals. From there, you’re directed to a landing page with an annuity that may fit what you’re looking for. After a meeting with your financial advisor or retirement income specialist, you decide this annuity is right for you. You log back into your account you created and sign the contract for the annuity product. It’s an immediate annuity which means you begin to get payments directly deposited to your online bank account.
Why Consider a Digital Annuity?
In the above example you can see a few of the benefits of a fully digital experience.
Convenience: You can look for and research annuities from anywhere you have an internet connection.
Ease of Use: Annuities can be complicated insurance products. But with digital annuities, all the details are listed on the applicable webpage or app for review. With the advent of AI chatbots, getting help tailored to your specific needs will never be easier.
Security: With the advent of blockchain technology, security of your personal details and the transactions of your annuity may be more assured.
These are just some of the potential benefits of digital annuities. But that doesn’t mean that they may not have their cons.
What to Watch Out For
Some of the common downsides to annuities remain the same for the digital versions, such as: lack of liquidity, fees, relatively low interest rates, etc.
However, for digital annuities, there may be other downsides to consider.
Less tech savvy individuals may still have trouble navigating the digital world of annuities.
As digital annuities become more popular, cryptocurrency may become more of an option for investment and payment. This may open far greater risk to market volatility and potential government regulation.
Like all technology, blockchains will eventually be more targeted for fraud, hackers and other technology criminals.
Conclusion
Digital annuities represent the future of the annuity industry. Despite their modern approach, both digital and traditional annuities share the primary benefit of providing a steady income stream during retirement. Digital versions offer the added convenience of modern technology.
While digital annuities come with advantages, such as enhanced security through blockchain technology, they also have their downsides. Common issues include a lack of liquidity, fees, and relatively low interest rates. Additionally, less tech-savvy individuals may struggle with the digital aspect, and the involvement of cryptocurrency can introduce risks related to market volatility and government regulation. As with any technology, blockchains may eventually become targets for fraud and hacking.
To make an informed decision, it's highly recommended to discuss annuity options with your financial advisor or retirement income specialist.