I have a client making a claim on a critical illness (CI) policy. The provider is suggesting they take a lump sum payment rather than the family income benefit (FIB) they originally bought. I realise there are various arguments for each side, but what would be the one that swings it toward FIB?
Matt Foster
Ageas Protect
Although Ageas Protect doesn't offer a CI FIB option, there is a case for a regular income over lump- sum payment.
The lump sum may seem quite attractive to customers and could be used, for example, to fund home adaptations required following a critical illness or injury.
But a regular income does make it easier for customers to budget against, and is therefore less likely to run out unexpectedly and will continue to meet their financial needs in the long-term.
This is particularly important if you want to ensure your dependants are going to be adequately provided for - for example, if they are considering continuing into higher education given the ever-rising costs.
Customers should also be aware that taking the benefit as a lump sum may result in a lower overall payment as some providers may reduce the payment when commuting the monthly benefit into a lump sum.
You should check what the provider's stance is before accepting the lump sum as your clients may be better off in the long-term by sticking with the regular monthly payments. So asking questions such as:
"What assumptions do you apply when calculating future indexation increases?" is important.
Where CI is sold to protect income, setting the policy up on a FIB basis helps.
However, the buyer needs to be conscious that income protection will typically provide more comprehensive cover than CI where the intention is to protect against your ability to do work or provide a replacement income.
Total and Permanent Disability has its limitations as we know and that's why Ageas Protect developed Temporary Disability to fill the gap.
