I sold my client a family income benefit (FIB) plan which has subsequently been claimed on. However, I was surprised to discover that the provider convinced my client to take the benefit as a lump sum instead. Should the adviser be informed about this part of the process, and why do providers do it?
Alan Lakey, Highclere Financial Services
Having a capital sum option on an FIB plan is eminently useful as there may be circumstances where opting for a discounted sum is more appropriate than a continuing income. However, I would suggest such circumstances are not that frequent and this raises the question of whether insurers are influencing recipients or whether the naked attraction of a capital sum is to blame.
The purpose of a family income plan is self-descriptive and these plans serve a clear purpose of providing a tax-free income during defined periods, typically when children are young and financially dependant. These plans are low cost because the potential payout reduces at the same time as the risk increases.
It would be creditable if insurers joined advisers in the decision process but, as we know, they have for many years been seeking ways of cutting costs and adviser interaction has been one of the casualties. In truth, any adviser worthy of the name would be in contact with the beneficiary of a life or critical illness plan to ensure that the claim process runs smoothly during a time of grief.
Clearly there is an incentive for insurers in that paying a capital sum closes the book and reduces ongoing administration, however, it would be unethical if this is the rationale for these decisions.
In truth, little surprises me these days of foolish consumers, devious insurers and myopic regulators. The only solution is to insist that insurers automatically inform advisers of a claim and for the adviser to take it from there.
Ian Smart, Bright Grey
Family income benefit is an extremely useful tool for IFAs in putting together a cost effective protection plan to meet their client's current needs.
But most people recognise that those needs may change over time and so what was put in place maybe ten years ago may not be the best option at the time of a claim. This is why providers will often allow the claim to be commuted to a lump sum at the request of those entitled to the proceeds.
But it is not just providers that think this is a good idea. Recent research by Scottish Provident shows that nearly three quarters of IFAs believe clients or their representatives should be given a choice between receiving a lump sum or an income at the time of the claim.
At Bright Grey, unless the client specifically requests otherwise, we always inform the IFA of any claim and keep them updated with progress. Where a commuted value is offered we make clear the different amounts payable and encourage the claimant to speak to their adviser before making a decision on which to take.
I would be very surprised to see any provider actively encouraging claimants to take the lump sum. Anyone doing so without taking into account the claimants circumstances would be leaving themselves open to a claim of not treating their customers fairly. But not making the claimant aware of this option could also give rise to this claim if their circumstances had changed such that a lump sum is now more appropriate.
Ian Jefferies, Fortis Life UK
Like most providers, Fortis Life offers customers the opportunity to commute a Family Income Benefit claim from monthly benefit payments into a lump sum to suit their individual needs. However, as a provider we would not offer advice or give a recommendation to the customer to do so - it is very much the customer's choice.
The amount of this lump sum will not be as much as the remaining monthly benefit payments added together and we would explain to the customer what the lump sum would be when they ask to change the benefit.
Like many decisions that individuals have to make about protection, choosing between monthly benefit payments and a lump sum can be complex and confusing. Therefore we would always recommend that the customer speaks to their financial adviser in order to work out the best course of action.
A FIB plan would have been set up specifically to provide a regular income and it is important that beneficiaries are not drawn to the temptations of receiving a large lump sum that may ultimately not meet their longer term needs.
We believe that advisers should be kept informed about anything material that affects their client's cover - whether that be underwriting decisions, changes to cover or claims - and our systems and processes have been developed to support this philosophy. Through the provision of real time updates an adviser is immediately aware of the status of a particular case.
This means that the adviser remains in the driving seat and can therefore maintain the relationship with their client, recommending appropriate solutions to meet their needs.
