LifeSearch has accused providers of commuting Family Income Benefit (FIB) payments into lump sum payments and called for the practice to stop.
Matt Morris, policy adviser at LifeSearch, says: "The best-laid plan to protect a customer's family with FIB is often thwarted at claims stage when insurers offer the option to commute the benefit into a lump sum.
"Beneficiaries often do not know the benefits of receiving an income and often go for the tempting lump sum. This reduces the insurer's administration costs, but means that the policy fails to do what it was bought for - to provide a long-lasting income."
He says taking the time to explain FIB to a customer is pointless if the beneficiaries end up taking a lump sum.
"The practice of commutation should be re-thought so that those taking out a policy know that their families will have the regular income they want them to have," he adds.
Aiden Dewhurst, IFA marketing manager at Progress from Royal Liver, admits the practice happens, including at Royal Liver.
However, he says it is on a "case by case" basis adding: "We do this on occasion, and sometimes it is a valid option. But we always encourage the client to take this up with their IFA before making the decision. Advice is always key."
Tom Baigrie, managing director of LifeSearch, adds the company could take this issue on as a new goal, following campaigns over CIC claim statistics publication and premium reductions on exclusions.
