Monthly protection income trumps lump sum

Monthly protection income trumps lump sum

The majority of people would prefer a protection policy which offers a monthly income rather than a lump sum payment, an Aegon survey has suggested.

The insurance provider’s latest figures show 58 per cent of individuals would prefer protection cover which pays on a monthly basis.

Some brokers have suggested the monthly option could reduce the price of a policy though they questioned the popularity of these plans.

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Alan Lakey, founder of CI Expert, said taking out a family income benefit with monthly payments rather than a level term plan was likely to be 40 per cent cheaper for the customer - because the plan poses a lower risk to the insurer and therefore lowers the cost.

Mr Lakey said: "Family income benefit is the perfectly designed plan to replace the income of the person that died, but it is undersold with a tendency for people to forget that it exists."

Peter Chadborn, director at Plan Money, said traditionally not every provider has offered family income benefit due to consumer perception that a lump sum payment would be preferable over a monthly income.

Mr Chadborn said: "Protection is often seen as a reluctant purchase, and therefore the prospect of a bigger lump sum payment can often be more attractive than the smaller amounts offered monthly. 

"But there is an argument in the industry as to why family income benefit is not more widely accessible, because it does work out a lot cheaper."

However, Mr Chadborn said that although Aegon's survey results contradict traditional perceptions in the industry, perhaps they showed consumer thinking was beginning to change.

Aegon recently added critical illness, family income benefit and life with critical illness and family income to its online protection application service - all products which pay a monthly income.

Simon Jacobs, head of underwriting and claims at Aegon, said there would always be a need for cost-effective critical illness solutions.

Mr Jacobs said: "Earlier this year, we promised to deliver a series of improvements to our online protection service to save advisers time and improve their online experience - we are pleased to release the next of these as we continue to invest in our protection business to help people achieve a lifetime of financial security."