With FMI's PIP, you get so much more!

Despite its obvious flaws, most advisers still choose Lump Sum disability cover (Capital Disability) to cover their clients for permanent disability. At FMI, however, we advocate a combination of Lump Sum and Permanent Income Protection (in the form of monthly Income Replacement Benefits). Focused on different needs, these benefits should be used in conjunction to ensure that your client is truly covered for permanent disability.

Most individuals believe that with Lump Sum they are covered for permanent disability. The truth is that a once-off lump sum benefit is not suited to replacing a future income stream (one of the key reasons individuals take out Income Protection). Permanent Income Protection, in contrast, is a much better fit for this need. As different forms of cover, Lump Sum and Permanent Income Protection cater for different types of risk and should be used together rather than as substitutes for each other.

Permanent Income Protection has been designed to ensure continuity of income over time, in line with inflation. Permanent Income Protection pays out a monthly income, until the Insured’s retirement or death (whichever is sooner). This means that the inflation, investment, and longevity risks for this kind of cover are held by the Insurer and in addition the premiums are tax deductible. Permanent Income Protection has established waiting periods and pays out for long temporary disabilities. Therefore, it is specifically designed to replace future income, sustaining the Insured’s lifestyle until the selected retirement age.

Lump Sum Disability has its place in permanent disability cover but it is not designed to insure future income. Instead, it should be used for once-off events such as repaying debts, business assurance, or making necessary lifestyle changes. A once-off payment, the risk lies with the Life Insured to invest the sum by making assumptions about future inflation. Lump Sum premiums are not tax-deductible and payment is only made once permanence has been established. As there is no guarantee as how long it will take to establish permanence, this could mean extensive financial strain for the client at an already stressful time.

What’s so special about FMI’s Permanent Income Protector (PIP)?
FMI’s BPE product offers a (compulsory) Temporary Income Protection benefit and suggests a combination of Capital Disability and PIP benefits to ensure complete permanent income protection.

With PIP, your client enjoys:

• Payment for a long temporary disability payment, after the established waiting period (permanence does not have to be established before payment is made)
• Cover for 100% of income or R150 000 per month (Traditional cover benefits tend to only offer 75% cover, FMI offers up to 100% cover on PIP)
• Option of occupation disability definition:
  • Own OR Own or Suited
  • Based on the Life Insured’s inability to perform their stated occupation and their loss of income.
• A choice of 4 benefit terms to retirement age (55, 60, 65, 70)
• A choice of 3 waiting periods (6, 12, 24 months)
• Benefit Escalation Options (annual review, re-instatement, annual benefit increase) that offer complete flexibility to adjust cover levels in line with changing income levels up to 20% annually without medical underwriting
• Additional benefits such as a Continuation Benefit (the option at chosen retirement age to continue the benefit for a further 5 years, up to a maximum age of 70, without further underwriting)
• Future insurability

What happens with a long temporary disability?
If your client’s portfolio is structured correctly, they should have both temporary and permanent income protection in place. Consider what would happen if your client’s temporary disability exceeded their TIP benefit term? If they only had Lump Sum cover in place, their disability would have to be declared permanent before a pay-out would be made. If, however, they had PIP in place, they would move seamlessly from a TIP claim into a PIP claim (with the waiting period on PIP being equivalent to the benefit term on TIP, on a 6 month option). They would then continue to receive benefits until they were able to return to work,

Most people don’t realise that to receive a lump sum pay-out for disability, permanence of the disability needs to be established. Until permanence is established, a Lump Sum Disability claim will not pay out. FMI’s PIP, in contrast, will pay for a long temporary disability and then a permanent disability, if required, therefore providing your client with uninterrupted cover until they retire.

To read more about how FMI can help you re-structure your client’s portfolio with the right combination of Lump Sum Disability cover and Permanent Income Protection, visit our website.