Asbestos victims have rejected a "morally bankrupt" proposal for James Hardie to ditch lump sum compensation packages in favour of installment payments.

The fund set up to compensate victims of James Hardie’s building products warns it will face a shortfall by 2017 and wants to change how it handles payouts to sufferers.

The Asbestos Injuries Compensation Fund is seeking NSW Supreme Court approval to pay compensation to victims in instalments, rather than lump sums to help prevent it running out of money.

It expects to pay out more than $500 million in the next three years and if the court approves the proposal, victims and their families will be subjected to the new payment scheme from July 2015.

But the fund says the switch to instalment payments could be avoided if the NSW government increases its loan to the fund from around $214 million to $320 million.

The Asbestos Diseases Foundation of Australia has hit out at the plans and says that if the fund runs short, it’s up to James Hardie, not the government, to top it up.

“To try to weasel out of putting extra money in, is morally bankrupt in my mind,” ADFA president Barry Robson said on Monday.

“They created the problem, they are the ones that came up with this product, they are the ones that made millions and millions of dollars on it, they are killing Australians … they must pay and do it in lump sums, not in instalments.”

Mr Robson said paying by instalments would put victims and their families under additional financial hardship.

“Asbestos victims don’t die in instalments, they don’t lose the ability work or care for themselves in instalments, yet James Hardie wants to see them compensated in that way,” he said.

In a statement, James Hardie said it was open to discussions on the proposed scheme but remained committed to meeting its compensation obligations.

The building products giant has paid more than $721 million into the fund since 2007.

It has committed to pay out up to 35 per cent of its net operating cashflow to the fund until at least 2045.

It paid almost $120 million to the fund on July 1.

By Evan Schwarten