Ryan FowlerNew research from Shepherds Friendly suggests misconceptions about income protection may be a major factor behind the persistently low take-up of the product among the UK workforce.
A survey of 2,000 people carried out in October found that just 14% of full-time UK adults have income protection, with uptake varying widely by age group.
The findings show 20% of 25-34-year-olds have cover, followed by 18% of those aged 35-44. Some 14% of 18-24-year-olds hold a policy, falling to 10% among 45-54-year-olds and just 7% of those aged 55-64.
Despite low ownership levels, 70% of respondents said they were aware of income protection, indicating that lack of awareness is not the primary barrier.
Instead, the research points to incorrect assumptions about what affects eligibility. Some 47% of respondents believe someone’s current or past lifestyle, physical health or mental health would automatically prevent them being accepted for a policy.
This view is most common among those aged 35-54, at 51%. Large proportions also believe chronic conditions, past medical issues, undiagnosed health symptoms, regular alcohol consumption or mental health issues would result in an automatic decline.
The survey also highlights widespread misunderstanding about what income protection covers. While 69% correctly believe it pays income if someone is sick or injured, 42% think it pays out in redundancy, 13% believe it pays off a mortgage, 12% think it pays a lump sum on death and 12% say it covers medical bills.
Many workers are also unaware of other available financial support. Some 69% of full-time workers did not know the level of statutory sick pay.
When told it is £118.75 per week for up to 28 weeks, 27% said it was lower than expected. While 45% said their employer provides enhanced sick pay, 34% said theirs does not and 21% were unsure.
Phil Nash, chief sales officer at Shepherds Friendly, said: “It’s well-known that Income Protection is underutilised, but it’s often assumed this is due to a lack of awareness.
“The results of this survey were therefore striking in revealing the level of misconceptions surrounding the product. It is concerning that so many workers are misinformed, not just about IP but also about the other financial safety nets available if they are unable to work, whether from the government or their employer.”
The research also underlines the importance of advice, with the Association of British Insurers reporting that 97% of income protection products are sold with advice.
Nash said: “It’s clear there’s a real opportunity here for advisers and intermediaries.
“If they can educate their clients on what Income Protection covers, as well as highlight the potential gaps in the other support available in the event of illness or injury, there’s a significant chance more workers will see its value.
“Increasing the take-up of IP would represent a huge step forward in improving the financial resilience of the UK’s workforce.”
The survey asked workers what would encourage them to speak to a financial adviser, revealing that cost transparency and easy access are the strongest motivators.
Free advice or a free consultation were most likely to prompt engagement, while 21% said nothing would persuade them.
Younger workers were more open to advice and more influenced by social media presence and online reviews than the general population.
Younger people are also more likely to consider a mutual such as Shepherds Friendly when exploring income protection, with 60% of 18-24-year-olds and 56% of 25-34-year-olds saying they would be more likely to choose one, compared with 38% overall.
