A survey of 2,000 people carried out by Shepherds Friendly found that just 14% of people in full-time employment had income protection.
People aged 25-34 were more likely to be covered, with a fifth having a policy, followed by 35-44-year-olds at 18%. Just 14% of workers aged 18-24 had income protection, and only 10% of people in the 45-54 age bracket. Even fewer people over 55 years of age had cover, with 7% of those aged 55-64 having a policy.
Many people were unaware of income protection, as said by 70% of respondents, and Shepherds Friendly said this might explain why few people had cover.
Other respondents had incorrect assumptions about the product and their eligibility, with 47% believing someone’s current or past lifestyle, physical or mental health would prevent them from being accepted for income protection.
This assumption was higher among people aged 35-54, with 51% believing this.
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Factors workers believe would result in an income protection application being declined
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Chronic physical conditions, such as diabetes or arthritis
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40%
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Past medical issues, such as surgery or hospitalisation
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37%
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A health condition that’s being investigated/not yet diagnosed
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37%
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Drinking alcohol regularly
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33%
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A mental health condition
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30%
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The survey also revealed that people did not know what income protection covered. Some 69% said the product covered a policyholder’s salary if they were sick or injured, but 42% incorrectly believed it could be used to pay off a mortgage. Some 12% thought a lump sum was paid out in the event of death, and 12% believed it covered medical bills.
Further, respondents did not know what other financial support was available to people who were unable to work due to illness or injury.
Some 69% were unaware of how much statutory sick pay was, with 27% believing it was more than the current £118.75 per week for up to 28 weeks.
Around 45% of people said their employer paid more than the minimum statutory sick pay, but 34% said theirs did not and 21% did not know what they were entitled to.
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 income protection but also about the other financial safety nets available if they are unable to work, whether from the government or their employer.”
Advisers need to correct misunderstandings
Shepherds Friendly said, with data from the Association of British Insurers (ABI) showing that 97% of income protection products were sold with advice, advisers needed to dispel myths around the product.
The mutual asked respondents what would make them speak to a financial adviser about income protection, and 18% of those aged 18-34 said a social media presence, while 15% of the same age group said online reviews and testimonials.
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Factors that would make workers speak to an adviser about income protection
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Knowing it’s free (I won’t be paying broker’s fee)
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24%
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A free consultation
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23%
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Nothing would persuade me
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21%
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Clear, jargon-free advice
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14%
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A financial adviser with a strong social media presence
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9%
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Online reviews/testimonials
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9%
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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 income protection would represent a huge step forward in improving the financial resilience of the UK’s workforce.”
