New research from Shepherds Friendly suggests misconceptions about Income Protection (IP) could be behind the persistently low take-up of the product among the British workforce.
A survey of 2,000 people carried out for the friendly society in October found that just 14% of UK adults who are working full-time have IP. Those aged 25-34 are most likely to have cover at 20%, closely followed by 35-44-year-olds at 18%. Some 14% of 18-24-year-olds have IP, but this falls to 10% in the 45-54 age group. Just 7% of those aged 55-64 have a policy in place.
However, the survey revealed that the vast majority (70%) are aware of the product, meaning lack of awareness is unlikely to be the reason employees are failing to safeguard their earnings.
Instead, the survey findings suggest incorrect assumptions about what might prevent someone from being accepted for a policy could be to blame. Some 47% of respondents said they believed someone’s current or past lifestyle, physical health or mental health would automatically stop them from being accepted for IP, with this assumption highest among those aged 35-54 (51%).
| Factors workers believe would result in an IP application being declined | |
| Chronic physical conditions, such as diabetes or arthritis | 40% |
| Past medical issues, such as surgery or hospitalisation | 37% |
| A health condition that’s being investigated/not yet diagnosed | 37% |
| Drinking alcohol regularly | 33% |
| A mental health condition | 30% |
There are also widespread misconceptions about what is covered by IP. While 69% of respondents think IP pays one’s salary if they are sick or injured, 42% incorrectly believe it pays out in the case of redundancy. A further 13% believe it pays off one’s mortgage, 12% think it pays out a lump sum in case of death, and 12% are under the impression it covers medical bills.
Worryingly, the survey also found that many workers are unaware of what other financial support is available if they become unable to work due to illness or injury. Some 69% of full-time workers did not know how much statutory sick pay was; when told the current amount is £118.75 per week for a maximum of 28 weeks, more than a quarter (27%) said this was less than they thought.
Further, while 45% of employees said their employer offers sick pay beyond the statutory minimum, more than one-third (34%) said theirs does not, while 21% don’t know what they are 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 IP but also about the other financial safety nets available if they are unable to work, whether from the government or their employer.”
The role of advice
According to the Association of British Insurers, 97% of IP products are sold with advice, highlighting the importance of advisers in dispelling myths around the product.
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 also asked workers what would prompt them to speak to a financial adviser about IP, revealing cost transparency and ease of access were the strongest motivators.
| Factors that would make workers speak to an adviser about IP | |
| Knowing it’s free (I won’t be paying brokers’ fee) | 24% |
| A free consultation | 23% |
| Nothing would persuade me | 21% |
| Clear, jargon-free advice | 14% |
| A financial adviser with a strong social media presence | 9% |
| Online reviews/testimonials | 9% |
Interestingly, while social media presence and online reviews/testimonials were the lowest swaying factors overall, for workers aged 18-34, these scored much higher, at 18% and 15%, respectively. Younger people are also more open to engaging with advisers, with only 5% reporting that nothing would persuade them to speak to an adviser about IP – this was much lower than the overall percentage of 21% who said the same.
Young people are also more likely to consider a mutual society, such as Shepherds Friendly, when exploring IP. While overall, 38% of workers said they’d be more likely to consider a mutual for IP, this rose to 60% for 18-24-year-olds and 56% for 25-34-year-olds.
Phil Nash is Chief Sales Officer for Shepherds Friendly
