Shepherds Friendly has warned that misconceptions about income protection may be a central reason why so few full-time workers hold cover, even though most are aware that the product exists.

A survey of two thousand adults carried out for the friendly society in October found that just 14% of UK adults working full time have income protection.

Those aged between 25 and 34 are the most likely to have cover at 20%, followed by 18% of 35 to 44-year-olds.

Some 14% of 18 to 24-year-olds have income protection, falling to 10% in the 45 to 54 age group and 7% among those aged between 55 and 64.

The survey also shows that 70% of respondents are aware of income protection, suggesting that low take-up is not primarily driven by lack of awareness. Instead, the findings point to widespread misunderstandings about who can obtain cover and what it will pay for.

MISUNDERSTANDINGS ABOUT ELIGIBILITY

According to Shepherds Friendly, one of the most striking findings concerned perceptions of who would be accepted for a policy. Some 47% of respondents said they believed a person’s current or past lifestyle, physical health or mental health would automatically prevent them from being accepted for income protection.

This assumption was most prevalent among those aged between 35 and 54, where 51% took this view.

When asked which factors they thought would result in an application being declined, 40% pointed to chronic physical conditions such as diabetes or arthritis.

Past medical issues, including surgery or hospital stays, were cited by 37%, while another 37% highlighted health conditions that were still being investigated or not yet diagnosed.

Regular alcohol consumption was mentioned by 33%, and 30% said they believed a mental health condition would lead to a declined application.

CONFUSION OVER WHAT INCOME PROTECTION COVERS

The research also suggests that many workers misunderstand what income protection is actually designed to cover. While 69% correctly said that it pays an income if someone is unable to work because they are sick or injured, 42% believed it would pay out in the event of redundancy.

A further 13% thought it would pay off the mortgage, 12% believed it pays a lump sum in the event of death and 12% were under the impression it covers medical bills.

There is also limited understanding of the other financial support available if someone cannot work because of illness or injury. Some 69% of full-time workers did not know the level of statutory sick pay. When told that it currently stands at £118.75 per week for up to 28 weeks, 27% said this was less than they had expected.

Although 45% of employees said their employer offers sick pay beyond the statutory minimum, more than one third at 34% said their firm does not, while 21% do not know what they are entitled to.

THE ROLE OF ADVICE

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 association of British insurers reports that 97% of income protection products are sold with advice, underlining the role of advisers in tackling these misunderstandings and explaining how policies are underwritten in practice.

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.”

WHAT DRIVES WORKERS TO SEEK ADVICE?

The survey also explored what might prompt workers to speak to a financial adviser about income protection, with cost transparency and ease of access emerging as the strongest motivators.

Some 24% said knowing that advice would be free, with no broker fee to pay, would encourage them to engage, while 23% said a free consultation would make a difference.

However, 21% said nothing would persuade them to speak to an adviser about income protection.

Clear, jargon-free advice was cited by 14% as a reason to make contact. A financial adviser with a strong social media presence was a factor for 9% of respondents, with 9% also saying that online reviews or testimonials would influence them.

Younger workers were more likely to be swayed by digital and reputational signals. Among those aged between 18 and 34, 18% said that a strong social media presence would encourage them to speak to an adviser, while 15% pointed to online reviews or testimonials.

Only 5% of workers in this age group said nothing would persuade them, compared with the overall figure of 21%.

The research also suggests that younger adults are more open to mutual providers. Overall, 38% of workers said they would be more likely to consider a mutual such as Shepherds Friendly for income protection.

This rose to 60% for 18 to 24-year-olds and 56% for those aged between 25 and 34.

For advisers and intermediaries active in the protection market, Shepherds Friendly argues that the findings underline both the scale of the misconceptions and the potential opportunity to address them through clearer conversations about eligibility, benefits and the limits of other forms of support.