New findings from Shepherds Friendly indicate that widespread misconceptions are a significant factor behind the low take-up of income protection among full-time UK workers.
A survey of 2,000 adults carried out in October found that just 14% of full-time workers have an income protection policy. Uptake is highest among those aged 25 to 34 at 20%, followed by 18% of 35 to 44-year-olds. Some 14% of those aged 18 to 24 reported having cover, falling to 10% in the 45 to 54 age group and 7% among 55 to 64-year-olds.
ELIGIBILITY MISUNDERSTANDINGS
The research suggests low uptake is not due to lack of awareness, with 70% of respondents saying they had heard of income protection. Instead, many held incorrect assumptions about what would prevent someone from being accepted for cover.
Some 47% believed that current or past lifestyle, physical health or mental health issues would automatically result in an application being declined. This was highest among those aged 35 to 54 at 51%.
Chronic conditions such as diabetes or arthritis were the most frequently cited barrier at 40%, followed by past medical issues at 37% and ongoing or undiagnosed health investigations at 37%. A regular alcohol intake was cited by 33% and mental health conditions by 30%.
CONFUSION ABOUT COVER
The survey also found confusion about what income protection covers. While 69% correctly said the product provides an income if someone is unable to work due to illness or injury, 42% incorrectly believed it pays out in the event of redundancy.
Smaller proportions thought it pays off a mortgage, provides a lump sum on death or covers medical bills.
Misunderstandings extend to other financial support. Some 69% of full-time workers did not know the current level of statutory sick pay. When told it is £118.75 per week for up to 28 weeks, more than a quarter said it was lower than expected. Although 45% said their employer offers enhanced sick pay, one third 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.”
He said: “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.”
OPPORTUNITY FOR ADVICE
The Association of British Insurers reports that 97% of income protection policies are sold with advice, highlighting how important advisers are in supporting consumer understanding. Nash said advisers can play a critical role in explaining what income protection covers and pointing out gaps in state or employer support.
He said: “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.”
WHAT DRIVES ENGAGEMENT WITH ADVISERS
The research also looked at what would prompt workers to speak to a financial adviser. Knowing the service is free was the strongest motivator at 24%, followed by a free consultation at 23%. Clear, jargon-free advice appealed to 14%. Some 21% said nothing would persuade them to speak to an adviser.
The importance of online presence varied significantly by age. Among workers aged 18 to 34, 18% said an adviser’s social media presence would encourage them to make contact, while 15% cited online reviews. Only 5% in this age group said nothing would persuade them, compared with 21% overall.
Younger adults were also more likely to consider a mutual provider for income protection. While 38% of all respondents said they would be more likely to choose a mutual, this rose to 60% among those aged 18 to 24 and 56% of those aged 25 to 34.
