British workers are among the worst protected among their peers in the Organisation of Economic Co-operation and Development (OECD) and government incentives should address it, according to a new report.
The research also found that those earning between £16,000 and £50,000 a year are most at risk should they be unable to work due to sickness or disability as state benefits will not maintain their standard of living.
Think tank Demos, who produced the study, suggested the government should introduce incentives to promote protection take-up, something endorsed by Unum.
The provider supported the study's production and Jack McGarry, its UK CEO, told COVER that awareness of the risks needs to be raised alongside incentives for employers and employees.
"One of first things employers tell us about why they don't offer income protection (IP) is because their employees don't appreciate it and they've never been asked about it so we need to build awareness," he said.
"They're suggesting National Insurance (NI) rebates and personally I think they could go all kinds of routes. One incentive could be to waive NI on people who are covered for IP as the government spends money on those people who are not covered.
"The government could provide incentives to employers through NI rebates or other tax incentives to really give employers a bit of a nudge to think about providing this insurance.
"And there could be individual incentives certainly when the employee is paying for the benefit, but before that happens on mass, people need to be educated about the risk," he added.
Britain came just 8th scoring just 44 out of 100 in the Index of Financial Protection compiled by Demos, 16 points lower than the USA (60).
This also placed it well below other similar nations including Canada, Germany, France, Netherlands and Scandinavian countries in terms of employee protection in case of ill health.
The Index measured the level of protection employees have in the case of ill health from both the state and private sector and found a strong correlation between the level of state protect and private protection that showed, it claimed, that private insurance can strengthen state support.
While private protection in Britain was predictably poor at 26, the level of state support was worse than expected at 61, 7 points below state welfare in the USA.
The report found that the ‘squeezed middle' (people earning between £16,000 and £50,000) is severely let-down by state benefits in the case of ill health.
It critcised the Employment and Support Allowance for ‘penalising savers and homeowners by means testing for savings above £16,000, punishing good financial planning and leaving middle earners more open to the financial shock in the case of unemployment'.
