Zurich UK Life's chief executive has written to Chancellor George Osborne ahead of the Budget calling for tax rebates to boost income protection (IP) take-up.
The insurer made this step following its new study, Income Protection - working together to improve take-up, conducted by economist Kyla Malcolm.
Zurich UK Life's CEO Gary Shaughnessy shared the results of this research and urged the government to stimulate an under-insured market by introducing a temporary annual tax-rebate of £50 per insured person.
This would be available to companies offering income protection to employees, and to people taking up the insurance privately.
Shaughnessy said:"Temporary tax rebates could work well as a shot in the arm to the market, stimulating the uptake of protection-type cover, and we encourage the Government to consider our proposal."
Zurich's proposed tax rebate would last two years and would be targeted at employers and those earning between £20,000 and £41,000 a year.
The report found a rise the take up of income protection insurance would save the government and taxpayers hundreds of millions of pounds as well as delivering benefits to sick and disabled people.
It also found that income protection already saves the government and taxpayers £185m each year, but has the potential to go much further.
If the levels of income protection provided through employers in the UK (currently 9%), reached those of the US (35%), the benefit to the taxpayers and the Government would be £725m per year in annual savings, with claimants covered by the insurance better off by £820m per year.
Zurich calculated that the cost of a rebate to government would be around £300m over two years.
This cost could be directly funded in less than two years from the annual £185m worth of savings that the government is already making from the current level of income protection as a result of saved welfare benefits, increased tax revenue and rehabilitation services, the insurer said.
The research concluded that 13.5m people could benefit from income protection, compared to 3.6m who currently have cover through their employer or privately.
