What Is Income Replacement Insurance?

Income Replacement Insurance DefinitionIncome Replacement Insurance Definition

Key Takeaways

  • Income replacement insurance provides a portion of the insured person's income in the event of disability or illness.
  • Income replacement is a significant reason why people purchase insurance, as it helps ensure financial stability for their families.
  • Millennials are more likely to purchase life insurance due to the COVID-19 pandemic.
  • Life insurance ownership has slightly declined, but the pandemic has raised financial awareness, potentially leading to an increase in coverage.
  • IncomeSense is a decreasing term insurance product that provides monthly payments based on the insured person's income and expenses.

If your spouse dies or you lose another significant wage earner in your household to death, it's possible that you could face financial challenges because of the loss of that person's income.

According to LIMRA, about 4 in 10 families reported that they'd likely face financial hardship within six months if the primary wage earner die. For of 1 in 5 families, it would be within just one month.1 However, life insurance could potentially act as income replacement insurance in the event of the loss of a primary earner.

Surviving Spouses Typically Face Financial Hardship

As difficult as it is to consider, it's a fact that one spouse will almost always outlive the other. According to Statista research, there were about 45 million widows and widowers in the United States in 2023.2 Meanwhile, research from the Insurance Information Institute has also shown that, while just 5% of married women between the ages of 51 and 64 are poor, poverty typically increases by 20% among widows of the same age.3

To avoid falling on the wrong side of these statistics, it might be a good idea to consult with a financial representative to determine whether purchasing life insurance is right for your — and your family's — financial future. 

COVID-19 Has Helped Raise Awareness

The COVID-19 pandemic has given new urgency to people's need to purchase life insurance as income replacement. 

Pandemic and Likeliness of Buying Life Insurance

39% of consumers agreed that the pandemic made it more likely they will buy life insurance within the next year.4

This was most pronounced among millennials, the generation between 22 and 40 years old. In the LIMRA study, 50% of that age group reported they were more likely to buy life insurance because of the pandemic. The needs among this generation are high, as two-thirds reported having dependents under the age of 18 living in their households.

Finding Income Replacement Through IncomeSense

With the loss of that wage earner, their spouse or loved ones would still be left to determine how to pay ongoing expenses, such as a mortgage or rent, as well as utilities and other costs of running a household that don't go away after a death.

With Western & Southern's latest solution, IncomeSense, individuals can help better protect their family in the event something happens to them. The decreasing term insurance product provides monthly payments for the life of the policy, which is designated to differ from most level term products that offer a large one-time payout.

That's not the only advantage IncomeSense has over level term options. It is designed to be less expensive and can be easier to obtain. The declining monthly payments allow clients to pay for only the coverage they need and help protect the years that matter most. Additionally, it's easier for purchasers to determine monthly coverage needs (due to it being based on their monthly income and expenses) and it can be easier for beneficiaries to receive monthly payments.

Sources

  1. Life Insurance Awareness Month 2023. https://www.limra.com/en/newsroom/liam/.
  2. Marital status of the United States population in 2022, by sex. https://www.statista.com/statistics/242030/marital-status-of-the-us-population-by-sex/.
  3. Do "empty nesters" need life insurance? https://www.iii.org/article/do-empty-nesters-need-life-insurance.
  4. New Study Shows Interest in Life Insurance at All-Time High in 2023. https://www.limra.com/en/newsroom/news-releases/2023/new-study-shows-interest-in-life-insurance-at-all-time-high-in-2023/.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.