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What to Know About Income Replacement Insurance

A woman reviews paperwork and researches income replacement insurance

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.

Financial Hardship

44% of families reported that they'd likely face financial hardship within six months if the primary wage earner died.1
For 28% of that total, it would be within just one month. However, life insurance could potentially act as income replacement insurance in the event of the loss of a primary earner.

So, why buy life insurance for income replacement? These policies can help compensate family members when an income earner dies and serve as income replacement insurance for the lost wages.

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 15 million widows and widowers in the United States as of 2020. 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.

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.

In fact, research shows that income replacement is a leading reason why people buy insurance. A 2020 study from Insurance Barometer found that 55% of people who buy insurance cite income replacement as a reason for purchase.

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

31% of consumers agreed that the pandemic made it more likely they will buy life insurance within the next year.2

This was most pronounced among millennials, the generation between 22 and 40 years old. In the LIMRA study, 45% 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.

At the same time, life insurance ownership has fallen slightly. According to LIMRA, 52% of Americans reported having coverage in 2021, down from 54% in 2020, which is the lowest rate over the last 10 years. The most recent high point was in 2011, when 63% of American adults reported having life insurance.

But that rate may increase as the virus continues raising financial awareness. The LIMRA report noted that 42% of Americans would face financial hardship within six months of the unexpected death of a primary wage earner.

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.

Likely to Buy Life Insurance

63% of insurance buyers want life insurance to be able to replace 10 or more years of income should a wage earner die.2

Just 11% think two years or less of income would be enough. 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 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.

Live More & Worry Less

Live More & Worry Less

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1 "2020 LIMRA." njltc.com, New Jersey Life and Health Insurance Guaranty Association, www.njltc.com/documents/2020%20LIMRA.pdf.

2 "Study Finds COVID-19 Spurs Greater Interest in Life Insurance." LIMRA, www.limra.com/en/newsroom/news-releases/2021/study-finds-covid-19-spurs-greater-interest-in-life-insurance/.

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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.