We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is an Income Replacement?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Income replacement is the process of replacing lost income, due to factors such as extended illness, a permanent injury, or even retirement. The goal of income replacement is to substitute some other source of income for at least a portion of the lost income, usually enough to allow the individual to continue enjoying a standard of living that is similar to what he or she has enjoyed previously. Depending on the lifestyle of the individual, this usually means seeking income replacement that amounts to anywhere between sixty and ninety percent of the previous income.

In situations where employees are unable to continue working due to illness or injury, there are two different approaches that may be implemented in order to manage income replacement. One approach has to do with provisions found within the employment contract. It is not unusual for employers to include a clause that guarantees the employee will continue to receive his or her usual salary for a limited period of time after being declared disabled by a qualified medical professional. Often, this clause allows the employee to enjoy a continued monthly income long enough to qualify for other forms of support, such as a government sponsored disability program.

A second approach to income replacement has to do with maintaining insurance that guarantees some type of monthly income in the event of illness or permanent disability. While the names for this type of coverage vary somewhat around the world, many insurance providers who offer this type of coverage will refer to it as income replacement benefits. Generally, this type of coverage will not equal the monthly salary or wages normally generated by the insured party, but will provide a fixed monthly benefit. With this approach, it is up to the consumer to determine how much income is needed to maintain a decent standard of living, and structure the insurance coverage accordingly.

With retirement, income replacement involves the activation of other sources of income to maintain the standard of living. The retirement income often is composed of processed from a pension fund that was established through the employer, and any government supported program that the employee paid into each pay period over the years. Depending on the tax laws that apply, the retiree may owe taxes if his combined income replacement exceeds a certain amount annually.

While there are situations where employers may offer income replacement outside of the employee contract, such as in a verbal agreement, this type of arrangement can be somewhat risky. Should the officer who provided that verbal assurance die or choose to leave the company, proving that the agreement was ever made may be extremely difficult. For this reason, including the replacement assurance within a written document is highly recommended.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

Malcolm Tatum

Malcolm Tatum


Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.