What Is An Income Replacement Policy?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Income replacement is not usually an insurance policy (though some disability income policies could be called income replacement policies). Rather, it is a promise given by your employer to continue to pay your salary for some period of time if you become disabled (often for six months, or until you can be eligible for Social Security coverage). This saves the employer from the expense of purchasing a policy, but the employee takes the risk that the employer will not honor the promise.

In large companies with a human resources department and a personnel manual, the policy would be written out. In smaller companies, however, it may be only be a verbal promise from the employer. At the time of disability, the employer may be unable to fulfill the promise because of financial stresses. Or perhaps the boss who made the promise has left the company or died. Usually, a salary continuation promise is for a relatively short period such as few weeks or months. Often it is for up to six months. The disabled person can then apply for Social Security disability if he or she is still unable to work.

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