Definition
Insurance that replaces part of your income, commonly 40-70%, if illness or injury keeps you from working. Short-term policies cover weeks to months; long-term policies can pay until recovery or retirement age.
Why it matters
Your ability to earn is likely your largest asset, bigger than the house. A long illness with no income protection can undo decades of saving, which is why long-term coverage matters most for sole earners and specialized careers.
Example
A $70,000 earner buys long-term coverage replacing 60% of income. If a back injury ends their ability to do their job, the policy pays about $3,500 a month, keeping the mortgage and retirement contributions alive while they retrain.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.