Long-term disability insurance is a type of insurance coverage that provides income replacement for employees who are unable to work due to a long-term disability or illness. It is designed to protect individuals from a loss of income and financial hardship when they are unable to perform the essential duties of their occupation for an extended period. Long-term disability insurance policies typically have a waiting period, known as the elimination period, before benefits start being paid. The coverage continues for a predetermined period, such as two years, five years, or until the individual reaches a certain age, depending on the policy terms. The benefit amount is usually a percentage of the employee's pre-disability income. This insurance helps employees maintain their financial stability and meet their ongoing expenses while they are unable to work due to a covered disability.

Example

A policy provided by an employer to its employees as part of their benefits package. Let's say John, an employee, suffers a severe injury that prevents him from working for an extended period. After a waiting period of 90 days, his long-term disability insurance kicks in. The policy covers 60% of his pre-disability income. As a result, John receives monthly benefit payments that help replace a significant portion of his lost income, allowing him to pay his bills, support his family, and maintain his standard of living during his recovery. The long-term disability insurance provides him with financial security and peace of mind while he focuses on his rehabilitation and eventual return to work.