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Disability insurance is designed to provide policyholders with income when they are unable to work due to a disability. This type of insurance replaces a portion of the policyholder’s earnings, helping to maintain financial stability during a period when they cannot engage in their regular work due to an injury or illness. The primary purpose of disability insurance is to protect against the loss of income and ensure that policyholders can meet their living expenses while they are recovering.

The other options describe different types of insurance coverage. A fixed payout for accidents pertains to accidental death or specific accident insurance, which is distinct from disability coverage that focuses on income loss. Coverage for long-term care needs relates to a different form of insurance altogether, usually addressing costs associated with ongoing help for daily living activities. Similarly, retirement income benefits are associated with retirement plans rather than disability income. Thus, the focus of disability insurance on replacing lost income due to an inability to work due to disability is what makes it the correct answer.