The Asset You Didn’t Insure
You have AppleCare on your phone. You carry comprehensive coverage on a car that depreciates the second you drive it off the lot. And there’s a decent chance you have no idea what happens to your paycheck if you can’t work for a year.
Your ability to earn is the largest asset you own, by a wide margin. A 32-year-old engineer making $180,000 a year has a future income stream worth millions of dollars if you just add up the paychecks between now and 65. Nobody insures it properly, because nobody sells it as aggressively as they sell you a rental car add-on. The two products that actually protect that asset, disability insurance and term life insurance, are boring, cheap relative to what they cover, and constantly get crowded out by flashier pitches. Let’s fix that, starting with the one that’s more likely to matter.
Disability First, Because It’s the More Likely Claim
Life insurance pays out when you die. Disability insurance pays out when you can’t work, and that happens to a lot more people than dying young does. A serious back injury, a cancer diagnosis that takes you out of the workforce for eighteen months, a mental health crisis that costs you your job and your ability to get another one for a while: these are common events across a working lifetime, far more common than dying in your 30s or 40s. Insurers know this. It’s why disability coverage exists as a product at all, and why it’s priced the way it is.
Most tech employers offer group long-term disability (LTD) as a benefit, and most employees assume it’s enough. It isn’t. Group LTD has four structural problems that quietly leave high earners exposed.
It replaces a fraction of base salary, not total comp. Typical group LTD policies replace around 60% of base salary. If your compensation is heavily weighted toward bonus, RSUs, or commission, and in tech that’s most people, the 60% figure applies to a number that’s smaller than what you actually live on.
It’s capped at a monthly maximum. Group plans usually cap the monthly benefit somewhere in the $8,000 to $15,000 range regardless of your salary. High earners blow through that cap fast.
It’s often taxable. Here’s the rule that trips people up: if your employer pays the LTD premium with pre-tax dollars (the standard setup for a free group benefit), the benefit you receive if you ever claim it is taxable income. If you pay the premium yourself with after-tax dollars, the benefit is tax-free. Group LTD is almost always the first kind. So the number quoted in your benefits portal, “60% of salary,” is the pretax figure. What actually lands in your account is less.
It disappears when you leave the job. Unlike a portable individual policy, group LTD doesn’t come with you. If you get laid off while dealing with a health issue, or you leave to freelance, the coverage ends when your employment does, right when your income is already uncertain.
Here’s what that stacks up to in practice. Take an engineer earning a $220,000 base with total comp around $370,000 once bonus and RSUs are included. Group LTD at 60% of base would nominally pay $132,000 a year, but the plan caps the monthly benefit at $10,000, so the actual payout is $120,000 a year. Because the employer paid the premium pretax, that $120,000 is taxable, and at a reasonable effective tax rate around 30%, the after-tax benefit comes out to roughly $84,000 a year, about $7,000 a month. Against a $370,000 total comp package, that’s about 23% of what this person actually used to bring home. That’s the gap: not a rounding error, a structural hole big enough to force a house sale.
Own-Occupation vs. Any-Occupation: The Term That Matters Most
If you read nothing else in a disability policy, read the definition of disability. This single clause determines whether the policy is worth the paper it’s printed on.
Own-occupation means you’re covered if you can’t perform the specific job you were trained for and working in when you became disabled. A surgeon who develops a hand tremor and can’t operate anymore gets paid, even if she’s perfectly capable of teaching or consulting.
Any-occupation means you’re only covered if you can’t perform any job reasonably suited to your education and experience. That software engineer with the tremor? Under an any-occupation definition, an insurer can argue he’s fine to do “some kind of desk job” and deny the claim.
Group policies default to any-occupation, or a hybrid that switches from own-occupation to any-occupation after two years. That switch is where a lot of legitimate claims quietly stop getting paid.
The Fix: An Individual Policy on Top
The move here isn’t to cancel your free group LTD, keep it, it’s free supplemental coverage. The move is to buy an individual disability policy with your own after-tax dollars, structured as own-occupation, sized to cover the gap between what group LTD actually pays and what you need to live on. Because you paid the premium yourself, any benefit you ever collect is tax-free, which changes the math in your favor exactly where the group plan works against you.
Do this while you’re young and healthy. Disability underwriting prices your current health, not some average. A clean bill of health at 28 gets you a better rate and fewer exclusions than the same application at 45 after a knee surgery and a blood pressure diagnosis show up in your chart. Waiting doesn’t just cost you money, it can get you outright declined for the exact condition you’d most want covered.
Term Life: Who Actually Needs It
Life insurance protects the people who depend on your income, not you. If nobody depends on your income, you probably don’t need it.
You need term life if: you have kids, a spouse or partner who relies on your income, aging parents you support, or debt someone else cosigned that would become their problem if you died (a mortgage with a partner, a business loan with a co-signer).
You probably don’t need it if: you’re single, no dependents, no cosigned debt, and your assets already cover your own final expenses. A 26-year-old single engineer with no kids and no cosigned loans buying a $500,000 term policy is buying a product that pays out to nobody who needed the money.
Sizing It: A Simple Formula With a Worked Example
The standard sizing approach adds up what your family would need to replace and subtracts what they already have:
Income replacement (a multiple of annual income, typically 8 to 12 years) + remaining debt to pay off + future costs like education, minus existing liquid assets earmarked for these goals.
Take a household where one partner earns $160,000 and the family wants ten years of income replacement while two kids are young. There’s a $350,000 mortgage balance. They estimate $120,000 in future education costs per kid, $240,000 total. They’ve already got $150,000 in investments they’d count toward this goal.
$1,600,000 (income replacement) + $350,000 (mortgage) + $240,000 (education) − $150,000 (existing assets) = $2,040,000 in coverage.
That’s a real number pulled from a real formula, not a round figure someone eyeballed. Run your own version with your own numbers; the arithmetic is the whole exercise.
Level Term, and Why Laddering Beats One Big Policy
Buy level term for a defined period, meaning the death benefit and premium stay fixed for the term (commonly 10, 20, or 30 years), matched to how long someone would actually depend on you. You don’t need $2 million of coverage until your kids are 45. You need it while the mortgage is unpaid and the kids aren’t through college yet.
That’s why laddering works: instead of one 30-year, $2 million policy, buy a 30-year $500,000 policy to cover the mortgage tail, a 20-year $1 million policy to cover the bulk of income replacement and the older kid’s education, and a 15-year $540,000 policy for the younger kid’s education years. Each layer expires as the need it covers shrinks, and because premiums scale with coverage amount and term length, three laddered policies routinely cost less in total than one policy sized to your peak coverage need held for the full 30 years.
The Pitch You Should Refuse
At some point, someone (an agent, a coworker who “just got certified,” a LinkedIn DM) is going to pitch you whole life, universal life, or indexed universal life as an investment. The pitch sounds appealing: permanent coverage, cash value that grows, “tax-advantaged” accumulation. The reason the pitch is so enthusiastic is that these products carry commissions in the range of 50 to 100% of your first year’s premium, sometimes more, versus a few percent on a term policy. The incentive to sell you permanent insurance as an investment is enormous, and it has nothing to do with whether it’s the right product for you.
The numbers rarely work in your favor. A term policy costs a fraction of the equivalent whole life premium for the same death benefit, and investing the difference in an index fund almost always outperforms the cash value growth inside a permanent policy, especially once you account for surrender charges and the years it takes for cash value to exceed premiums paid. If you want life insurance, buy term. If you want to invest, use a brokerage account, an IRA, or your 401k. Bundling the two into one product mainly benefits the person collecting the commission.
There are narrow, legitimate uses for permanent insurance: estate liquidity for large, illiquid estates that need cash to cover estate taxes, or special-needs planning where a policy needs to fund a trust for a dependent for life. Those are edge cases handled with a specialist, not a reason for a typical dual-income household with a mortgage and two kids to buy whole life instead of term.
Treat Employer Coverage as a Floor, Not a Plan
Group disability and group life through work are useful. They’re free or nearly free, and free coverage is still coverage. The mistake is treating the group benefit as the whole plan instead of the floor. Group LTD caps out and taxes your benefit; layer an individual policy on top. Group life is usually a flat multiple of salary, often 1x to 2x, nowhere near what a real income-replacement calculation demands; buy term to cover the rest, and buy it independent of your employer so it survives a job change.
Get both pieces in place while you’re young and healthy, because the underwriting only gets more expensive from here, never less. The paycheck is the asset. Insure it like one.
