BTID – Buy Term, Invest the Difference; buying term insurance (pure insurance) and investing the difference
Term Insurance – these are the most affordable forms of life insurance that provides PROTECTION only for a specific period.
Example: Male, 30, Non-smoker | Has a Php50,000 investible amount of money every year.
Based on his profile, a 2M term insurance coverage will cost him Php12,300 premium per year. The difference of Php37,700 can already be invested either in Stock Market directly, in Mutual Funds, UITF, etc. depending on which investment you prefer.
Where to avail BTID?
First, BTID is not a product that you can avail. It’s actually a strategy of protecting and building your wealth wherein you acquire two financial instruments separately which is the insurance and investment.
What are the benefits of doing the BTID strategy?
- Affordable Insurance Premium – since we are talking about Term Insurance here, as I’ve mentioned earlier on top of this post, this is the most affordable insurance plan in the market. It’s because you can already acquire a 2Million coverage for only Php12,300 per year. Take note, per year. That’s only Php1,025 per month.
- Higher Insurance Coverage – despite of its affordability, you also get the maximum coverage you can have with your money.
- Full Control in Investment – BTID strategy gives you full control in your investment. You get the flexibility to choose which investment you want to be invested. As long as you know how that particular investment works, and you can manage and monitor them, then this strategy can really benefit you.
- Lower Charges – in BTID strategy, you can actually incur lower charges both in insurance and investment making it cost effective at first.
What are the disadvantages of BTID?
- Increase in Insurance Premium – although term insurance is affordable at first, its premium gets higher as we grow older. In Sun Life, our term insurance gets recalculated every 5 years thus making it pricier over time.
- Limited Coverage – term insurance gives you protection for a specific period of time only. Some can get you insured until 70 ranging to 75 only. The question is what if you still need to be insured, or you still want to be insured even after the age of 75?
- No Living Benefit – you don’t enjoy any living benefit with term insurance. Only your family can get the benefit from it if and only if death arrives upon the insured. In short, the insured gets nothing from a term insurance policy.
- High Probability of Lapsing – once you forgot to renew or pay your term insurance, usually, you only have a 30-day grace period to update and pay the plan. Otherwise, the plan will be automatically terminated. Sayang!
- Tax Implications – your money in your investment forms part of your assets, therefore, they are all subject to Estate Tax. This means that when death arrives, your family have to settle 6% of your assets before these can be legally transferred to them.
How do I know if BTID strategy works for me?
For me, BTID strategy will surely work for you if you have the following priorities/characteristics:
- Your priority is acquiring pure life protection only. Buying term insurance can definitely fit this goal especially in maximizing the protection of your wealth as well as the future of your family.
- You already have a strong financial discipline. When we say strong, it means that you have already built the habit of managing and investing your money regularly. I’ve known people who tried this strategy but failed just because they don’t have the strong financial discipline yet which is HIGHLY needed when you use BTID strategy. It’s just sad to know that they are losing time and money when they stop investing.
- You are after the investment returns. You can use the BTID strategy if you want to have a bigger allocation to your investment on the onset from your cash flow rather than the insurance portion.
- You want to have more control over your investments. This means that you already have a solid plan and experience when it comes to investing your money. So it’s really the best option for you to have full control when and where you want to invest your money.
- You always make sure that you have adequate coverage. Aside from the discipline in investing, it’s also important that you always make a review of your insurance coverage. Remember, as your assets continue to increase, the higher estate tax they will also incur. And one way to protect your accumulated wealth from estate tax, without passing the burden to your family, is acquiring a life insurance. In this way, your fortune stays within your family.
What other option can I have if BTID won’t work for me?
You may opt to acquire a Variable Universal Life (VUL) insurance plan which is a combination of insurance and investment in one product. This is a life insurance product wherein you get insurance protection, and at the same time, a portion of the premium that you pay in this product is automatically invested in a managed investment pool of funds.
The VUL plan also has its advantages and disadvantages. At the end of the day, it will still depend on your financial goals and priorities which plan or strategy would best work with you.
Do I prefer doing the BTID strategy or acquiring a VUL plan?
Personally, I prefer both because I’m doing both.
I’ve been paying with my VUL plan for more than 3 years now, and I’m doing the B.T.I.D. strategy for more than 2 years already.
I first acquired a VUL plan for my personal reason of income protection and at the same time, having an investment as my living benefit.
When I already had the strong discipline with my finances, and my knowledge about investment has deepened, that’s when I started doing the BTID strategy.
Each compliments my long term financial protection goals. And for me, doing them both can and will help me in achieving my financial goals in the future.
Again, this is my personal opinion and currently based on my situation, needs, goals and preferences. 🙂
Part of Financial Planning is to assess your goals, current situation, needs, and preferences. There are many financial instruments out there in the market. But they actually vary depending on these 4 factors.
What I always advise with my clients, first rule of Financial Planning is to build a solid financial foundation first. If you’re done with this, then that’s the time you step up to the next level which is building your wealth.
One thing is for sure, doing the B.T.I.D. strategy or acquiring a VUL plan can help you achieve your financial goals in the future. This is as long as you are committed and disciplined to manage your finances regularly.
At the end of the day, everything that you do with your finances will solely depend on Y O U.
Do you agree with this? Feel free to leave a comment down below and share your thoughts!
Disclaimer: Opinions expressed are solely my own and do not express the views or opinions of the company I’m representing. Information stated are only basic ideas of how BTID works based on my experience and knowledge.
Christine Caranyagan is a Certified Investment Solicitor (CIS), Associate Wealth Planner (AWP), Estate Planner (AEPP), and Agency Leader of the Philippines (AALP). She’s a 2019-2020 Macaulay Club Awardee, and a 5x Medallion Qualifier as a Licensed Financial Advisor.
Her mission is to help fellow Filipino people achieve lifetime financial security & healthier lives.
If you want to learn more about financial planning, you can contact her thru her personal contact number 0935 7368 619, or send her a message here.