The Ups and Downs of Riding the BTID Bandwagon

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the wise guy ph BTIDBuy term invest the difference or BTID is now making rounds on the social media platforms. Many financial experts, as they call themselves, endorse the idea of doing the strategy with a promise of greater returns. But can it really keep its promise of giving you a higher return? Often times these so-called experts will only highlight the good and neglect the bad when trying to win your trust. Want to know if BTID is for you?

What is BTID?

The main concept of BTID is to buy term life insurance instead of buying a whole life insurance. The amount you saved (difference) from buying the term plan will be invested in stocks, mutual fund, UITF, etc. Term life insurance is cheaper because the coverage is limited to a specific time period (1 year, 5 years, and 10 years), unlike whole life insurance that covers up to age 88 (some even up to age 100).

Seem nice and easy, right? But that’s because everyone, financial guru, is quoting it as such without disclosing the challenges you might face afterward.

Don’t worry, I will help you decide if BTID is for you or not and I will be as transparent as I could.

Let’s first discuss the beauty of BTID and see the advantages of it in your financial goals.

5 Advantages of BTID Strategy

the-wise-guy-ph-BTID-advantages

1. Term Life Insurance is CHEAPER

Compared to the whole life insurance that covers until age 88 or up to age 100, term life insurance is relatively cheaper. Term life insurance usually comes in 1 year, 5, years, and 10 years term. You can get a term life insurance with the same life coverage for only a fraction of the cost of whole life insurance. This is best understood with an example. Yes, I know you need one.

A whole life insurance for a male age 25 with a life coverage of Php 1 Million, TDB, and ADDD will cost around Php 25,000 a year while it is only around Php 10,000 for a term insurance. The difference of Php 15,000 can be used to invest in a mutual fund (or any other investment funds) thus leveraging your investment portfolio.

2. You Don’t Need Life Insurance When You’re Old

According to Dave Ramsey and Suze Orman, you don’t need life insurance when your kids are already financially independent of you. Most life insurance is purchased to protect the future of their dependents (i.e. spouse and kids) and the protection they need decreases with time. As they grow, the less income protection you will need as they can already stand on their own.

3. Enjoy Higher Investment Returns

You have the option to invest the difference in the stock market which generally yields higher compared to the banks. You can open an account to buy shares from most stockbrokers (like COL Financial) for as low as Php 5,000 only. If you’re still not ready yet to brave the stock market you can still enjoy its benefits thru mutual fund. You can start buying units in a mutual fund from COL or Sun Life for only Php 5,000.

4. Build Financial Discipline

BTID will help you build financial discipline thru allocating a portion of your salary to your insurance and investments regularly. Personal finance leans mostly on behavior more than your skill. This will help you shape your financial behavior as it teaches you the importance of dividing your money to what is important on a regular basis until you get the grasp of your cash flow.

5. No Management Fee

Another thing that most BTID followers would agree is that there’s no management fee is being paid as you will do all the work thus more money remains in your fund.

Management fee is the amount of money you pay to compensate the professional work done by fund managers in making your investment grow.

Now, you know about the advantage of going BTID, we can now proceed in discussing its disadvantages and they are as follows:

5 Disadvantages of BTID

the-wise-guy-ph-BTID-disadvantages

1. Premium Increases Every Five Years

While it is true that term is relatively cheaper to get than a  whole life insurance like a VUL plan, it actually gets pricier for a long-term coverage. Normally, premium charges of a term life insurance increase every 5 years. As time goes, the total premiums you paid for the term insurance will exceed that of a 10-years-to-pay VUL plan.

Term insurance doesn’t have cash values nor fund values upon maturity. Meaning, when coverage ceases your money is good as gone. Unlike term, VUL has fund values that can be partially withdrawn when the need arises.

READ: Sun Maxilink one and Sun Flexilink1
READ: Sun Maxilink Prime | The Best- Selling VUL Plan from Sun Life

2. What Happens After Age 65

Term insurance coverage usually ceases at age 65 without anything given to you upon maturity. And you should be okay with that for as long as you stick to the strategy and the market was able to give you the desired result.

This part might get a bit tricky because it is more of a personal choice whether to have an insurance after age 65. But do you like the idea of a hassle-free wealth transfer? Life insurance proceeds may not be subjected to estate tax as it will not form as part of your estate which means that the money is liquid. The proceeds can now be used to pay the estate tax.

READ: Estate Planning: Life Insurance as the Best Tool to Settle Estate Tax

Term insurance lapses when the premium is not paid after the 30-days grace from the due date. VUL, on the other hand, can still remain in force even after the due date for as long as the fund value is enough to cover the insurance charges.

3. Invest the Difference Becomes Spend the Difference

In BTID, you need to split what will go to your insurance and investment every single time. The paying medium for your insurance may be different to where you place your investments and this can be a problem in the future. After paying your insurance, the money you will invest may seem to your eyes as an extra money you can dispose of buying your wants instead of adding it to your investment.

4. No Forced Saving Mechanism

Term insurance only keeps you from paying the premium because you know that it will lapse when it’s not paid. Your investment in stocks, UITF’s, or mutual fund, however, will still remain intact even when you skipped putting money. Thus giving you an idea of skipping the investment part from time to time and this where the third disadvantage comes in again.

5. Investment is DIY

Everything in BTID is DIY or do-it-yourself from insurance to investment. You need to give yourself ample time to learn the basics of investing. This will give you confidence prior to investing. Your knowledge is a key determinant of your success in BTID. Do not ever try to enter the market without knowledge as it will look more like a gamble than investing.

Final Thoughts

If you’re a first timer, you can still follow the strategy for as long as you keep yourself knowledgeable about the market and disciplined enough not fall into the temptation of spending the difference. Stay informed and know the consequences before diving into the strategy.

If you’re an existing whole life policyholder, don’t switch yet just because of the sugar-coated advantages. Converting your whole life policy to a term insurance may do more harm than good as the difference between what you’ll earn from BTID may not be enough to cover the losses incurred when the policy is converted.

Would you go BTID or VUL? Share your thoughts in the comment box below. Happy investing!

10 comments… add one
  • Patrick Jerome Ngo Link Reply

    I disagree with the number 2 in the advantages

    • Federico Suan, Jr. Link Reply

      Hi Patrick. Being an insurance advocate, I would also like to disagree with it. But it actually makes sense that the need for life insurance decreases with time if you bought it as income replacement insurance. But I don’t think it will ever decrease (it may actually increase) if you purchased it, however, as for income protection like against accidents and illnesses that may come along while you’re working toward financial freedom.

      I hope you can share more ideas about life insurance here on my blog. Thanks.

  • James Andrei Santiago Link Reply

    Very nice content and Blog sir! Just what I needed (as I had zero knowledge) in insurances and also can’t trust 100% of financial advisers because I was aware of the conflict of interest. Most of the time they only offer VUL’s. Thanks to you sir I learned that there were other plans a person could take depending on someone’s needs.

    • Hi James. Thank you for the nice words I really appreciate it. Your confirmation really matters to me and how I, thru my blog, could be of help to anyone relating to personal finance.

      I must agree that insurance plan is not a one size fits all product that’s why as a financial advisor myself I do recommend a personal financial planning session especially to all my clients or even just to someone showing interest. By doing such, it will help the advisor to assess your needs to be able to give a piece of sound financial advice putting the client’s interest above all.

      I hope you can give time to meet an advisor who can truly help you and someone you can trust. Remember that it is a lifetime commitment and your relationship with your financial advisor can help you maintain your plan and can help you in other admin related things about it.

      Thanks again 🙂

  • Ed Detal Link Reply

    Good Day Sir,
    As an advisor of Sunlife, is there someone in the office, other than the advisor, that a client can ask clarification on the details of a certain policy.

    Thanks. Godspeed.

    • Hi Ed. Do you mean our branch? I guess, there’s none. The details of the policy are confidential. However, you may call our hotline for your concerns. Please have your policy number ready. Thanks 🙂

  • Kimpz Link Reply

    Don’t get me wrong. Gusto ko sana makita ung comparison na hindi galing sa isang insurance agent. But knowledgeable sa lahat na product ng insurance comp (sunlife, axa, bdolife, philam etc.)

    • Hi Kimpz. I think there’s none at the moment unless he has been part of those companies in the past. But still, I doubt if he will truly be knowledgeable in all the products of each company. Given the surge in the number of insurance agents now, most of them might not be well versed in terms of the products of the insurance company where they belong.

      It might be available in other countries like in Canada. A client of mine, yes, he also availed my services, who lives there has an insurance agent where he gets quotations coming from different insurance companies. But currently, there’s none here in the country.

      Even if there is, I think knowing all the products will just cloud your decision making and you might not be able to get a plan most suited with you. Have you heard analysis paralysis? It’s the common pitfall for those who overanalyze. They become very indecisive because of the things they’ve learned and also I have a colleague who compared plans from several insurance companies and he said that no plans are similar, thus, comparing apples to apples will be quite a task given that no two plans are identical in nature.

      So I don’t suggest with you to know all the products, instead meet an agent from each company, if you really want to get the most appropriate plan for you, who can help you in assessing your needs. I have a lot of similar inquiries like yours, coming from the first time insurance buyers, and it’s totally fine to worry if you are getting the “best” plan. But you might overlook that getting the “best” is relative.

      The best plan is not the cheapest plan nor the plan coming from the biggest companies. It’s the plan that will answer your worries, doubts, and most of all your needs.

      Thanks 🙂

  • alhyn Link Reply

    planning to get insurance in sunlife early next year..

    • Hi Alhyn. Wow, that’s great. But just thinking about why you are not planning to get it now? That’s a lot of time and many things can happen. If you can move it earlier the better as we don’t know what the future holds. Plus starting early can also give you more time for your investments to grow. Thanks 🙂

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