Buy 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 higher returns. But can it keep its promise? Often 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 purchasing whole life insurance. The amount you saved (difference) from buying the term plan will be invested in stocks, mutual funds, UITFs, etc. Term life insurance is cheaper because the coverage is limited to a specific 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
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. It is best understood with an example. Yes, I know you need one.
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 term insurance. The difference of Php 15,000 is invested 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 replacement 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 through a 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 by allocating a portion of your salary to your insurance and investments regularly. Personal finance leans mostly on behavior more than your skill. It will help you shape your financial behavior as it teaches you the importance of dividing your money into what is essential regularly 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.
The management fee is the amount of money you pay to compensate for 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
1. Premium Increases Every Five Years
While it is true that term is relatively cheaper to get than whole life insurance like a VUL plan, it gets pricier for long-term coverage. Typically, 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 you can withdraw when an emergency 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 it as long as you stick to the strategy. Most importantly, if the market gave you the desired result.
This part might get a bit tricky because it is more of a personal choice whether to have 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. Thus, you can pay the estate tax using the insurance proceeds.
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 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 from 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 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 funds, however, will 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. It will provide you with confidence before investing. Your knowledge is a crucial 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.
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 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!
Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.
Your Post is bias to VUL given that youre an Agent.
You may have presented the Pros and Cons of each but the entire argument of your article smelled a hidden agenda to persuade people to get VUL.
It’s not a secret that I’m a Financial Advisor so please take my blog with a grain of salt. You see, the post wasn’t created to favor any type of insurance. I personally like term insurance that’s why I also have term insurances.
This particular article is created to help our insurance buyers to form informed decisions. Because I encountered individuals who thought BTID is the “best” way to get insured without doing their due diligence. Most will just say they read or heard it somewhere. But I hope you’ll understand that insurance is not a one size fits all plan. That’s why I ended the article with the importance of being informed. At the end of the day, what others find suitable for them doesn’t necessarily mean that it will be a fit for everyone.
Just like how I like my vanilla ice cream. I want it plain and simple. While others prefer chocolate, rocky road, pistachio, etc.
Hi Federico. I’m a newbie. And is about to buy an insurance plan. Which is best suited for someone like me, who is new and wanted to be part of stock market? Thank you.
Hi Desiree. Actually, the question is, based on what you read, do you think term insurance is more appropriate with you? If not, you may consider VUL and whole life insurance plans. By the way, investing in the stock market doesn’t automatically mean than term insurance is more appropriate with you. So we must really dig deeper into what you need and expect from insurance plan. Thanks 🙂
Hi Sir Federico. Ask lang ko po. Sa Sun Life po ba may inoofer din po bang BTID? Pasensya na po matagal ko na tlga gusto malaman kaso wala pang nakakasagot sa mga katanungan ko.
Hi Liezel. Marami kaming term insurance plans sa Sun Life. BTID kasi ay isang strategy kung saan bibili ka ng term insurance imbes na VUL or whole life plans. At pag-iinvest sa mutual fund, stocks, etc. para palaguin ang pera. So kung naghahanap ka ng bundled na term at investment walang ganoon. Kung meron man ‘di mo din ito masasabing BTID gawa ng nakabundle siya. Mas mainam kung makakausap ka ng isang propesyonal na pwedeng mas makatulong sa iyong katanungan. Salamat 🙂
BTID makes sense… if you invest regularly and not just “the difference” and if the coverage is for income replacement only. Buy cheap term life insurance, as much separate health insurance as possible for old age, and invest regularly.
I agree with you. But the thing is, are we (Filipinos)ready term insurance? Ideally, it really makes sense. However, in reality, term insurance is usually surrendered after a year. For me, you can get whatever insurance you think best for you, as long as you’ll be committed to whatever goal you have. Because at the end, the best insurance is the one active at the time of need.
Thanks for your input 🙂
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 🙂
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.
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.
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 🙂
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 🙂
I disagree with the number 2 in the advantages
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.