What is Buy Term and Invest the Difference (BTID) Strategy, and what are the advantages and disadvantages?

Are you following, or should you follow, the BTID strategy?

"Buy Term and Invest the Difference" refers to buying term life insurance as opposed to whole life insurance or variable (VUL) and investing the difference in any type of investment vehicle, including mutual funds, stocks, unit investment trust funds (UITF), reits, etfs, MP2 (of the Home Development Mutual Fund or Pag-IBIG Fund), businesses, and real estate, among others.​

For example, if you have a monthly budget of Php 10,000 for investments and insurance, designate Php 2,000 to Php 4,000 to your insurance, and the remaining money goes to investments or your business.​

What are the Advantages and Disadvantages of BTID?

Advantages

• As there are no riders, the premiums are less expensive.
• You and your family are protected whether you manage your own investments (or your investments are directly with any mutual fund or UITF company).
• You maximize your own investments while minimizing fees and costs.

Disadvantages

• It gets pricier for long-term coverage.
• If there is no rider component, you bear all the risks associated with investments and catastrophic illness.
• If the payment is not received in a timely manner, the insurance expires (payments received after the grace period will result in policy lapsation).
• Technical and fundamental expertise in risk management and investing is required.
• Savings indiscretions will be expensive and harmful.
• Investing the difference becomes spending the difference if there's no patience, discipline, or specific investment goal.

When deciding if BTID is right for you, be sure to consider the following:

• Your financial goals
• Your investment timeframe
• Your risk tolerance
• Your life insurance needs
• Your overall financial picture
• Your ability to self-manage your investments

Final Thoughts

​If you have no insurance at all and are a beginner, you can still use the BTID method as long as you are disciplined enough to resist the urge to spend the difference and keep yourself informed about the investment vehicles you want to use. Prior to implementing the approach, be informed and aware of the effects.

​​Do you think the Buy Term and Invest the Difference (BTID) approach is more appropriate for you? If not, you may consider VUL and whole life insurance plans.