Buy term, Invest the Difference (BTID) is the strategy we use in our wealth academy.
Here’s how it works.
For exactly the same amount of life insurance protection, you can pay a very low premium for a term plan, compared to a very high premium that you would typically get from Bundled Protection.
For example, in my experience. Before I get involved with International Marketing Group (IMG), I have a friend who offered me a Bundled Protection. For a Php 1 million worth of life insurance coverage, I would have to pay Php 38,440 annually.
In IMG, as part of our benefit from being a member, I would have to pay Php 3,500 for a Php 1 million worth of life insurance coverage.
We don’t have to do the math, to tell how much you saved there.
Now, here’s the thing.
In Bundled Protection, aside from it having a life insurance they will also invest your money in stocks or bonds. The growth of your money will depend on your allocation of fund. It could grow annually at a range of 4% to 10% max.
Also, in the first 4 or 5 years, depends on a company. Your money will not gain any profit from any dividends or capital appreciation they get from that period. After that, you will enjoy the capital gains it will make for you.
It is an insurance and investment in one product. Both are tax-free. So any money you made will not be taxed. Your death benefit will not be taxed either.
With Bundled Protection, your money will have a maturity. You cannot touch your money nor withdraw from it for a certain period of time. Usual maturity is 20 years.So that means you need to keep on depositing Php 38,440 for the next 20 years. Then you get the money after that with capital gains depending on market condition. Once you withdraw your investment, your insurance will also stop.
Now, let’s go with Buy Term, Invest the Difference.
Buying term insurance is much more practical if you are just starting. You will have to pay a certain amount depends on your age. Like for me, I have to pay Php 3,500 including the processing fee here worth Php 500.
Why is it so affordable? Because it is one of our benefits as a member of IMG. Our company is partnered with PhilAM Life. Our protection is not an individual application, it is applied as Group Life Insurance so that explains why it’s affordable.
For people, who are just starting to build their financial foundation this strategy works best. Plus, it’s not going to give you mental pressure to deal with the yearly premium.
BTID gives you the freedom to choose where you would allocate the rest of the fund you saved from just buying a term life insurance. For example, if you are still paying off your debt and you want to start allocating funds for emergency and get protection, you can hit all that in one stone.
Just remember to give priority in having protection to secure your family’s needs, in case of loss. (TIP: Read my previous article – Wealth and Responsibility).
The real challenge here is, are you disciplined enough to invest the difference? And, are you disciplined enough to renew your term annually?
With Bundle protection you have to pay Php 38,440 and they will do the rest of investing activities.
With BTID you would only have to pay Php 3,500 and you will do all the investing and allocation of your own fund.. Can you invest the difference Php 34,940?
If yes, you will enjoy the advantages of doing this strategy.
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