In a previous post, I mentioned that I’m not a proponent of Variable Life Insurance (VUL). I am pro-insurance though for those who actually need it. You might ask: “If you don’t recommend VUL but advise breadwinners to invest and get life insurance, what are my options?” That’s where the BTID strategy comes in.
What is the BTID strategy?
BTID is short for “Buy term insurance, invest the difference”. This means that instead of buying VUL (which is insurance with an investment rider), just buy term insurance (or life insurance only) plans. Then, the difference between the amount that you are supposed to be using for VUL, is put directly on an investment vehicle.
For example, if you’re offered a VUL that costs you 90K a year, instead of signing up for it, get a term insurance that only costs you 5K a year, then invest the 85K on Pag-IBIG MP2.
Pros and Cons of the BTID Strategy
Pros
- When done correctly, your investment grows at a faster rate
- You may say goodbye to high management fees from fund managers
Cons
- Having to research where to invest your money
- You have to ensure that you pay your insurance on time, or else it could lapse.
Kuya Well’s kuro-kuro
My mom was an insurance agent before she became a pre-need agent/manager during her employment days. Though insurance and pre-need are a bit different, they’re similar in so many ways. I often review policies that my mom offered so I’m very much familiar with management fees, agent cuts, and upper-level management cuts when someone pays for insurance.
If you look at the VUL policies being offered / you have availed, you can see that for the first few years, only a small amount goes to the investment fund. That’s because, in the first year, the agent gets a commission of anywhere between 30 – 60% of the amount that you pay. The manager gets his slice of the pie as well. At usually, mas malaki nakukuha nila pag Annual ang pinili ni client.
And in the 2nd year, may cut pa rin sila. Mas maliit nga lang compared sa first year, pero meron pa rin. Now depending sa insurance company, baka wala ng commission pag dating ng 3rd year. Kaso expect na malaki pa rin ang naka-allocate sa insurance premium and charges (usually 50%) kaya konti lang ang mapupunta sa fund.
This means that the first 3 years, ang liit sobra ng malalagay sa investment. And what do we say about investment? Time is of the essence, or the earlier the better.
So what do I suggest? Kung breadwinner ka, hanap ka ng murang term insurance na may enough benefits in case may mangyari sayo. Example ng term insurance is yung BPI-AIA PamilyaProtect. Depending sa age, it may cost you just 480 pesos per month with an insurance coverage of 1M plus another 1M for accidental death, and 1K daily hospital income benefit.
Yung natitirang pera, ilagay mo sa investment. At least malaki na ang malalagay sa actual investment. Now, kung di ka marunong maghanap ng investment na paglalagyan ng pera mo, consider Pag-IBIG MP2.
Reminder: I’m not a financial advisor. So do your own research still or get a licensed financial advisor (yung hindi connected sa insurance company, ha?) to help you out.
O sya, mas mahaba pa tong kuro-kuro section kesa sa main content. But watch out for a future post comparing both VUL and BTID. Yung may kasamang policy ng VUL tapos breakdown ng values/amounts para mas maganda ang usapan.