Try putting insurance and investment together, and what do you see?
You may think that these two have nothing in common since insurance is all about spending money now to avoid future financial problems and investment, on the other hand, is all about putting off spending now to grow money for future financial gains. But have you ever heard of the “Invest and Buy Term”?
What does it mean to Invest and Buy Term?
Invest and Buy Term, or famously known as Buying Term And Investing The Difference (BTID) is a financial strategy to purchase a term life insurance policy instead of a whole life insurance policy, and then use the rest of the premiums saved from buying term life to invest. The BTID strategy is popular worldwide because you get to ensure life protection while being able to grow your wealth.
Life insurance provides protection for financial losses in the event of total permanent disability (TPD) or the loss of your life. If you ever find yourself in any of these situations, your payout will be given to your dependents to live on after you are gone. Find out the differences between getting whole life insurance and term insurance below:
| Whole Life Insurance | Term Insurance | |
| Purpose | Financial protection + savings | Protection |
| Premiums | More expensive | Cheaper |
| Sum assured | Lower | Higher |
| Payment term | Option of limited term or pay throughout the term | Typically have to pay premiums throughout entire term |
| Cash value | You can surrender the policy and cash it out | Typically none |
Is it too good to be true? Understand the pros and cons of BTID
PROS
1) Lower premium
If you were to compare the cost of premiums for both whole life and term insurance, you will find that term life premium is far cheaper. According to data by CompareFirst, for a 30-year-old male, the highest annual premium for term life is S$365 for coverage up to age 65 with a sum assured of S$200,000 while with a similar sum assured, the annual premium for whole life can cost up to S$3,222.
2) Higher returns
Of course, when it comes to investment, nothing is set in stone. But when you invest the amount of money saved from opting for term life insurance, you can grow your money and even exceed the guaranteed cash values of whole life insurance policies, which are usually close to the sum of premiums paid.
3) Higher cash buffer
One of the best things about BTID is that your investments will be liquid. Meaning to say, if you happen to face any unexpected difficulties, you can easily turn your investments into cash at a short notice. And if you decided not to invest all of your premiums savings, you also have the option to put some into your emergency fund.
4) More investment options
When you opt for whole life insurance, the choices of assets and funds will be limited. But with BTID, you will have more options and you can even go for options with lower fees.
CONS
1) You must invest the rest
For BTID to work, you must keep in mind that you MUST invest the premium savings. Unlike whole life where you are forced to save and invest, in BTID, whether or not you invest or spend the premium savings all depends on you.
2) Investment risks
Keep in mind that whether you invest via ILPs or BTID, there is no guarantee that you can grow your money. But this all boils down to your investment and financial knowledge, and whether or not they can help you make informed financial decisions.
Is the BTID strategy suitable for you?
According to our founder, Calvin Lee, while investing does come with a set of risks, the top three reasons you should invest are to beat inflation, generate passive income, and ride on compounded interest. Because at the end of the day, are you able to work forever? And don’t you want your money to work for you?
If you are about to start a family and you would want to grow your wealth to ensure your dependents are protected in the future, then the BTID strategy is perfect for you. But again, this strategy depends greatly on your initiative to invest your premium savings. If you trust that you can invest your premium savings instead of spending them, then this is your call. If you are still unsure as to which plan is suitable for you, you can always get in touch with us.