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What is Buy Term Insurance and Invest the Difference (BTID) Strategy?


The primary purpose of a life insurance is for protection and income replacement. With that, IMG believes that the best product for protection purposes is buying term insurance. While most insurance companies are offering whole life and investment-linked products, IMG believes that the reason most Filipinos are not insured or underinsured is because of the affordability of premium. It does not mean however that their products are not good, it just means that since most Filipinos are not properly insured, the best way to help Filipinos get enough protection is by making people understand its importance and at the same time offer a very affordable premium. With that IMG believes in the “Buy Term, Invest the Difference” (BTID) strategy. So, what is the BTID strategy?

The purpose of life insurance is to protect our income
The purpose of life insurance is to protect our income 

The BTID strategy means for exactly the same amount of life insurance protection, you can pay a very low premium for a term plan, compared to the very high premium of a typical endowment or whole life plan. The difference in premium can then be invested in a mutual fund. Among the many other advantages, your mutual fund investment grows much faster at a higher rate than the usual endowment or whole life plan.

Other advantages of BTID:

1. Higher Fund Value – since the investments are in equities, the growth of the funds are much higher and faster.

2. Premium Flexibility – unlike the typical whole-life plans, where one has to pay a regular premium, through BTID, the annual term premium is your main responsibility and it is up to the person when to invest the difference.

3. Withdrawal Advantage – Since the investment is not linked with the insurance product, you can then withdraw your funds in case of emergency or any financial challenges compared to the traditional whole life where one can not. In fact, some policies may require you to loan your cash value, and pay interest. (funny how you get a loan with your own savings and you pay the interest).

4. Coverage Advantage – because of the cheap premium, for an average age of 30 years old, a 1M coverage costs around 3000 yearly, thus one can easily increase its coverage by just multiplying with the desired factor. (example: 2M for only 6K annual premium or 3M for 9K premium)

5. Alternative and investment flexibility and free to decide where to invest the difference – you can choose to go into stocks, mutual funds, bond funds, UITF’s, or a diversification of other investment products.

6. Higher beneficiary benefits – there are some insurance policies where the death benefit only gives the insurance coverage or the cash value whichever is higher. This means that if the cash value is only 700K and the coverage is 1M, the beneficiaries will only get the 1M. Likewise, when the cash values is higher than the coverage say, 1.5M cash value and 1M insurance coverage, the beneficiaries will only get the 1.5M. With the BTID strategy since they are separate accounts, the beneficiaries will get the 1M life coverage, and still can access their investments from their (example) mutual fund accounts. (granting estate taxes are also paid.)

However, with these advantages there are also possible challenges in following this strategy. What if the person will buy term insurance but does not invest or just spends the difference? Then this strategy won’t work. That’s the reason why IMG recruits people, so that we will provide an environment that promotes the financial discipline to continue whatever his financial plans are.

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