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Should you “Buy Term, Invest the Difference”?

Are you looking for a new approach to financial planning? BTID strategy or Buy Term, Invest the Difference has gained ground for its practical and cost-effective approach. Learn more about it to know if BTID is right for you.

BTID is a strategy that may appeal to investors with considerable experience, who are willing to take on more risk, in exchange for the potential to yield higher returns. While BTID is already popular, you need to research extensively before deciding if it is the right approach for achieving your financial goals and needs.

What is BTID?

BTID stands for “Buy Term and Invest the Difference”. It is a strategy – not an investment product –where one decides to buy both term life insurance and investments.
With the BTID approach, you may choose to allocate a portion of your monthly budget to pay for your term insurance premiums first, and then use the remainder to buy stocks, mutual funds, and other investment instruments.
Here are the potential benefits and dealbreakers that come with the BTID strategy.

BTID advantages

● Affordable – the insurance product most commonly associated with BTID is term insurance, a budget-friendly plan that is also included in Sun Life’s portfolio of insurance solutions. Term insurance products, such as SUN Safer Life, Sun LifeAssure, and Sun Maiden and Sun Maiden Plus, offer benefits that can help address either life or health protection needs of consumers.
● Decent returns – you may start seeing growth in the first few years of investing the money you’ve allocated to investments such as mutual funds. Your money could potentially grow faster than keeping it in traditional financial instruments such as bank or time deposit accounts. Note, however, that returns from investment products depend on favorable market conditions that novice investors may find difficult to predict.
● Greater control – with BTID, you can choose where to invest. For example, depending on your investment experience and exposure, you can go with mutual funds or sign up on a trading platform. You have total control if you decide to engage in trading by yourself, allowing you to save money at the expense of foregoing the expertise of professional fund managers. But for those who prefer a “set it and forget it” arrangement, Sun Life offers its Sun Life Prosperity Funds which are mutual funds invested in various local and global equities, as well as bonds and other fixed income securities. These funds aim to provide higher returns with longer investment duration. There are also the Sun Life Prosperity Peso Starter Fund and Dollar Starter Fund, which are both money market funds. They work like your regular peso and dollar bank deposit products, only with potential of providing you higher returns. These are invested in fixed income and other liquid assets like cash and cash equivalents. With Sun Life Prosperity Funds, you have the advantage of having access to a professional fund management service wherein, investment experts does the investing on your behalf.
● Financial discipline – BTID forces you to become disciplined with personal finance. Sticking to such an approach helps establish behavior that enables you to allocate a portion of your income to insurance and investments. It also helps in setting your priorities and building your money management skills so you can invest without disrupting your cash flow.

BTID disadvantages

● Increase in premium – While term insurance is more affordable in general, the premiums however increase every time you renew, as the rates are based on your age at the time of renewal. You may have to renew either every year, 5, 10, or 20 years, depending on the design of the term insurance you have chosen.

● Difficult to maintain financial discipline – Since you have full control of your investment with BTID, you may be occasionally tempted to skip adding funds to your investment products and spend the money instead on discretionary expenses.

● Management – You shouldn’t enter the market without learning the basics if you use BTID as a personal finance strategy. You have to take the time to know the approaches that could seal your success in BTID even when you choose to do it yourself.

5 essential BTID tips to guide you

1. Know the strategy
It’s not enough to know that BTID comes with advantages. You have to be knowledgeable about investments and continue learning. This will help you manage your investment, avoid wrong decisions, and come up with a plan to help reach your goal.

2. Determine your budget
You have to know how much you can afford to put in financial instruments like insurance and investment. This will help you allocate funds where they matter most. Knowing your budget will also ensure that you can sustain investing based on the amount you’ve set initially.

3. Explore your options on term insurance
There are different term insurance policies that you can choose from that you may renew after a certain period. With Sun Life, you can find several options on what term insurance to include in your BTID strategy.

SUN Safer Life offers simplicity which makes it the ideal choice for first-time insurance policy owners. This term insurance policy is affordable but offers maximum life insurance coverage.
Sun Maiden and Sun Maiden Plus are specially designed for women. These term insurance plans offer health protection benefits and life insurance coverage to ensure financial security while protecting you from the financial strain that any of the covered female-specific illnesses and surgeries may bring.
Sun LifeAssure term insurance plan provides health insurance benefits against any of the 36 critical illness conditions covered by the policy. In case of an untimely demise, the life insurance benefit will give you and your family financial comfort and peace of mind.

4. Choose your investment instrument
Today, the average investor is free to choose from different investment vehicles. You have to research your options to know the investment that’s right for you.
One option to look into is mutual funds. With this investment instrument, you can diversify your fund in various financial outlets. Depending on market conditions, mutual funds have the potential to reap higher returns than traditional savings, over a long time horizon. This means that your investment could potentially grow and help you beat inflation, to help you achieve your long-term financial goals.
Sun Life, through SLAMCI (Sun Life Asset Management Co. Inc.), offers a suite of 16 mutual funds, which invests locally and globally, across various asset classes, depending on your risk profile and tolerance.

Learn more about how mutual funds work, here.

5. Seek the help of a financial advisor
Before you enter the market, you have to be knowledgeable about how investments and insurance work. While some people can successfully use the BTID strategy, you have to assess your capacity to navigate the market on your own while ensuring that you have sufficient life and health coverage. Don’t hesitate to seek the help of a financial advisor if you are not confident that you have the time and patience needed to learn the ins and outs of BTID.
Find a professional who takes your goals into consideration. Choose a financial advisor who has the expertise and experience in managing financial instruments such as insurance and investments. Sun Life as a Partner for Life can help satisfy both requirements so you can have the assurance that you’ll smoothly work your way towards the achievement of your financial goals.

ALSO READ: Why you need a financial partner for life

In BTID, you can maximize your coverage but at a more affordable price point than other life insurance plans. At the same time, you are also setting aside a portion of your money in instruments that offer higher chances of return. What's most important is that you recognize it takes great discipline and financial knowledge to make this strategy work for you.
Sun Life can be your Partner for Life to make the most of your insurance and investments. Talk to one of our financial advisors today to get the help you need when adapting the BTID strategy.

With edits by R Sio

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Brighter Life Team

The Brighter Life Team is Sun Life's very own writing team. Sharing their own experiences, goals, and ideas, the Brighter Life Team is ready to make your day brighter.