Updated: November 13, 2020
A lot of people who don’t know much about investments are often convinced by life insurance agents to buy VUL or Variable Unit-Linked Insurance, or also known as Variable Universal Life insurance.
The marketing pitch is great. When you get a VUL, you get a 2-in-1 product – life insurance and investment. And in today’s world of combo meals, getting a VUL product makes sense.
Unfortunately, not many are aware of BTID. This is the concept of buying term insurance and investing the difference in costs of getting a VUL, on your own instead. Thus, the acronym for it — “Buy Term, Invest Difference”.
This financial strategy, as I see it, makes better sense as I’ve written before:
- My Reasons Why You Should NOT Get A VUL or Whole Life Insurance
- BTID vs VUL: How I See Financial Planning wrt Life Insurance
BTID vs VUL
To briefly explain my reasons, buying term insurance is cheaper. And also, this strategy allows you to choose and manage your own investments, which can also save you on some fees.
You can choose to invest directly in the stock market. Put money in various mutual funds. And withdraw cash from these investments anytime you need it.
Of course, doing BTID requires financial discipline. But not many have that.
And that’s where getting a VUL can make sense. The major advantage of availing a VUL is the convenience of having to think about “just one thing” and everything else takes care of itself.
One won’t need to think where and when to invest. Just pay your premiums regularly and you’ll be fine.
However, as a financial advocate, I prefer to encourage people to develop financial discipline. I want more Filipinos to be educated about investments and help them manage their own portfolio better.
That’s why I prefer teaching BTID. And I’m happy that most of my readers also believe that it is a better financial strategy.
Switching to BTID
Unfortunately, a lot of people who discover and learn about BTID are already paying for a VUL policy.
Most often, it was sold to them by a friend during a time when they didn’t know much about life insurance and investments.
If you’re not really into learning about personal finance, getting a two-in-one insurance and investment product will make sense.
But then, here you are now, learning all about BTID. And start to regret buying that expensive VUL policy.
You begin to contemplate and ask yourself: Should I just cancel my VUL and switch to Term Insurance and do BTID?
I’ve been asked this question a lot of times, and my answer is usually the same. I tell them — NO, don’t switch, especially if you can afford it anyway.
Canceling your policy and switching to BTID will make you lose more money. The extra profit and the savings from doing BTID won’t be enough to cover the costs of losing your VUL policy. So just stick with it.
The only problem here is if the VUL premiums are too high and you can’t afford it anymore, given your current situation. In this case, you can do the following:
First, tell your insurance agent about it. Particularly, ask how many months can the VUL’s fund value cover, in case you decide to miss payments because you’re on a tight budget.
If you’ve been paying for a few years already, then you’ll most likely have several months before your policy lapses.
Second, study your budget and eliminate unnecessary expenses. I’ve helped a lot of people afford their VUL this way. And it could help you too.
And lastly, find ways to earn extra income so you can continue with your payments. I admit that this will be difficult, but it’s better to try than just doing nothing until your policy lapses.
I believe that BTID is a better financial strategy. You should choose it if given the choice.
However, if you already have a VUL policy, then you’re still better off than most Filipinos who don’t have insurance nor investments at all. So no need to feel bad.
Just continue paying your VUL premiums. And focus on making more money instead, so you can create surplus cash for stocks, bonds, mutual funds, and other types of investments.
And in the worst-case scenario that you really can’t pay for your VUL policy anymore. Then you have no choice but to just let it lapse.
When this happens, I recommend NOT immediately doing BTID.
Instead, go back to the basics and learn about money management first, until you develop the habit of saving.
Because if you don’t have financial discipline, you’ll most likely fail at doing BTID too.