What Does It Mean to
Buy Term & Invest the Difference?
What is Buy Term and Invest the Difference, AKA BTID? Simply put, it is choosing to buy an initially cheaper term insurance policy vs whole life, since the latter requires more capital investment initially.
You are then instructed to invest the difference between what you will pay for your term insurance premium versus what you would have paid for the permanent insurance coverage.
For example, let’s say your term life rates are $30 a month and whole life would be $300 a month. For BTID, you would purchase the term insurance, and invest the difference, which in this example would be $270 a month, into an investment vehicle such as a mutual fund or ETF.
Why Buy Term and Invest the Difference Pros and Cons
The suitability of “buy term and invest the difference” is contingent on your financial situation. Whole life policies might be more appealing to those who pay estate taxes. Whole life policies serve as a means to decrease the size of a high-net-worth person’s property under the state tax restrictions.
Life insurance plans are not considered as an individual’s property. Hence, allotting a part of your riches to a whole life policy can decrease your property’s size by minimizing available cash. At the same time, it can allow you to grow your successor’s legacy via lawfully prohibited property taxes, probate charges, and costly death benefits. It’s safe to say that by allocating a hundred dollars to a whole life plan, you kept your million dollars from property taxes.
Problems with property tax only affect a few individuals. Based on the 2017 data of tax policy support unions, only around 5,400 properties were impacted by the property tax. If you are worried that the same would happen to your properties, consult a tax expert regarding non-amenable insurance protection.
Further, discussing the use of the non-probate conveyance process would be significant. If you are not part of this limited group, buying a whole life plan can still be suitable for you if you are in a unique situation.
What Does Buy Term and Invest the Difference Mean?
A term life insurance policy can provide the same amount of death benefit a whole life plan can give at a much lower cost. Term life plans are inexpensive because insurance firms assume that majority of the policies will lapse at the specified time without insurance claims.
That’s great because the payments of insured people who are fortunate enough to live longer than their insurance plan fund the death benefits of those insured who died.
When you bank on yourself term insurance is perfect because it enables the insured to give better security to their family when they are still working. By this, the insured can also cut down coverage upon retirement. It is wise to cut down the coverage on your retired years because you can anticipate that fewer people will depend on your profit during this time.
The benefits you need in your 40s and 70s are not the same. Spending premiums for benefits you don’t need is not practical. Affordable term life insurance allows you to suit benefits to your needs with much ease compared to whole life plans.
