Buy Term and Invest the Difference Pros and Cons

What Is BTID? In simplest terms, “Buy Term and Invest the Difference” or BTID is a strategy wherein you buy term life insurance and determine how much you’re willing to set aside every month for investments.


Why buy term and invest the difference pros and cons

buy term and invest the difference pros and consThe 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?

buy term and invest the difference meaningA 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. 

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A Chart On Why Buy Term and Invest The Difference Works


Buy term and invest the difference revisited

term life insurance

Term life insurance policies are straightforward. It is a plan that disburses when a loss takes place. If you do not apply for a claim, you will get nothing. It works similarly with vehicle insurance. If you live beyond your term life policy, you can think of it as if you paid a little amount for your peace of mind.

If you don’t like the idea that you are spending on something you may never get back, think about the opportunity cost. Putting $480 (just like in the above example) each year in an investment vehicle would only yield $25,960. If you die with having only this much, your family will enjoy a good inheritance. If you had a term life policy instead, your family would receive so much more.

Buy term life insurance and invest the difference

The “invest the difference buy term” strategy can be a good idea for some people, especially those who are young and healthy and have a long time horizon for investing. However, it’s essential to consider your financial situation and goals before deciding if this strategy is right for you. It’s also crucial to ensure you have enough life insurance coverage to protect your loved ones in case of an unexpected death.

Buy term and invest the difference calculator

buy term and invest the difference calculator

Life Insurance Need Calculator
This calculator will help you to decide how much life insurance you need if your survivors invest the life insurance benefits they receive.

Funeral cost, estate taxes, etc. ($):
Amount needed to pay off non-mortgage debt ($):
Amount needed in emergency fund ($):
Amount needed in college fund ($):
Expected average annual living expenses ($):
Expected spouse's average annual income after taxes ($):
Annual Social Security Benefits ($):
Spouse's current age (#):
Value of current liquid assets ($ total of savings, investments, etc.):
Expected survivor's investment strategy:
Life insurance needs:

What is buy term and invest the rest

buy term and invest the restTo ‘buy term’ means to purchase a term life insurance policy rather than a whole life insurance policy. To ‘invest the rest is essential to use the savings gained from choosing the former to invest in various investment vehicles so that wealth can be generated.

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Why buy term and invest the difference doesn t work

why buy term and invest the difference doesn't work“Buy term and invest the difference philosophy” is the most suitable approach for an average American considering that they know some of the restrictions with this method. Why buy term and invest the difference doesn’t work.  The first thing you should know terms life policies only insure you for a specified length of time. For instance, if you buy a 20-year coverage, your insurance policy will expire after that contract period.

Purchasing different term life plans is simple and can give coinciding benefits to secure your family’s dignity when you pass away. If you opt to implement this strategy, you should see that you have a long-term life plan. It will come in handy when investment yields are lower than anticipated or when you aren’t legible for a policy due to medical problems in the future.

In addition, the strategy is only practical for those who are faithful to the process. You can earn a wad of cash if you are persistent with saving the difference between whole life and term life plans. If you don’t stick to the plan, all you can gain in the end is your term life benefits.

Frequently Asked Questions

When someone says buy term and invest the rest?

"Buy term and invest the rest" is a financial strategy that suggests purchasing a term life insurance policy with lower premiums and investing the difference in cost between that and a more expensive permanent life insurance policy. The idea is to use the savings to invest in other areas, such as stocks or mutual funds, to earn a higher return on investment potential.

Where did buy term invest the difference come from?

Buy term invest the difference is a concept that originated in the insurance industry in the 1970s. It suggests that instead of buying whole life insurance, which combines insurance coverage with an investment component, individuals should purchase term life insurance and invest the difference in a separate investment account. This approach is more cost effective and provides better returns in the long run.

How to invest the difference term life insurance?

There are several options for investing the money you save on term life insurance premiums. Some options include investing in a retirement account, such as a 401(k) or IRA, investing in a taxable brokerage account, paying off high-interest debt, or saving for a specific goal, such as a down payment on a house. It's essential to consider your financial objectives and risk tolerance when deciding how to invest the money.

What is buy term and invest the difference

Buy term and invest the difference is a financial strategy where you purchase a term life insurance policy with lower premiums and support the difference in cost between that and a more expensive permanent life insurance policy. The idea is that the investment returns will be greater than the permanent policy's cash value, allowing you to save money in the long run.


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About Coach B.

After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.

In the years since then, he has worked tirelessly to improve the process of shopping for insurance. His goal is to make sure that everyone who comes to Coach B. — whether they end up buying a policy or not — has the best possible experience.

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