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How to BTIR (Buy Term and Invest the Rest)?

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Old 19-07-2011, 06:17 PM   #1
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Lightbulb How to BTIR (Buy Term and Invest the Rest)?

Hi all,

After reading the excellent sticky thread by Rommie2k6, I've been trying to figure out how to BTIR (Buy Term and Invest the Rest).

As a first step, I spoke to a tied insurance agent to get some numbers.

This is the summary.

(My) Age: 35, non-smoker, no history of any problem.
Coverage: 500k (death), with critical illness (CI).
Premium mode: annual.

60 years term insurance
There's no 60 year term insurance. Got to buy two 30 year ones serially.
I can't remember the breakdown between the two 30 year terms. The second one should be a lot costlier, even if I remain healthy.

Total cost over 60 years: $84k
Coverage: Until I'm 95.
Cash value at the end: $0.

ILP
Total cost (over 30 years): $63k
Coverage: Until I'm 95.
Non-guaranteed cash value at the end of 30 years: anything > $0

Questions
  1. Is there such a thing as 60 year term insurance?
  2. It's more expensive to go term than ILP. What's wrong with this picture?
  3. Buying only one term policy
    • Let's assume I only buy the first 30 year term to cover until 65 and that the cost is only $30k. This is clearly $35k cheaper than the ILP.
    • To ensure I have $500k coverage after 65, I need to grow that $35k into $500k over 30 years myself.
    • Even if I've $35k upfront to invest, I will need an annually compounded return of 9.3% over 30 years to grow $35k to $500k. This kind of return is obviously very difficult.

Anyone can enlighten?
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Old 19-07-2011, 10:43 PM   #2
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Hi all,

After reading the excellent sticky thread by Rommie2k6, I've been trying to figure out how to BTIR (Buy Term and Invest the Rest).

As a first step, I spoke to a tied insurance agent to get some numbers.

This is the summary.

(My) Age: 35, non-smoker, no history of any problem.
Coverage: 500k (death), with critical illness (CI).
Premium mode: annual.

60 years term insurance
There's no 60 year term insurance. Got to buy two 30 year ones serially.
I can't remember the breakdown between the two 30 year terms. The second one should be a lot costlier, even if I remain healthy.

Total cost over 60 years: $84k
Coverage: Until I'm 95.
Cash value at the end: $0.

ILP
Total cost (over 30 years): $63k
Coverage: Until I'm 95.
Non-guaranteed cash value at the end of 30 years: anything > $0

Questions
  1. Is there such a thing as 60 year term insurance?
  2. It's more expensive to go term than ILP. What's wrong with this picture?
  3. Buying only one term policy
    • Let's assume I only buy the first 30 year term to cover until 65 and that the cost is only $30k. This is clearly $35k cheaper than the ILP.
    • To ensure I have $500k coverage after 65, I need to grow that $35k into $500k over 30 years myself.
    • Even if I've $35k upfront to invest, I will need an annually compounded return of 9.3% over 30 years to grow $35k to $500k. This kind of return is obviously very difficult.

Anyone can enlighten?
Firstly, you shouldn't be comparing 60 yr terms. You do not need to get coverage until 95.

You should be looking at covering yourself until 65. After that, the premiums for life coverage become too expensive, because the probability of dying increases dramatically after 65.

Hence this is where the invest part comes in, from 35 to 65, you have 30 yrs to build up yr nest egg for retirement and fulfill other financial goals you have.
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Old 20-07-2011, 12:16 AM   #3
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This is the summary.

(My) Age: 35, non-smoker, no history of any problem.
Coverage: 500k (death), with critical illness (CI).
Premium mode: annual.

Total cost over 60 years: $84k
Coverage: Until I'm 95.
Cash value at the end: $0.

ILP
Total cost (over 30 years): $63k
Coverage: Until I'm 95.
Non-guaranteed cash value at the end of 30 years: anything > $0

Questions

[*]Is there such a thing as 60 year term insurance?
There is a term plan that covers till age 90.

[*]It's more expensive to go term than ILP. What's wrong with this picture?
Why there is a difference in the number of years used to calculate the total cost? i.e how come its 60 years for term but over 30 years for ILP?
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Old 20-07-2011, 02:26 AM   #4
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Sorry to hijack this thread but I wana ask something along the same line. What are the good term insurance plan out there that is worth to buy? I have lost all trust for insurance agents because they kept upselling plans that is beneficial for themselves only.
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Old 20-07-2011, 09:29 AM   #5
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ask yourself do you need a 500k coverage? such coverage with CI is going to be expensive.

BTIR is about being prudent and minimising your insurance cost by protecting what you really need.

for example, it does not make economical sense for a single person with no dependent to get such a high coverage. instead, get yourself a H&S that covers the co-insurance and deductible and probably a disability income insurance should you be out of job and not able to look after yourself.

if you are married and have dependents, then you should be looking at a reducing term insurance. because your dependent needs upon you is at a decreasing function of your age. when you retire, your retirement funding should ideally take care of your loss of income after quitting your job.
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Old 20-07-2011, 06:23 PM   #6
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Red face

Great feedbacks guys. Here's my consolidated responses.

You do not need to get coverage until 95. You should be looking at covering yourself until 65. After that, the premiums for life coverage become too expensive, because the probability of dying increases dramatically after 65.
To clarify, I'm not looking to just scrape by after I've retired. I would like to continue going nearby countries for holiday once a year, live in my current flat, eat at a coffeeshop without worrying too much, etc. Basically, not have to count pennies.

Let's say I miraculously have $500k cash at 66. That should allow me to relax and do those things I mentioned. But (touchwood) I contract a CI that cost $500k to treat. Without insurance, my $500k cash gets wiped out. Instead of being self-sufficient and chill for my remaining days, I have to burden my kids.

My parents are healthy. This may sound cold but I see many of their peers being struck with illnesses that don't kill them fast but leaves them with six digit treatment costs. I'm hedging against this.

from 35 to 65, you have 30 yrs to build up yr nest egg for retirement and fulfill other financial goals you have.
Even if I've $100k of investable cash right now, to build it up to $500k in 30 years requires a 5.5 annually compounded returns. I dare say this is not something any man on the street can achieve.

There is a term plan that covers till age 90.
Which insurer? Can enlighten?

Why there is a difference in the number of years used to calculate the total cost? i.e how come its 60 years for term but over 30 years for ILP?
The ILP only need me to pay premiums for 30 years. After that, it'll continue to cover me till 95 (obviously by drawing down on the investment profits).


ask yourself do you need a 500k coverage?
$500k is just an example figure. Is $250k enough for CI treatments 30 years from now? By halfing the coverage, would Term become convincingly cheaper than the ILP? Logically, I would think not. Simplistically, just half the cost of both right?

if you are married and have dependents, then you should be looking at a reducing term insurance. because your dependent needs upon you is at a decreasing function of your age. when you retire, your retirement funding should ideally take care of your loss of income after quitting your job.
Yes I'm married with kids. Refer to top of this post for my concern on getting CI at 66yrs.
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Old 20-07-2011, 08:12 PM   #7
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the problem is : there are very few low cost term insurance.
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Old 20-07-2011, 08:19 PM   #8
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Wouldn't whole life better suit the situation since you looking to cover yourself after 65 years old?
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Old 20-07-2011, 09:09 PM   #9
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[*]It's more expensive to go term than ILP. What's wrong with this picture?

Anyone can enlighten?
In this picture, you didnt show the cost savings per month from buying the term. With the cost savings that one has, it has to be used to generate returns higher than ILPs. This is what those who strongly encourage BTIR think they will be able to do.

Also for BTIR "believers", they will not buy a term that will cover one till 90yrs old. Level Term will not be cheap as they will average out the mortality charges from 35 to 95 (in this case) and 95yrs mortality will be very expensive!!

Cheers.
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Old 20-07-2011, 09:39 PM   #10
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Hi,

You should not be focusing on the amount of $500K. To start off, do you have a "comprehensive" hospitalisation plan? If yes, this will take care of the cost of hospitalisation as well as relevant outpatient treatment. Note that I highlighted "comprehensive"

Next, ask yourself what would you use the $500k for? Is it for repayment of liability? You pointed out a very good point, that is not to burden your children for on going treatment.

Frankly speaking, nobody can tell what kind of health cost is it going to be like in the next 20-30 years. From a financial point of view, any coverage from $250K and above is a pretty good guide.

You also need to be realistic, if that $500K is something that you cannot compromise, then you must be ready to pay the premium.

Coming back to the hospitalisation plan, let me know if you need more info or would like to discuss further.

Cheers
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Old 20-07-2011, 10:38 PM   #11
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Let's say I miraculously have $500k cash at 66. That should allow me to relax and do those things I mentioned. But (touchwood) I contract a CI that cost $500k to treat. Without insurance, my $500k cash gets wiped out. Instead of being self-sufficient and chill for my remaining days, I have to burden my kids.

My parents are healthy. This may sound cold but I see many of their peers being struck with illnesses that don't kill them fast but leaves them with six digit treatment costs. I'm hedging against this.

Even if I've $100k of investable cash right now, to build it up to $500k in 30 years requires a 5.5 annually compounded returns. I dare say this is not something any man on the street can achieve.

$500k is just an example figure. Is $250k enough for CI treatments 30 years from now? By halfing the coverage, would Term become convincingly cheaper than the ILP? Logically, I would think not. Simplistically, just half the cost of both right?


Yes I'm married with kids. Refer to top of this post for my concern on getting CI at 66yrs.
Since your concern is hedging against getting CI at 66 years, why not consider a stand-alone CI protection plan till 99?
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Old 20-07-2011, 11:14 PM   #12
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Great feedbacks guys. Here's my consolidated responses.



To clarify, I'm not looking to just scrape by after I've retired. I would like to continue going nearby countries for holiday once a year, live in my current flat, eat at a coffeeshop without worrying too much, etc. Basically, not have to count pennies.

Let's say I miraculously have $500k cash at 66. That should allow me to relax and do those things I mentioned. But (touchwood) I contract a CI that cost $500k to treat. Without insurance, my $500k cash gets wiped out. Instead of being self-sufficient and chill for my remaining days, I have to burden my kids.
You have to set aside a reasonable amount of money accumulated with a BTIR strategy for self-insurance purposes instead of retirement purposes.

Let's say you have a budget of $X for insuranc:
Buy Term Invest the Rest means that instead of spending $X on an ILP that you pay until a certain age and let the units pay for the insurance (in which case you also do not use that money for retirement purposes) you spend $X as your budget for a "BTIR policy". If you require $500,000 for self-insurance, then you should accumulate another sum of money for retirement purposes as $X is for your insurance.

Even if I've $100k of investable cash right now, to build it up to $500k in 30 years requires a 5.5 annually compounded returns. I dare say this is not something any man on the street can achieve.
BTIR is not about having a lump sum immediately to invest. It's about investing [Budget for Insurance] - [Cost of Term]. Hence, if an ILP costs $5,000 a year (or whatever it is) and a term policy costs $1,500 (or whatever it is).

One also needs investment returns on an ILP. In fact, if the ILP performs at *only* 5.5%, you can expect the plan to lapse pretty quickly when one reaches older ages due to the high expense ratio. I believe a 30-year time frame is comfortable for a good amount of return.

Which insurer? Can enlighten?
An IFA can provide you competitive quotes.

The ILP only need me to pay premiums for 30 years. After that, it'll continue to cover me till 95 (obviously by drawing down on the investment profits).
The assurance charges for later years are extremely high. You can be paying tens of thousands of dollars a year to sustain the charges. Did your agent tell you the projection needed for the ILP to be paid for only 30 years and covered for life?

In any case, ILP is nothing more than an yearly-renewable term (YRT) pegged with investment funds with a whole lot of distribution costs and investment charges added onto it: http://sethwee.com/2011/07/04/double...r-premium-ilp/

$500k is just an example figure. Is $250k enough for CI treatments 30 years from now? By halfing the coverage, would Term become convincingly cheaper than the ILP? Logically, I would think not. Simplistically, just half the cost of both right?
A good H&S plan will cover most treatment costs for illnesses. Critical Illness coverage is more for income replacement and coping with a higher cost of living due to impairment. A BTIR strategy means that after your term ceases, you have a sum of money to self-insure against a higher cost of living if critically ill. When you are 65 and no longer working, you may not have a high need for income replacement. Your liabilities when you are old should decrease over the years. Once your term lapses, ideally you would have a sum of money to self-insure, and a good H&S plan to rely on for big bills.
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Old 20-07-2011, 11:16 PM   #13
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Sorry to hijack this thread but I wana ask something along the same line. What are the good term insurance plan out there that is worth to buy? I have lost all trust for insurance agents because they kept upselling plans that is beneficial for themselves only.
For your profile (twenty-somethings), there are term policies that are even more cost-effective than SAF Group Term, but since you do not want to deal with agents, you can just sign up for SAF Group Term (which comes with its share of caveats).
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Old 21-07-2011, 09:01 PM   #14
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A good H&S plan will cover most treatment costs for illnesses. Critical Illness coverage is more for income replacement and coping with a higher cost of living due to impairment. A BTIR strategy means that after your term ceases, you have a sum of money to self-insure against a higher cost of living if critically ill. When you are 65 and no longer working, you may not have a high need for income replacement. Your liabilities when you are old should decrease over the years. Once your term lapses, ideally you would have a sum of money to self-insure, and a good H&S plan to rely on for big bills.
good points which i second that.

focus on the top 3 CI cases in singapore. if you check the comprehensive H&S, those treatments are already covered by the H&S.
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Old 21-07-2011, 10:42 PM   #15
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Great feedbacks guys. Here's my consolidated responses.



To clarify, I'm not looking to just scrape by after I've retired. I would like to continue going nearby countries for holiday once a year, live in my current flat, eat at a coffeeshop without worrying too much, etc. Basically, not have to count pennies.

Let's say I miraculously have $500k cash at 66. That should allow me to relax and do those things I mentioned. But (touchwood) I contract a CI that cost $500k to treat. Without insurance, my $500k cash gets wiped out. Instead of being self-sufficient and chill for my remaining days, I have to burden my kids.
If you covered with a private shield plan and if your treatment costs are covered under the shield plan, you won't be paying for the full 500k. With a 3K annual deductible, and 10% co-insurance, your portion of the bill will be 50-60K.

Even if I've $100k of investable cash right now, to build it up to $500k in 30 years requires a 5.5 annually compounded returns. I dare say this is not something any man on the street can achieve.
You can't just look at a 1-time investment of 100K now, you should be setting a regular amt monthly/quarterly/annually.

Example:
Given that you have a 30 yr horizon, even at 4% compounded annual return and contributing 12K per year, your amt saved at the end of 30 yrs will be 670+K.
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