IF you are given an option to choose between an apple and an orange, what would you choose? Or, say, for instance, either a house or a car of the same price? In either case, you will need to assess the pros and cons. But given the same quality or quantity, the ultimate choice would boil down to “what’s in it for me?” There explains what a person values more.
In financial planning, there is an emphasis of insurance in most of investments. In education planning, for example, you will need insurance while investing for future needs, i.e., tuition, allowances, etc., of your children. Others buy insurance to protect estate from taxes. If you are inclined to personal finance, your advisor must have told you about BTID and VUL. A variable unit linked (VUL) is an insurance product with an investment portion. On the other hand, BTID is coined after buy term and invest the difference. VUL is a type of life insurance where a certain portion of your premium is allocated to your insurance and the other goes into an investment of chosen funds. The BTID is a strategy where you buy term insurance and the decision is up to you where to invest the remaining difference of your budget.
This has been a long debate. Whichever you choose, there are more to prepare than getting either. Let me point out three important matters:
Financial goal
I keep repeating the importance of establishing financial goals in my previous articles. Trust me, this is an important matter you should not take lightly. And how do you set a goal? It should be S.M.A.R.T. Like, is it specific? Is it measurable? Is it attainable? Is it realistic? Is it time-bound?
Once you have established your goal, try to identify the right vehicle helping you achieve it! Whether you choose a VUL or a BTID, ask yourself if you’re disciplined enough to make the move and commit to it until you reach the finish line! Let me tell you, building wealth is not easy. Make sure that you put your goal in writing. And review it periodically so you won’t lose focus.
Self-discipline
Whatever you choose, discipline is still its lifeblood. In BTID, avoid turning it into a BTSD or buy term and spend the difference; or BTWD, when you buy term and waste the difference. However, if you are determined and disciplined to invest and grow your money into your own choice of investment strategy, this would be very beneficial. As for the VUL, it is a disciplinarian that forces an insured to pay a premium chunked into the investment and insurance automatically. Although the premium is usually more costly compared to term insurance, the fund value accumulated through your premium payments is still beneficial.
Your prime consideration in buying life insurance should be a sufficient amount of cover to meet your family’s needs. In BTID, term insurance, which can give you a high amount of cover, is usually cheaper than a VUL. That would mean a bigger allocation for your investments and, in turn, means greater discipline in properly allocating your investments. A VUL, on the other hand, needs a person’s correct attitude on spending to ensure premium payment is sustained by the insured. Whatever you choose, both emphasize the significance of discipline and your goal of sustainability.
Decision
Seek the help of financial experts. These are professionals from whom we could seek guidance in making financial decisions. Self-medication could prove as bad as taking the wrong drug in the belief it cures you soon enough. Seriously, have a SWOT (which stands for strength, weakness, opportunities and strengths) analysis and discuss this with a financial professional. Look for people who could explain the two sides of a coin.
Remember the decision process as if you are building your own business. You want your business to become successful and so you must conclude at the most qualified decision. There are no perfect decisions though, but there are the best!
Whether BTID or VUL, remember that your financial goal is the heart; your self-discipline is the blood and your decision is the brain. You must note their importance.
Don-Don Crisostomo is a registered financial planner of RFP Philippines. To learn more about retirement and investing, attend the Fourth Chartered Trust and Estate Planner (CTEP) Program from January 23 to February 27, 2016. To inquire, e-mail info@rfp.ph or text <name><e-mail> <CTEP> at 0917-9689774.
1 comment
My 2 cents’ worth: The proper definition of VUL is Variable Universal Life, NOT Variable Unit-Linked. The former means Variable (investment linked, beyond client’s control) and Universal (flexible, client initiated) and is therefore a TRUE definition of the product. Unit-Linked refers also to investment: the “linkage” to a “Unit Trust” account Therefore, using the term Variable Unit-Link is a tautology; i.e., using 2 or more words with similar meaning. Therefore, saying Variable (investment) Unit-Linked (investment) – does not make sense at all. Cheers!