Buy Term Invest The Rest vs Whole Life (Explaining The Numbers)

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Whenever it comes to life insurance, the most common question that clients would ask is: “Which is better for me? Buy term invest the rest or a whole-life plan?”

In this article, I would like to walk you through the numbers behind these two strategies so that you can have a better understanding of the quantitative behaviour of each of these strategies and find out which strategy is better for you.

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What is BTIR and the 2 types of approaches?

Before we delve into this topic, let me just take some time to explain the 2 different approaches available under the Buy-Term-invest-The-Rest strategy.

Buy-term-invest-the-rest is a strategy where you spend a fraction of your budget on term insurance and invest the differences instead of spending the entire budget on whole-life insurance.

The common understanding is that if we were to invest the differences instead of utilizing the entire budget on whole-life insurance, we will be better off as the returns from the buy-term-invest-the-rest approach will be higher than the returns from whole-life insurance.

Having said that, there are two ways in which you can construct a buy-term-invest-the-rest portfolio.

The first is an apple-to-apple replacement where you design your term insurance in a way that mimics the exact behaviour of whole life insurance that covers you for your life.

The second is the more common approach of BTIR where you design your term insurance in a way that just covers you for a pre-determined period and beyond that,