This post is part of a series of posts that discuss about the buying term insurance and invest the rest in detail. To access the other posts in this series, click here.
How can one implement a buy term and invest the rest plan or a BTITR plan practically ? One method will be to devise a plan that will take out part of the discipline that will be required for a BTITR plan. A Regular Savings Plan or RSP, in short, which are applicable to unit trusts would be appropriate. This involves the investment of a fixed amount of money into the unit trust periodically.
However, I would prefer to invest in an low-cost Exchange Traded Fund or ETFs in short such as the STI ETF or the DBS STI ETF 100 since their performance is likely to be superior to unit trusts. But these ETFs do not have the equivalent of a RSP thus one will need discipline to purchase these ETFs manually on SGX periodically.
One solution would be to participate in the Philips Share Builders Plan or PSBP in short. This is similar to a RSP except that you will be purchasing counters on the SGX instead. Furthermore, the minimum investment amount is only $100 monthly and this can be done through GIRO deductions. As such, this takes the hassle out of purchasing these ETFs manually and it will also help to maintain discipline in implementing such a plan since the PSBP simplifies the purchasing procedure.
Thus what one can do is to compute the amount of money for investing, which is the difference between the monthly premiums between the life insurance and a comparable term insurance. Once this is done, be ready to set aside this amount of money from your salary or any other sources of income every month. Next, you can apply for the PSBP to deduct this amount of money through GIRO for the purchase of the ETFs every month. After that, all you have to do is to continue this plan to continue to acquire more of the ETFs. Dividends that are being distributed from these ETFs should also be reinvested to acquire more of the ETFs too and this will help to compound your returns at a higher rate. Over time, the value of your investments should increase and provide coverage which can be more than the sum assured for a comparable life insurance policy once your term insurance coverage ceases.
Posts
