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Need assistance in choosing the right insurance plan? Get a call from our Expert.

Need assistance in choosing the right insurance plan?Get a call from our Expert.

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in. T&C apply.

Fixed deposit vs life insurance – Which is the better investment?

Various financial instruments can help you secure your finances. Fixed deposits and life insurance plans are the two most popular investment products in the market today that people use for financial planning. While fixed deposit is an investment product, life insurance is an insurance plan. However, life insurance also serves the purpose of investment for many people. 
 

With the advancement in fintech, you can buy online life insurance and fixed deposit plans and save your time and energy. Both these investment products serve different purposes, and as an investor, knowing the FD vs insurance difference can help you plan your investments prudently. 

Understanding FD Investment

Fixed deposits are an investment option offered by banks and non-banking financial institutions (NBFCs). FDs provide a fixed interest rate over a predetermined period. The return on fixed deposits is not very high, and they are primarily used for capital preservation. 
 

The various types of FDs available to Indian investors are:
 

  • Standard fixed deposits
  • Tax*-saving fixed deposits
  • Special fixed deposits
  • Regular income fixed deposits
  • Senior citizens fixed deposits

Understanding Life Insurance for Investment

A life insurance plan is an insurance product that financially safeguards the policyholder and their nominees in the unfortunate event of their death or other covered incidents during the policy term. A life insurance plan offers maturity benefits or death benefits, providing a protective financial umbrella to your loved ones.
 

The various types of life insurance plans available to Indian investors are:
 

  • Retirement plans
  • Child insurance plans
  • Whole life insurance plans
  • Endowment plans
  • Money-back insurance plans
  • Unit Linked Insurance Plans (ULIPs#)
  • Term insurance plans

Difference between Fixed Deposit and Life Insurance

To understand which investment option is better, you must first understand the FD vs life insurance difference.
 

Particulars

Fixed Deposits

Life Insurance

Tenure

You can create a fixed deposit for a minimum of 7 days and a maximum of 10 years.

Life insurance plans offer life coverage and guaranteed returns for up to the age of 100 years in some cases. However, you need to be at least 18 to get this life coverage.

Investment

The minimum investment amount for an FD scheme is ₹1000, and there is no maximum limit for it.

The life insurance policy premium differs for various plans and depends on several factors such as age, health condition, location of the policyholder and policy value.



Returns

The FD returns are fixed by the bank at the time of opening an FD account. The interest is calculated on a quarterly basis.

Monthly income plans offer monthly income to the policyholder to meet their routine expenses, while savings plans such as guaranteed return plans offer maturity benefits when the policy duration ends. The returns on a guaranteed return plan are higher than FD returns.

Taxation*

Normal FD investments do not provide tax* benefits. You can avail of tax* benefits by investing in a tax*-saving FD plan.

You can avail of tax* deductions on life insurance policy premiums under Section 80C of the income tax* act. The maturity amount of a life insurance policy is fully exempted from tax* under section 10(10D) if its premium does not go beyond 10% of the sum assured.

Withdrawal

You have the option of partial withdrawal in an FD. However, it may negatively affect the interest rate and attract a penalty from the bank.

You can withdraw from a life insurance plan once the 3-year lock-in period is over.

Which is Better: Fixed Deposit or Life Insurance?

  • Fixed deposits and life insurance plans serve different purposes. While FDs inculcate the habit of saving, life insurance provides financial security to deal with unforeseen and unfavourable circumstances. 

  • The returns on FDs are low, but they are predetermined. Life insurance usually offers better returns than FDs.

  • FDs are suitable for short-term as well as long-term investments. On the other hand, life insurance is a long-term investment. Since you cannot withdraw funds before the 3-year lock-in period ends, you must compulsorily invest for a minimum duration of 3 years, which acts like a compulsory saving. 

  • Moreover, if you are looking for tax* benefits, life insurance plans are a better option since you can only get tax* benefits on a tax*-saving FD in the case of fixed deposits.

Securing your Future with Tata AIA Life Insurance Plans

If you seek the financial security of your loved ones even when you are not with them anymore, you can invest in life insurance plans. A life insurance plan can assist you in meeting your long-term financial goals, like funding your child’s education, having a retirement corpus, having funds for loan repayments, etc. 
 

Buying a life insurance policy from a reliable insurance provider like Tata AIA Life Insurance Company brings you several benefits, including a 4-hour express claim settlement facility, transparent claim processing, a high claim settlement ratio, and a nationwide presence.

Wrapping Up

Investment is essential to counter the impact of inflation and allow a scope of growth to your savings. Fixed deposits and life insurance plans are two popular investment options available in India. Both these options have their features and benefits, and you can choose the one that meets your financial goals and life objectives.

 

Discover Tailored Financial Planning Solutions to Secure your Future

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Do I get risk coverage with fixed deposit plans?

No, fixed deposit plans do not offer risk coverage. However, these plans have minimal risk as they provide guaranteed returns.

Will I get tax* benefits on life insurance?

Yes, you can get tax* benefits under Section 80C of the Income Tax* Act on your life insurance plans.

Can I take a loan against FDs and life insurance policies?

Yes, you can take a loan against FDs and life insurance policies.

What is the minimum investment tenure for a fixed deposit?

The minimum tenure of an FD is 7 days. However, you must invest for a reasonable time to get substantial returns on your investment.

Disclaimers

  •  Insurance cover is available under the product.

  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • ULIP#:

    • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

    • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

    • Past performance is not indicative of future performance.

    • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

    • Please make your own independent decision after consulting your financial or other professional advisor.