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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.
