Last Updated on May 5, 2023 by Harshit Singh
If you want to invest in India, two options that you’ll probably come across quite often – fixed deposit and life insurance. Both investment options offer safety and assist in wealth creation, which is expected from every investment mode.
In this blog, we will explore which investment mode is best for you – fixed deposit or life insurance.
Table of Contents
Fixed deposit vs life insurance
The key difference between fixed deposits and life insurance is that fixed deposits are designed to meet your investment needs. In contrast, life insurance is meant to provide financial security to your family if something happens to you.
When comparing these options, it’s important to consider your investment goals. For example, fixed deposits are suitable for short-term and long-term investing goals, whereas life insurance is best for long-term goals.
Additionally, it’s worth noting that you can predict your returns with fixed deposits. Still, with some life insurance plans, like ULIPs, returns are subject to market changes and cannot be accurately estimated beforehand.
Key difference
| Particular | Fixed Deposit | Life Insurance |
| Tenure | 7 days to 10 yrs | Flexible tenure of 1 week to 10 yrs |
| Minimum investment | ₹1,000 | Varies from plan to plan |
| Returns | Guaranteed returns | Returns declared at the end of the year |
| Lock-in Period | 3 months | 3-5 yrs |
Advantages of investing in fixed deposit
Here are the benefits of investing in a fixed deposit –
- You can invest your money for a fixed period.
- Offer higher interest rates compared to regular savings accounts.
- Earn even higher returns if you do not withdraw your investment before maturity.
- Withdraw your investment prematurely in case of a financial emergency.
- The choice to receive interest payments at maturity or on a monthly/annual basis, depending on the term.
Advantages of investing in life insurance
Here are the benefits of investing in a life insurance policy –
- Provides financial protection in case of unforeseen events like the policyholder’s death, ensuring financial stability for the family.
- Typically last longer than the premium payment term.
- Choose from various life insurance products, including term insurance, endowment, ULIP, money back, retirement, and child life plans, depending on your coverage needs.
- Enjoy tax exemptions under Section 80C and 10(10D) of the Income Tax Act with a life insurance policy.
Types of fixed deposits to invest in India (2023)
The different types of fixed deposits available in India are –
- Standard fixed deposit
A standard fixed deposit scheme is a traditional insurance plan, commonly available across all banks in India. It includes a predetermined interest rate for a fixed tenure ranging from 7 days to 10 yrs with higher rates than a savings account.
- Tax-Saving fixed deposit
Tax-saving fixed deposits are available in almost all banks and provide tax benefits up to Rs. 1.5 lakh per year. These fixed deposits have a lock-in period of five yrs and allow only one-time lump sum deposits.
- Special fixed deposit
Like traditional fixed deposits, these funds are also invested for a set duration. However, the distinguishing feature of special fixed deposits is that if you don’t withdraw the money during the specified tenure, you will earn a higher interest rate than standard fixed deposits.
- Regular income fixed deposit
For individuals who rely on bank deposit interest to cover their monthly expenditures, this kind of fixed deposit is the most suitable option. Under regular income fixed deposits, you can choose between receiving interest payouts monthly or quarterly.
- Senior citizen fixed deposit
The senior citizens’ fixed deposit scheme is for those over 60 yrs. It offers higher interest rates, about 0.50% above regular rates, and has flexible tenures.
Types of life insurance plans available in India (2023)
The different types of life insurance policies available in India are –
- Retirement plans
Retirement plans are designed to build a corpus for post-retirement days, offering the potential to accumulate significant wealth. In addition, retirement plans offer tax-free returns on maturity and multiple withdrawal options like regular income or lump sum payments.
- Child insurance plans
A child insurance plan is a financial planning tool for parents to build a corpus for their child’s future. It provides maturity benefits and insurance coverage for the parent. In addition, parents can choose how and where the money is invested, and child plans offer dual tax savings under Section 80C and 10(10D) of the Income Tax Act of 1961.
- Whole life insurance
Whole life insurance provides life coverage for 99 yrs, making it ideal for those with long-term dependents. In addition, it offers stability with guaranteed income on maturity and tax-free returns.
- Money-back insurance policy
Money-back plans offer regular payouts at steady intervals, making them ideal for meeting short-term financial goals. This plan provides increased liquidity and the benefit of a lump sum payout at maturity. In addition, the regular payouts are tax-free and start immediately after the premium payment term ends.
- Endowment plans
Endowment plans offer guaranteed returns and life insurance coverage, with a lump sum payout on maturity and death benefit for nominees. Flexible premium payment methods and bonus payouts are also available. In addition, returns on maturity are tax-free, and premiums can be claimed as deductions under Section 80C.
- Unit Linked Insurance Plans (ULIPs)
A Unit Linked Insurance Plan (ULIP) offers life cover and investment opportunities with the potential for market-linked returns. With a 5-yr lock-in period, ULIPs allow for investment in bonds, equities, and hybrid funds, with flexible investment options and the ability to alter your investment strategy. They also provide partial withdrawals, fund-switching, and tax-free maturity amounts.
- Term insurance plans
Term insurance is vital to financial planning for the primary wage earner, providing affordable financial protection. Premiums are lower than other life insurance products, making it accessible. The cover can be used for daily expenses, education, or outstanding debts.
FD vs Life Insurance – Which is better?
The choice between fixed deposits and life insurance depends on your specific needs. For example, fixed deposits may be your best option if you seek returns due to their interest rates. However, a life insurance plan can provide a financial safety net for you and your family if you want to manage risk.
FAQs
What is the minimum investment tenure for a fixed deposit account?
Can I withdraw money from a fixed deposit account in the case of a financial emergency?
What are the tax benefits associated with a life insurance policy?
What is the primary difference between fixed deposit and life insurance?
Can I take a loan against my fixed deposit?
As an investment fanatic, I’ve dabbled in early-stage startups, mutual funds, gold, stocks, smallcases, and real estate to identify which assets generate the highest ROI. At Tickertape, I’m dedicated to presenting my learning and providing insightful suggestions to help my readers make sound investment decision.
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