Fixed deposit VS life insurance – where should I invest?
There are many financial and insurance products available in the market wherein you can invest and receive higher returns on your investments. Among the products available in the market, fixed deposit (FD) and life insurance (LI) are the two most popularly used investment products. Although life insurance is an insurance product, many people use life insurance as an investment product. On the other hand, fixed deposit is a purely investment product wherein you can invest for varying tenures. However, both life insurance and fixed deposits serve your different needs.
Know about fixed deposit & Life Insurance
Fixed deposits are investment products. You can invest in fixed deposits for fixed tenures as per your convenience and get attractive returns on your investments at maturity. Normally, banks do not allow you to withdraw your deposits before a given maturity date. But, with prior notification to bank, you can withdraw your fixed deposits. These deposits allow you to invest for a minimum period of 7 days to a maximum period of 10 years.
On the other hand, life insurance is an insurance product which you buy from a particular insurance provider/company by paying a specific amount of money as premiums. A life insurance policy provides an assured amount of sum to a nominated individual upon the death of the insured person. Life insurance policies are normally divided into two types – whole life insurance and term life insurance policies. You can buy these policies for different tenures based on your requirements. Not only these policies provide risk coverage, you can also use these policies to pay off your medical bills, fund children’s education and plan for your retirement.
Benefits of investing in fixed deposits
Fixed deposits are savings products offered by banks and you can enjoy a wide range of benefits by investing in them. Mentioned below are some of the major benefits you can enjoy by investing in fixed deposits:
- Fixed deposits encourages you to save for a fixed tenures.
- It provides you higher interest rates on your savings compared to the interest you receive by investing in a normal savings account.
- You can get assured returns on your investments provided you don’t withdraw them prematurely.
- In case your cash flow squeezes, you can withdraw your fixed deposits to meet your emergency financial needs.
- Fixed deposits enable you to choose your interest payment options. You can receive it either at maturity or annually or monthly based on the term you chose.
- FD comes with flexible investment tenures. You can choose your investment tenures as per your convenience that normally ranges from 7 days to 10 years.
- You can invest in multiple fixed deposit accounts provided you have different goals of investments.
Benefits of buying life insurance
Like fixed deposits, life insurance has its own set of benefits. It comes with the following benefits:
- Life insurance policyholders can avail tax benefit under section 80C and 80D of the Indian Income Tax Act, 1961.
- Life insurance provides risk coverage and takes care of your near and dear ones even in your absence.
- Life insurance coverage lasts for longer duration, more than the premium paying period.
- You can choose from a wide range of plans such as term plan, whole life plan, senior citizen plan, retirement plan etc. as per your requirements.
- It offers asset protection as well as access to cash.
Fixed Deposit Vs Life Insurance – which is best for you?
Fixed deposit is always a better option to invest as it is purely designed for your investment and savings related needs. If your intention is to save and invest for the future, it is advisable you invest in fixed deposits. Listed below are some of the major differences between fixed deposits and life insurance.
- Fixed deposit is a purely investment product whereas life insurance is an insurance product. Investment is something that helps you save for the future whereas insurance is something which you purchase for risk protection and protect your family in our absence.
- Fixed deposits are best for both short and medium term investments whereas life insurance plans are designed for long term investments. You can invest for a period of as low as 7 days in fixed deposits unlike a life insurance plan wherein you need to invest for at least 10 years.
- You can invest a minimum amount of Rs. 1000 in bank fixed deposits whereas in case of life insurance, the minimum premium is different for different plans based on the insured individual’s age, gender, policy term and premium payment condition.
- Fixed deposits offer fixed returns on investments and it is mentioned in the beginning when you open your deposit. But, investment in Unit Linked Life Insurance Plans is subject to market risk. The fund value you receive by investing in these plans are affected by the prevailing market condition.
- Fixed deposits add to your habit of savings whereas life insurance plans are purchased out of caring and fear that your near and dear ones may face some risks in future.
- Both fixed deposits and life insurance policies can be withdrawn. You can withdraw your fixed deposits at any time by sending a notification to your concerned bank whereas a lock in period of 3 and 5 years is application to regular life insurance and ULIP plans respectively.
Even if you don’t get any tax benefit for investing in fixed deposits, it is an ideal product to invest in if you want to get fixed returns on your investments. So, if you want to earn on a regular basis, a fixed deposit account can be the perfect choice. Invest in fixed deposits and get income in the form of interest. Fixed deposit is the most preferred choice of investment among senior citizens.
- Can I get risk coverage with my fixed deposit account?
No, fixed deposit account does not provide risk coverage. But, you can get assured returns on your investments with your FD account.
- What is the minimum tenure of investment in a fixed deposit account?
You can invest in a fixed deposit account for a minimum tenure of 7 days.
- Can I withdraw my fixed deposits in case I have an urgent financial need?
Yes, you can withdraw your fixed deposits to meet your emergency expenses by giving prior notification to your bank.
- Can I get tax benefits by purchasing life insurance?
Yes, you can get tax benefits under section 80C and 80D of the Indian Income Tax Act, 1961 by purchasing life insurance policies.
- What is the basic difference between fixed deposit and life insurance?
Fixed deposit is an investment product meant for savings while life insurance is an insurance product primarily designed for risk coverage and savings.
- Can I take loan against my FD?
Yes, you can take loan against your FD.