• 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 different tenures. However, both life insurance and fixed deposits serve your different needs.

    Comparison between Life Insurance and Fixed Deposit

    Category Fixed Deposit Life Insurance
    Tenure 7 days to 10 years Minimum of 10 years
    Returns Fixed interest rate Depends on the market
    Tax Benefits May not be provided Tax benefits can be availed
    Withdrawal Premature withdrawal is allowed Depends on the type of life insurance
    Loan Option Loans can be availed Loans can be availed

    Type of Fixed Deposit and Life Insurance Policy

    Fixed Deposits

    The different types of FDs that are offered are mentioned below:

    • Tax-saving FD
    • Non-Cumulative FD
    • Cumulative FD
    • Regular FD

    Life Insurance

    The different types of life insurance policies that are offered are given below:

    • Retirment plans
    • Child insurance plans
    • Group life insurance
    • Whole life insurance
    • Moneyback policy
    • Endowment plans
    • Unit Linked Insurance Plans
    • Term insurance plans

    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. 1,000 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 years and 5 years is applicable to regular life insurance and ULIP plans, respectively.

    FAQs Related to Fixed Deposit vs Life Insurance

    1. Can I get risk coverage with my fixed deposit account?
    2. No, fixed deposit accounts do not provide risk coverage. However, you can get assured returns on your investments with your FD account.

    3. What is the minimum tenure of investment in a fixed deposit account?
    4. You can invest in a fixed deposit account for a minimum tenure of 7 days.

    5. Can I withdraw my fixed deposits in case I have an urgent financial need?
    6. Yes, you can withdraw your fixed deposits to meet your emergency expenses by giving prior notification to your bank.

    7. Can I get tax benefits by purchasing life insurance?
    8. Yes, you can get tax benefits under section 80C and 80D of the Indian Income Tax Act, 1961 by purchasing life insurance policies.

    9. What is the basic difference between fixed deposit and life insurance?
    10. Fixed deposit is an investment product meant for savings while life insurance is an insurance product primarily designed for risk coverage and savings.

    11. Can I take loan against my FD?
    12. Yes, you can take loan against your FD.

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