Fixed Deposit vs Life Insurance
Fixed Deposit and Life Insurance are common investment avenues, to help you save money. Banks, NBFCs and other companies offer FD, while insurance corporations are the only providers of insurance. The main difference between the two lies in the fact that the former is an investment and the latter is risk cover.
Read on to know which is a better suited investment option, as per your needs.
DID You Know ? Bajaj Finance is offering interest rates up to 7.10% on Fixed Deposit with 0.10% extra for online FD and 0.25% more for senior citizens. Invest Online
Here's a quick comparison between a Fixed Deposit and a Life Insurance Policy.
Tenure
- Fixed deposits are suitable for short-term investments ranging from 12–60 months.
- On the other hand, insurance has a term of 10 years extending up to a lifetime.
As an Investment:
- Usually you can open fixed deposit with a nominal sum such as Rs.25, 000. There is no upper limit on how much you can invest.
- Depending on how much you want to invest; the bank will calculate your interest. As a thumb rule, the more you invest, the higher your returns are.
- FD interest rates are higher than what is offered by a savings account.
- You can break an FD before its maturity if you are in urgent need of funds.
- Insurance premiums depend on the policy value. Your age and health status are some of the factors that influence this.
- You get benefits only when the policy matures, which usually takes 20–25 years.
Guaranteed Returns:
- You know the interest rate and the total amount that you will get on maturity of the FD beforehand. There are no fluctuations and the FD is not subject to market risks. You can use FD Calculator to know about your final maturity amount.
- In a life insurance policy, the bonus is declared at the end of the year. Also, Unit Linked Insurance Policy (ULIP) is subject to market risks, which is why your returns are uncertain
Flexible Withdrawal:
- In the case of a fixed deposit, you can end it before maturity. But remember that the interest earned will be less.
- In an insurance policy, you can withdraw funds after the lock-in period of 3 years has lapsed. In the case of ULIP, the lock-in period is 5 years.
Taxation:
- A fixed deposit is subject to tax if the total interest earned is more than Rs. 5, 000 per year.
- An insurance policy is entirely subject to tax rebate.
Loan against Investment:
Here’s a table to help you compare the differences between Life Insurance and Bajaj Finance Fixed Deposit easily:
| Particulars |
Life Insurance |
Bajaj Finance Fixed Deposit |
| Tenure |
Minimum tenure of 10 years |
Flexible tenures from 1 to 5 years |
| Investment amount |
Depend on insurance premiums as per policy terms |
Start with Rs. 25,000 |
| Assurance of returns |
Bonus is declared at year-end and in Unit-Linked Insurance Policies, returns are market-linked |
Assurance of guaranteed returns |
| Maturity of deposit |
On maturity of policy (20-25 years) |
On maturity of deposit, as per your choice |
| Premature withdrawal |
After lock-in period of 3-5 years |
After lock-in period of 3 months |
For those looking for a flexible investment option, Fixed Deposit is a better alternative as it enables you to grow your savings easily, as per your needs.
To know more about investing in Fixed Deposit and Insurance Policies, read on.
Types of FDs and Life Insurance Policies
Fixed deposits are of two types –
cumulative fixed deposit and
non-cumulative fixed deposit.
In cumulative fixed deposit, the bank or finance company pays the interest annually. In non-cumulative fixed deposits, the interest is paid at shorter intervals. You can choose either depending on your financial need and your investment goals.
Insurance is also of two types – whole life insurance and term life insurance. Essentially, it is a long-term investment. The most important aspect of life insurance is risk coverage. It provides the policy sum to the dependents of the policy holder in the event of his/her death. It also provides good return on investment, at maturity of the policy. One risk of the policy is that if you do not pay the premium for the entire lock-in period, you will not get any returns
