Fixed Deposit vs Life Insurance

Fixed Deposit and Life Insurance serve different investment goals, where fixed deposits are more suitable for short to medium-term investments, while life insurance is tailored towards long-term investments.
FD vs Life Insurance
4 mins
05 January 2024

FD vs Life Insurance

Fixed Deposits (FDs) and Life Insurance both offer unique benefits, but they cater to different financial objectives. While FDs guarantee capital preservation and steady returns, life insurance policies provide financial protection and long-term savings with the added benefit of life cover. This article explores the intricacies of FDs and life insurance, delving into their respective features, advantages, and drawbacks. By the end, readers will have a clearer understanding of which option aligns best with their financial goals and aspirations.

Here’s a quick look at the features and benefits offered on fixed deposits by Bajaj Finance.

Interest rate

Up to 8.85% p.a.

Minimum tenure

1 year

Maximum tenure

5 years

Deposit amount

Minimum deposit of Rs. 15,000

Application process

Easy and paperless online process

Online payment options

Netbanking and UPI

Life Insurance Vs Fixed Deposit


Fixed Deposit

Life Insurance


1 year to 5 years

Minimum of 10 years


Fixed interest rate

Depends on the market

Tax Benefits

May not be provided

Tax benefits can be availed


Premature withdrawal is allowed

Depends on the type of life insurance

Loan Option

Loans can be availed

Loans can be availed

Features and Benefits of Fixed Deposits (FD)

  • Safety: FDs are considered a safe investment as they are typically offered by banks and financial institutions with a track record of stability.
  • Assured Returns: FDs offer a fixed interest rate, ensuring predictability in returns.
  • Various Tenures: You can choose FD tenures that suit your financial goals, ranging from a few months to several years.
  • Liquidity: While there is a lock-in period, FDs offer relatively high liquidity compared to other long-term investments.
  • Tax Benefits: Some FDs like Tax-Saving FDs offer tax benefits under Section 80C of the Income Tax Act.

Features and Benefits of Life Insurance

  • Financial Protection: Life insurance provides financial security to your dependents in case of your untimely demise, ensuring they are taken care of financially.
  • Premiums and Payouts: You pay regular premiums, and the policy pays out a lump sum amount or periodic payments upon the insured's death or maturity.
  • Various Types: There are various types of life insurance policies, including term insurance, whole life insurance, and endowment policies, offering different features to cater to different needs.
  • Riders: Additional features or riders can be added to enhance coverage, such as critical illness riders or accidental death riders.
  • Tax Benefits: Premiums paid and payouts received under life insurance policies may be eligible for tax benefits under the Income Tax Act.
  • Wealth Accumulation: Some life insurance policies, like endowment plans, offer a savings component that allows you to build wealth over time.
  • Peace of Mind: Knowing that your family is financially protected can provide peace of mind and reduce stress about their future.

Types of FDs and life insurance policies

Fixed Deposits:

  • Tax-saving FD: FD designed for tax benefits under Section 80C of the Income Tax Act.
  • Non-Cumulative FD: FD with periodic interest payouts.
  • Cumulative FD: FD where interest is reinvested and paid at maturity.
  • Regular FD: Standard FD with a fixed tenure and interest rate.

Life Insurance:

  • Retirement plans: Policies designed to provide income post-retirement.
  • Child insurance plans: Policies aimed at securing a child's future education or financial needs.
  • Group life insurance: Coverage provided to a group of individuals, often by employers.
  • Whole life insurance: A policy covering the insured's entire life.
  • Moneyback policy: Policies that pay periodic survival benefits during the policy term.
  • Endowment plans: Policies that provide both insurance coverage and savings.
  • Unit Linked Insurance Plans: Combines insurance with investment in market-linked funds.
  • Term insurance plans: Pure insurance policies with no savings component, offering a high coverage amount for a specified term.

Fixed Deposit Vs Life Insurance - Which is Best for you?

When it comes to financial planning, choosing the right investment option can be a challenging task. Among the most popular and reliable investment options are the fixed deposit and life insurance. While both offer guaranteed returns, there are some differences to consider when deciding which one is suitable for you.

Fixed deposits are a type of investment where the investor deposits a certain amount of money with a bank or financial institution for a specific period of time. The interest rate for a fixed deposit is fixed and agreed upon at the time of deposit, and interest is paid at maturity. This investment option is considered low risk as the amount invested is not subject to market fluctuations.

On the other hand, life insurance is a contract between the insurer and policyholder, where the insurer guarantees to pay a sum of money to the beneficiaries upon the death of the policyholder. Life insurance policies can also offer savings and investment components, allowing policyholders to accumulate funds over time for future use.

When it comes to choosing between fixed deposits and life insurance, the decision ultimately depends on the individual's financial goals and needs. For those looking for a guaranteed return on investment, a fixed deposit is a better option. However, if the goal is to provide financial protection and security for loved ones in the event of death, life insurance can serve as an excellent investment option.

In conclusion, both fixed deposits and life insurance are reliable investment options that offer guaranteed returns and financial stability. It is essential to conduct thorough research and consider one's financial goals and needs before deciding which investment option is most suitable for them.

Estimate the interest earned on your fixed deposit by utilizing an FD interest calculator to perform return calculations, ensuring financial clarity.

Frequently asked questions

Can I get risk coverage with my fixed deposit account?

No, fixed deposits don't offer any risk coverage. It is only a low-risk investment option with guaranteed returns.

Can I withdraw my fixed deposits in case I have an urgent financial need?

Yes, you can withdraw your fixed deposits prematurely, but it will attract a penalty fee.

Can I get tax benefits by purchasing life insurance?

Yes, you can claim tax benefits under Section 80C of the Income Tax Act by purchasing life insurance.

What is the basic difference between fixed deposit and life insurance?

The primary difference is that fixed deposit is a low-risk investment option that offers a guaranteed return, while life insurance provides financial protection and security for loved ones in the event of death.

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As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.