How do fixed deposit and life insurance differ? (2024)

There are numerous financial and insurance solutions available in the market that allow you to invest and earn bigger returns. The market’s most often utilized investment products are fixed deposits (FD) and life insurance (LI). Speaking of which, fixed deposit vs life insurance is always a brewing topic among investors

Despite the fact that life insurance is an insurance scheme, many utilize it as an investment. On the contrary, fixed deposits are solely an investment product that allows you to make investments over a wide range of time periods

Fixed Deposits

• Fixed deposits are available from banks, post offices, and NBFCs. You must invest a set amount of cash for a specific period of time. On your investment, you will earn a RBL bank fixed deposit interest rate. Upon maturity, you will receive the principal amount along with the earned interest.
• Fixed deposits can be used for both short-term and long-term investment reasons because their terms can range from seven days to ten years.
• A fixed deposit must have a minimum initial investment of Rs. 1000. Additionally, there is no upper investment limit. However, based on your investment amount, the bank will estimate interest quarterly.
• The returns are assured and chosen when a fixed deposit account is opened. That is an important advantage for FD in FD vs. life insurance.
• Partial withdrawals are an option offered by fixed deposit plans. However, an FD’s early termination impacts the investment’s interest rate. Additionally, some banks charge fees for withdrawals made before maturity.

Life Insurance

• An insurance product known as a life insurance plan offers financial protection to the insured’s family in the event of the policyholder’s untimely demise.
• Life insurance plans provide insurance and a fixed rate of return for a longer period of time, up to the age of 99, for an investment.
• The cost of a life insurance policy is determined by the type of policy and other factors, including the insured’s age, policy value, and overall health.
• A monthly income plan is a life insurance policy that provides guaranteed and consistent income to assist you in covering your monthly costs and achieving your immediate financial objectives.
• After the policy’s three-year lock-in period, withdrawals are permitted under life insurance contracts.

• Section 80C of the tax code allows for a tax deduction for life insurance premiums. Additionally, tax deductions are possible under Section 10 (10D), in which the maturity amount of a life insurance policy is completely exempt from tax, provided that the premium amount does not exceed 10% of the sum insured. However, if the premium is greater than 10% of the insured sum, the sum that the policyholder gets at the conclusion of the term will be subject to full taxation.

FD vs life insurance

• In FD vs life insurance, FD is something you buy to help you save for the future, while insurance is something you buy to safeguard your family in your absence.
• While life insurance plans are intended for long-term investments, fixed deposits are the best option for short- and medium-term investments. Fixed deposit investments can be made for as little as seven days, in contrast to life insurance plans, where a minimum 10-year investment is required.

• Bank fixed deposits only require a minimum investment of Rs. 1,000. However, the minimum premium for life insurance varies depending on the covered person’s age, gender, policy term, and premium payment requirements.
• When you open a fixed deposit account, you are informed that it offers fixed returns on investments. However, there is market risk associated with investments in unit-linked life insurance plans.
• Both life insurance policies and fixed deposits can be withdrawn. While ULIP plans and standard life insurance each have a lock-in term of three and five years, fixed deposits can be withdrawn at any point by notifying the relevant bank.

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Conclusion

Keep the above points in mind while figuring out an answer for the fixed deposit vs life insurance topic. Your needs will determine whether a fixed deposit or life insurance is better for you. If you want to maximize your returns, getting the benefit of the interest rate on FD instruments may be your best option. On the other hand, you can choose a life insurance plan and put a safety net in place if you wish to cover the risk.