Should You Consider FDs with Health Insurance Benefits?

Generally, banks tie-up with health insurance providers and provide insurance benefits with group plans. The benefits offered in health insurance plans vary from bank to bank and depend on their tie-up with insurers.

DCB Bank tied up with ICICI Lombard and now it is offering advantages like OPD consultation, expenses of pharmacy to a certain extend with other benefits. On the other hand, ICICI Bank is providing critical illness cover with its fixed deposit account as an extra option.

Comparison Between

Fixed Deposits, Guaranteed Return Plans & Debt Mutual Fund

Guaranteed Return Plans, Fixed Deposits &
Debt Mutual Fund

Guaranteed Return Plans

Returns Before Tax

7.5% ^(TAX-FREE)

Returns After Tax

7.5%

Guaranteed Returns

Yes

Life Cover

Yes

Tax on Profit

Tax Free*

Risk

No Risk

Still Better than FD’s and Debt Mutual Fund

Fixed Deposits

Returns Before Tax

7% ^(TAXABLE)

Returns After Tax

4.8%

Guaranteed Returns

Yes

Life Cover

No

Tax on Profit

Taxable

Risk

Low Risk

Debt Mutual Fund

Returns Before Tax

8% ^(TAXABLE)

Returns After Tax

5.5%

Guaranteed Returns

No

Life Cover

No

Tax on Profit

Taxable

Risk

High Risk

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*For annual premium upto ₹5 Lacs

Even though these deals look nice, but are they worth to invest or should you consider such fixed deposits? Let us understand this by getting to know some of the features of these FDs:

• Tenure and Rate of Interest: Generally, the rate of interest offered by these fixed deposit schemes is the same as standard interest rates. Therefore, you will get the same rate of interest as offered in a normal fixed deposit scheme. The tenure offered by these FDs is most of the time fixed. For instance, the Health Plus FD offered by DCB Bank is provided only for 700 days and ICICI Bank provides such FD for a fixed tenure of two years.

• Amount to Invest: These fixed deposit schemes have a ceiling on the maximum and minimum amount of investment. For instance, the minimum investment amount with DCB Bank Health Plus FD is Rs. 10,000. Whereas, with ICICI Bank FD Extra the minimum and maximum limits are Rs. 2 Lakhs and Rs. 3 Lakhs respectively.

• Limited Coverage: The insurance coverage provided under these fixed deposit schemes is limited. For instance, with ICICI Extra Health, the cover for critical illness is limited to Rs. 1 lakh only. In addition to this, there are limitations to the depositor’s age. For example, under this FD of ICICI Bank, the depositor’s age should not exceed 50 years and in the case of Health Plus FD of DCB Bank, it is 70 years.

Should You Consider for These Fixed Deposits?

These fixed deposits offer the same rate of interest with add-on benefits. Therefore, in case you want to invest for the same tenure with the eligible amount, you can consider these fixed deposits. However, if you are planning to invest in these fixed deposit schemes, you must know the FD interest rates and offer completely. 

It is necessary to read all the terms and conditions very carefully before investing in any scheme be it a fixed deposit of banks. For example, one of the fixed deposit variants has a tenure of two years, but it offers health cover only for one year. Another variant of the bank's fixed deposit provides a range of benefits that varies as per the invested amount. The age criteria may as well vary across various fixed deposit products. As per the industry experts.

One more aspect as a depositor you must consider is that the deposit should not completely depend on the health insurance covers. These benefits are not at all replacement for a comprehensive health insurance plan. In most cases, the insurance cover can extend only to the first depositor. The coverage amount may also not be enough and if you want to break your fixed deposit, you may lose the health cover as well.

So, if you are going to invest in a fixed deposit account, you must remember the following factors before selecting one:

• Even though the rate of interest offered by bank fixed deposits are lower than before, but you must compare rates offered by different banks.

• Another thing to check is the frequency of compounding.

• The facility of the sweep.

• Type of interest paid by the bank like floating rate or fixed rate.

• Facility to withdraw a fixed deposit.

• Interest pay-out medium or mode.

• Understand other attached advantages.

Basic features of a bank’s fixed deposit are:

• The tenure of a bank’s fixed deposit ranges between seven days to 10 years.

• A fixed deposit provides guaranteed returns.

• You get the option to get regular income monthly, annually, or quarterly basis.

• Reinvestment of interest income and get the benefit of compounding.

• Full or partial withdrawal facility.

• Facility to take a loan against fixed deposit.

• Senior citizens get extra rate of interest on fixed deposits.

Summing It Up:

Fixed deposits offered by banks are one of the safest investment options because all the deposits that are under Rs. 1 lakh are insured. If the bank in which you have opened an FD account defaults, you get the principal amount that is up to Rs. 1 lakh as per the deposited amount under insurance coverage. If you have invested in multiple accounts in different banks, then each FD is insured up to Rs. One lakh. The banks as well offer tax exemption under section 80C of the Income Tax Act, 1961.

The most important thing to remember here is the bank that is issuing the fixed deposit scheme with an additional benefit is not the insurance provider. If the tie-up of the bank with the insurer ends, you may not be able to avail of the facility of insurance upon the next renewal of FD. So, when an additional benefit like health cover is always welcome, keep your investments, insurance, and savings goals separate.

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