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Comparison Between Fixed Deposit and Life Insurance

When it comes to financial planning, there are various insurance products available in the market wherein you can invest and get higher returns on your investments. Out of all the products available, Fixed Deposits (FDs) and Life Insurance are the two most popular investment products. Life insurance is an insurance scheme, and Fixed deposit is a savings product. However, both offer certain benefits and cater to different financial goals. Let’s compare fixed deposits vs life insurance, explore their features and benefits, and learn more about their types to help you make an informed decision.

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Comparison between Fixed Deposit (FD) and Life Insurance 

Here is a detailed comparison between Fixed Deposit and Life Insurance:

Parameters Fixed Deposit Life insurance
Tenure 7 days to 10 years 5 years to 40 years which can be extended till 99/100 years of age
Investment amount Starts at Rs. 1000 and has no restriction on maximum investment  Differs from plan to plan and depends on various factors like age, policy term, and health conditions of the life assured.
Returns Returns are guaranteed  The returns may or may not be guaranteed at the time of policy purchase, and the bonuses (if applicable) will be declared at the year's end
Tax Benefits You can claim tax benefits under section 80C* You can claim tax benefits u/s 80C, 80D, and 10(10D) of the IT Act, 1961
Premature withdrawal You can make partial withdrawals without breaking the FD. The returns may be affected along with the possible penalty charges. You can make partial withdrawals as per the policy’s T&Cs after 3 to 5 years of the lock-in period, given that the policy is still in force and the premiums are duly paid.

* Tax saving benefit under section 80C is available only with Tax saving FDs.

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Life Cover

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Life Cover

@ Starting from ₹ 12/day+

What are Fixed Deposits (FDs)?

Fixed deposits (FDs) are deposit accounts offered by various banks in which you can invest a sum of money for a fixed period and receive a fixed interest on the invested amount. At the end of this fixed tenure, you receive the invested amount along with the applicable interest. These are primarily used to earn a guaranteed return on investment.

What is Life Insurance?

On the other hand, life insurance is a financial product designed to provide financial protection to individuals and their beneficiaries in the event of death or other specified events. It offers a death benefit or maturity benefit, ensuring the financial security of loved ones.

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Fixed Deposit (FD) vs Life Insurance - Which is Better?

Let us take a look at how fd vs insurance differ from each other and which is better for your needs:

  • One of the main differences while comparing FD vs insurance is that FDs are designed to meet your investment requirements. On the contrary, life insurance covers your risk and offers financial security to your family members in your absence.

  • It is also essential to look at the investment term goal. FDs are considered a good option for varying financial needs that include short and long term investment goals. On the other hand, life insurance plans are best suited to fulfill your long term goals.

  • The returns on fixed deposits can be calculated beforehand, but for various life insurance plans, such as ULIPs, it is difficult to predict the benefit amount because the returns are subjected to market situations.

  • You can invest an amount as small as Rs. 1000 in a fixed deposit, whereas, in life insurance, the lowest premiums applicable depend on a variety of factors like age, type of life insurance, and policy and premium payment terms.

  • Both fd vs insurance offers the chance of making early withdrawals in case of a financial emergency. With fixed deposits, you can make withdrawals by notifying the bank, whereas with life insurance, you can make withdrawals only after the end of the lock in period.

Features and Benefits of Fixed Deposit (FDs)

FD is an investment product that is offered by major financial insuitutions that includes NBFCs, banks and others. You can easily get benefits by investing in FDs. Here are some of the benefits of FD are:

  • Invest for a fixed term when you opt for a FD

  • Higher interest rate with fixed deposits as compared to the earned interest on your savings account

  • Returns on FDs are guaranteed in case you do not withdraw prematurely

  • You can opt for a loan against your FDs and receive the cash in case of need

  • Flexible pay out options- Monthly, quarterly, half-yearly, yearly and at maturity date. This helps you to get your returns varying requirements as per your preference.

  • Get flexible tenure with flexible deposits. The term generally ranges from 1 week to 10 years

  • You can buy more than one FD if you have different goals to fulfill.

Features and Benefits of Life Insurance

Here are the benefits of buying a life insurance plan:

  • Get risk coverage with your life insurance policy that provides financial protection for the rest of the family members in case of the death of policyholder.

  • The tenure of life insurance is long

  • Different types of life insurance plans available are term insurance plans, retirement plans, whole life insurance plans, unit-linked insurance plans, senior citizen plans, etc.

  • Life insurance not only ensures a pool of savings, it also works as financial protection for your beneficiaries/nominees in case of your unforeseen death.

  • Get tax benefits on your life insurance plan u/s 80C and on your term plan u/s 80D of the ITA, 1961. Under section 80C, enjoy deductions upto Rs. 1.5 Lacs.

Types of Fixed Deposit vs Life Insurance

Types of Fixed Deposits

Here is a list of all the different types of fixed deposits available in India

  • Regular FDs

  • Tax Savings FDs

  • Senior Citizens FDs

  • Flexi FDs

Types of Life Insurance

Here is a list of different types of life insurance plans available in India

  • Term life insurance

  • Whole life insurance

  • Money back plans

  • Endowment plans

  • Retirement plans

  • Unit-linked insurance plans

  • Child insurance plans 

Wrapping It Up!

The comparison between fixed deposit and life insurance shows that both financial products have their own set of features and benefits. While fixed deposits help you create wealth and receive guaranteed benefits on the invested amount, life insurance plans help you secure the financial future of your loved ones in case of an eventuality. You can choose to invest in either or both investment tools to receive the required benefits.


  • Q: Does Fixed Deposit provide pure risk cover?

    Ans: No, Fixed deposits do not provide any pure risk cover. This means your family would not receive any benefit amount in the event of your untimely death. However, they can receive guaranteed returns on the investments you made in the fixed deposit.
  • Q: What is the minimum duration I can invest in a Fixed Deposit?

    Ans: The minimum duration you can invest in a fixed deposit is for a week.
  • Q: Can fixed deposits be withdrawn?

    Ans: Yes, you can withdraw your fixed deposit in case of financial emergencies.
  • Q: Does life insurance provide tax benefits?

    Ans: Yes, with life insurance plans, you can claim life insurance tax benefits under sections 80C, 80D, and 10(10D) of the IT Act, 1961 as per the prevailing tax laws.
  • Q: What is the main difference between fd vs insurance?

    Ans: The main difference between fd vs insurance is that fd is an investment tool designed to help you save for the future, whereas life insurance is an insurance product designed to help you protect your loved ones in the event of your unfortunate death.
  • Q: Is a loan facility available in fixed deposits?

    Ans: Yes, you can avail loans against your fixed deposit in case of a financial emergency.

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