FD vs Guaranteed Return Insurance Products: Expert Advice You Need to Know

In today’s day and age, there is an extensive range of financial and investment products available in the market which offers guaranteed return on investment and helps you to accumulate wealth for the future. Among different types of investment options available, the two most common investment products are fixed deposit and life insurance plans. Even though life insurance is mainly an insurance product, but it also works as a great investment product for most of the individuals.

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In the case of long-term investment, the short-term volatilities are covered up. However, the real risk which remains is falling short of the corpus for important milestones of life such as child education, buying a home, marriage, retirement, etc. In these uncertainties of life, the life insurance products which work as a savings scheme and offer guaranteed returns are considered a great investment option. Moreover, the life insurance plan also provides life cover to your family and protects them financially in case of an eventuality.

In order to help you know more about which is a better option of investment, further in this article we have compared elaborately between guaranteed return insurance products and fixed deposits. 

Know About Life Insurance and Fixed Deposits

Life insurance is an insurance product that provides financial security to the family of the insured, in the event of the uncertain demise of the policyholder. However, apart from providing insurance coverage to the family of the insured, it also helps you to gain the long-term and short-term financial objectives of life.

There are different types of investment options offered by life insurance plans - money back plans, endowment plans. Money-back plans provide income at a regular interval along with the death benefit whereas; endowment plans provide lump-sum payment as maturity benefit. Moreover, traditional plans offered by life insurance companies provide guaranteed benefits along with an additional bonus. You can consider investing in any of the traditional plans - monthly income plans or money back plans depending on your insurance goal, risk appetite, investment amount and investment horizon.

Moreover, these guaranteed return insurance products offer more flexibility as compared to the fixed deposits scheme. Apart from the guaranteed returns, these investment plans also provide tax benefit under Section 80C and Section 10(10D) of Income Tax Act 1961.

Fixed deposits are also guaranteed return investment plan which is suitable for short pay term as well as a long-term investment. FDs are considered as a safe investment option which offers a fixed interest rate of 7-8% and the returns are fully guaranteed. The tenure of investment in fixed deposits can range from minimum 1 year to a maximum of 10 years.  Thus, in today’s day and age, the returns generated by FDs good and are considered as a profitable option of investment for conservative buyers.

Quick Comparison between Fixed Deposits and Life Insurance Policies:

1. Tenure

  • Fixed deposits are suitable for long-term as well as short pay term investment ranging from 1 year- 5 years.

  • On the other hand, the life insurance policy offers life coverage as well as guaranteed returns for the term period of 10 years, which can extend up to a lifetime.

2. Investment 

  • You can start investing in fixed deposits with a minimum sum of Rs.1,000. Whereas, there is no limit on the maximum investment.

  • Depending on the amount of investment, the bank calculates the interest. As a thumb rule, the more you will invest in FD, the higher return you will be able to reap in a long-term.

  • On the other hand, in case of life insurance policy, the premium of the policy differs from plans to plans and is determined based on various different factors such as the age of the policyholder, policy value, health condition of the insured, etc.

  • In the case of monthly income plan and guaranteed return plan, you can avail investment returns as maturity benefit after the completion of the policy tenure.

3. Guaranteed Return

  • Fixed Deposit offers fixed return on investment as it is mentioned in the beginning when you open the fixed deposit account.

  • On the other hand, the monthly income plan offers you a guaranteed and regular flow of income so that you can meet your monthly expenses and can also achieve your short-term financial goals.

  • Also, investment in savings plan such as guaranteed return policy offers assured and higher returns to the investors as compared to FD.

4. Withdrawal 

  • Fixed deposit schemes offer the option of partial withdrawal. However, breaking FD account before the completion of the maturity period affects the interest rate of investment and results in low ROI.

  • On the other hand, in the life insurance policy, you can make a withdrawal after the completion of the policy lock-in period of 3 years.

5. Taxation 

  • Fixed Deposits does not offer any tax benefit.

  • On the other hand, you can avail tax benefit in a life insurance policy on the premium paid and maturity proceeds under section 80C and 10(10D) of Income Tax Act 1961.

Wrapping it Up!

On the one hand, fixed deposit schemes help you to create a habit of savings, whereas, on the other hand, life insurance plans provide you the financial security, so that you can deal with the eventualities of life. Depending on your requirement, fixed deposits are ideal investment product, if you want to accumulate wealth in a long-term and gain a guaranteed return. However, if you want to avail the dual benefit of life protection along with the advantage of investment then you can consider investing in a guaranteed return insurance product.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

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