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

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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.

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 which 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 two types of investment option offered by life insurance plan i.e. ULIP plans and traditional endowment plan. Unit Linked Insurance Plans provides a return on investment based on the market performance of the fund, whereas, endowment plans provide lump-sum payment or annuity payout as maturity benefit. You can consider investing in the endowment plan or ULIP plans depending on your insurance goal, risk appetite, investment amount and investment horizon.

Moreover, new age plans have a shorter term and offer more flexibility such as ULIP plans. 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 8-9%. 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 are more or less the same as debt funds and is considered as a profitable option of investment for conservative buyers.

Quick Comparison between Fixed Deposits and Life Insurance Policies:

1. Tenor

  • 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 a 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.
  • As compared to the other saving account FD offers a higher interest rate.
  • 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 ULIP and endowment plan, you can avail investment returns as maturity benefit after the completion of the policy tenure. 

3.  Guaranteed Return

  • Fixed Deposits offers fixed and guaranteed a return on investment as it is mentioned in the beginning when you open the deposit account.
  • On the other hand, the investment in unit-linked life insurance plans is subject to the market risk. However, the returns offered in ULIP plans are higher as compared to the FD.
  • Also, investment in savings plan such as endowment policy offers assured returns to the investors.

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. In case, of ULIP plans the lock-in period is 5 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.