Which is Better- Term Insurance or Fixed Deposits?
Published On Nov 19, 2021
FDs offer higher yields than savings accounts. You can take money out early if you have unanticipated needs or emergencies. Interest can be claimed on a monthly, annual, or annual basis, or at the maturity of the investment. You have the option of investing for a term ranging from seven to ten years.
Term Plan provides risk coverage to the dependents in the family in the case of the policyholder's death. This life insurance policy's coverage extends much beyond the premium payment period. Term insurance plans, whole life plans, retirement plans, senior citizen plans, and other types of life insurance policies are all available.
FDs are preferable for both short and long-term investments. Only long-term investing choices are appropriate for Term Plans.
Difference Between Term Plans And Fixed Deposits
Following are the key differences between Term Plans And Fixed Deposits -
1. Policy Tenure
Fixed deposits are good for short and medium-term investments, whilst term insurance policies are good for long-term investments. You can invest in fixed deposits for as little as seven days, unlike life insurance, which requires a minimum of ten years of contributions.
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2. Motive Of Investment
A term plan is a type of insurance, whereas a fixed deposit is solely an investment vehicle. Investments allow you to save for the future, whereas insurance is purchased to protect your family in the event that you are unable to do so.
3. Saving Purpose
Term insurance policies are purchased out of concern for your loved ones and a fear that they may face troubles in the future.
4. Based On Premium
In bank fixed deposits, a minimum of Rs. 1000 can be invested, however the minimum premium for term insurance varies depending on the insured individual's age, gender, policy duration, and premium payment condition.
5. Withdrawal Option
It is possible to remove both fixed deposits and term insurance contracts. Fixed deposits can be withdrawn at any time by notifying your bank, whereas standard term insurance has a lock-in period of three to five years.
6. Tax Benefits
Section 80 C of the Internal Revenue Code provides tax benefits for Term plan premiums. Tax incentives are also available under Section 10D of the legislation. If the premium paid for a life insurance plan is less than 10% of the sum assured or the sum assured is at least 10 times the premium, the income on maturity amount is tax-free.
There are also specific 5-year FDs that provide tax advantages under section 80 C.
In a Fixed Deposit, there is no upper limit to the amount of money that can be invested.
A Term policy's premium, on the other hand, fluctuates depending on the plan and is determined by a number of criteria like the policyholder's age, the policy's value, the insured's health, and so on. At the end of a monthly income plan or a guaranteed return plan, you can receive investment returns as a maturity benefit.
If you want guaranteed returns, a fixed-rate deposit is a decent choice, albeit you won't get any tax advantages. Even if you want regular returns on your investment, a fixed-income investment is a better choice. For senior citizens, it is also the greatest option. Only when seen as a risk-mitigation strategy is a Term Plan beneficial.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.