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Find The Better Option Between Term Insurance And Fixed Deposit

Updated On Oct 12, 2021

Fixed deposits are investment products. You can invest in fixed deposits for fixed tenures as per your convenience and get attractive returns on your investments at maturity. Normally, banks do not allow you to withdraw your deposits before a given maturity date. But, with prior notification to the bank, you can withdraw your fixed deposits. These deposits allow you to invest for a minimum period of 7 days to a maximum period of 10 years.

On the other hand, term insurance is an insurance product which you buy from a particular insurance provider/company by paying a specific amount of money as premiums. A term insurance policy provides an assured amount of sum to a nominated individual upon the death of the insured person. Term insurance policies are normally divided into two types - whole term insurance and term term insurance policies. You can buy these policies for different tenures based on your requirements. Not only do these policies provide risk coverage, you can also use these policies to pay off your medical bills, fund children's education and plan for your retirement.

Benefits of Investing in Fixed Deposits

Fixed deposits are savings products offered by banks and you can enjoy a wide range of benefits by investing in them. Mentioned below are some of the major benefits you can enjoy by investing in fixed deposits:

  • Fixed deposits encourage you to save for fixed tenures.
  • It provides you higher interest rates on your savings compared to the interest you receive by investing in a normal savings account.
  • You can get assured returns on your investments provided you don't withdraw them prematurely.
  • In case your cash flow squeezes, you can withdraw your fixed deposits to meet your emergency financial needs.
  • Fixed deposits enable you to choose your interest payment options. You can receive it either at maturity or annually or monthly based on the term you chose.
  • FD comes with flexible investment tenures. You can choose your investment tenures as per your convenience that normally ranges from 7 days to 10 years.
  • You can invest in multiple fixed deposit accounts provided you have different goals of investments.

Benefits of Buying Term insurance

Like fixed deposits, term insurance has its own set of benefits. It comes with the following benefits:

  • Term insurance policyholders can avail tax benefit under section 80C and 80D of the Indian Income Tax Act, 1961.
  • Term insurance provides risk coverage and takes care of your near and dear ones even in your absence.
  • Term insurance coverage lasts for longer duration, more than the premium paying period.
  • It offers asset protection as well as access to cash.

Fixed Deposit Vs Term Insurance - Which Is Best For You?

Fixed deposit is always a better option to invest as it is purely designed for your investment and savings related needs. If your intention is to save and invest for the future, it is advisable you invest in fixed deposits. Listed below are some of the major differences between fixed deposits and term insurance.

  • Fixed deposit is a purely investment product whereas term insurance is an insurance product. Investment is something that helps you save for the future whereas insurance is something which you purchase for risk protection and protect your family in our absence.
  • Fixed deposits are best for both short and medium term investments whereas term insurance plans are designed for long term investments. You can invest for a period of as low as 7 days in fixed deposits unlike a term insurance plan wherein you need to invest for at least 10 years.
  • You can invest a minimum amount of Rs. 1000 in bank fixed deposits whereas in case of term insurance, the minimum premium is different for different plans based on the insured individual's age, gender, policy term and premium payment condition.
  • Fixed deposits offer fixed returns on investments and it is mentioned in the beginning when you open your deposit. But, investment in Unit Linked term insurance Plans is subject to market risk. The fund value you receive by investing in these plans are affected by the prevailing market condition.
  • Fixed deposits add to your habit of savings whereas term insurance plans are purchased out of caring and fear that your near and dear ones may face some risks in future.
  • Both fixed deposits and term insurance policies can be withdrawn. You can withdraw your fixed deposits at any time by sending a notification to your concerned bank whereas a lock in period of 3 and 5 years is application to regular term insurance and ULIP plans respectively.

Conclusion

Even if you don't get any tax benefit for investing in fixed deposits, it is an ideal product to invest in if you want to get fixed returns on your investments. So, if you want to earn on a regular basis, a fixed deposit account can be the perfect choice. Invest in fixed deposits and get income in the form of interest. Fixed deposit is the most preferred choice of investment among senior citizens.

Also read - A Quick Guide To Level Term Insurance

Understanding Term Insurance With Limited Pay

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.

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