FD vs Life Insurance

Fixed deposit is an investment tool offered by a majority of financial institutions including banks, NBFCs, and others. You can enjoy a wide range of benefits by investing in fixed deposits. Some of the advantages of FD are:

• You can invest for a fixed tenor when you opt for a fixed deposit.

• You can get a higher interest rate with FDs as compared to the interest you earn on your savings account.

• Your returns on fixed deposits are guaranteed if you don't withdraw prematurely.

• In case of emergency, you can take a loan against your fixed deposit and get the cash you need.

• There are various pay-out options – monthly, quarterly, half-yearly, yearly, and at maturity. This allows you to access your returns and meet varying needs as per your convenience. 

• You also get a flexible tenor with fixed deposits. The tenor usually ranges from 1 week to 10 years.

• If you have several goals to achieve, you can have more than one fixed deposit and ladder them to cater to your obligations.

Like fixed deposits, the benefits of having a life insurance plan are just as many. The benefits of life insurance plans are as follows:

• You can get tax benefits on your life insurance under Section 80C and on your term insurance under Section 80D of the Income Tax Act of India 1961. Under section 80C alone, you can enjoy a deduction of up to ₹1,50,000. 

• You can get risk coverage with your life insurance plan that will provide financial assistance for the rest of the family in case of the policyholder's death.

• The duration of life insurance is long and often exceeds a decade.

• The various types of life insurance plans available are term insurance plans, whole life plans, retirement plans, senior citizen plans, unit linked insurance plans (ULIP), etc.

• Apart from ensuring a pool of savings, life insurance also works as a financial security for your beneficiaries in case of your untimely demise.

The main point of comparison between fixed deposit and life insurance is that the former is tailored to meet your investment needs. On the other hand, the latter is catered to cover your risk and offer financial security to your family members in your absence.

Apart from the above, it is also important to look at the investment term goal while comparing FD vs Life Insurance as instruments. Generally, fixed deposits are good for varying goals, including short-term and long-term investing objectives. Conversely, life insurance plans are best suited for your long-term goals.

It is also important to note that the returns on a fixed deposit can be calculated and estimated beforehand, but for certain life insurance plans like ULIPs, it is not possible as the returns are subject to market conditions.

The answer to which is better, between fixed deposit vs life insurance, depends on your needs. If you want returns, taking advantage of the interest rate on FD instruments can be your best bet. On the other hand, if you want to cover risk, you can opt for a life insurance plan and have a financial safety net in place.