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Which is a Better Investment Option: FD or Guaranteed Return Insurance Products? Research Team | Posted On Monday, November 25,2019, 06:00 PM

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Which is a Better Investment Option: FD or Guaranteed Return Insurance Products?



Nowadays the investment market is offering a large number of products that have left investors perplexed as to which investment plan is more beneficial than the other. Among all investment options, life insurance plan and fixed deposits are two investment instruments liked by all. A fixed deposit and a guaranteed returns life insurance plan are the most popular form of investments which offers moderate returns at best terms. Though guaranteed returns plan is an insurance product, it can be used as an attractive investment option.

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Fixed deposits and life insurance serves separate investment needs of individual investors. If you have a lump sum amount fixed deposit is the ideal option for you, whereas guaranteed returns insurance products help you generate returns over a period by paying regular premiums. To help you know more, we will evaluate the two products based on various factors and help you understand which one is a better investment product.

Life Insurance and Fixed Deposits:

While both are efficient investment product that offers better returns to investors.

Fixed deposits are an investment avenue preferred by most of the Indian investors. You can deposit a lump sum amount in a fixed deposit over a fixed tenure as per your investment goals. Once the money is deposited, it will be locked in for a fixed tenure. Fixed deposit attract penalty if the deposits are withdrawn before its maturity. A 5-year FD also gives tax benefits to investors under section 80C of the ITA.

A guaranteed returns life insurance plan offers a dual benefit of investment as well as insurance cover. You have to purchase a life insurance plan from an insurance provider by paying a particular amount of premiums. Insurance providers give the flexibility to policy buyers to choose the premium paying intervals i.e. monthly, quarterly or annually. The insurance coverage pays money to the beneficiaries in case of death of the insurance. On the other hand, it helps investors get considerable returns if they outlive the policy tenure.

Term life insurance does not come with maturity benefits whereas whole life insurance and endowment plans come with maturity proceeds. They also come with additional rider benefits to help you increase your policy coverage and negate life risks.

See Also: Basics of Financial Planning

Comparison between Fixed Deposits and Life Insurance Policies:

1. Tenor:

Fixed deposit investments are suited for both long-term and short term investments whereas life insurance plans provide insurance coverage along with good returns for a period of 10 years. You may extend the policy coverage if you wish.

2. Investment:

Fixed deposit investments allow all types of investors to invest and grow money. An investor can deposit an amount of Rs. 1000 in FDs. there is no upper limit on FD investments. The bank provides an interest rate on investments that gives guaranteed returns to investors.

In case of life insurance investments, the premium charges depend on the plan you choose. The premium increases if you avail riders. The policy premium is determined based on several factors like the age of the policy buyer, health condition, pre-existing ailments and policy value.

See Also: A Five-Minute Guide to the Systematic Investment Plan

3. Guaranteed Return:

A fixed deposit is known to provide guaranteed returns along with the protection of capital. You can open a fixed deposit account at the bank at the prevailing interest rate.

On the other hand, a guaranteed returns life insurance policy offers you a regular flow of income that helps you meet your family obligations and meet personal expenses. Unlike FDs, the guaranteed life insurance policy offers better returns to investors.

4. Withdrawal:

You can partially withdraw your fixed deposit whenever you are in grave need of money. However, breaking your FD before its maturity attracts a penalty which is a percentage of the interest income. This leads to a low rate of return on partial withdrawal.

But, in case of guaranteed returns life insurance product your money is lock-in for 3-years post which you can partially withdraw funds from it.

See Also: Best Investment Plan For 3 years

5. Taxation:

FDs are not tax-efficient and you have to pay TDS if your investments exceed a particular limit in a financial year. Guaranteed returns life insurance product offers tax exemption on the maturity proceeds and the premium amount under section 80C and 10(10D) of the Income Tax Act, 1961.

Investments should be based on your financial goals. If you aim for capital protection and risk-free returns then a FD is the best option for you whereas a guaranteed returns insurance product must be bought if you want capital appreciation along with insurance coverage.

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