FD V/S Guaranteed Return Insurance Products: Expert Advice You Need to Know

Many financial and investment options available today guarantee a return on investment, allowing you to build wealth and save for the future. The two most prevalent investment plans among the various types of investment options accessible and offer guaranteed returns disclosed upfront are fixed deposit and guaranteed return life insurance policies. Guaranteed return plans also include life insurance coverage, providing the individual with a double benefit. Let’s learn more about the points of difference between the two options to get a clearer picture. 

What are Fixed Deposits?

Bank-issued FDs are regarded as a safe investment option that provides guaranteed returns. Fixed deposit investments can be made for as little as one year or as long as ten years. Furthermore, the interest earned on fixed deposits is fully taxable and is added to your income tax bracket. As a result, it's crucial to analyse post-tax returns, especially if you're in a high tax rate.

What are Guaranteed Return Insurance Products?

Guaranteed return plans are a type of investment that combines insurance coverage with a guarantee of returns. The guaranteed returns products generate tax-free returns since they qualify for the EEE exemption under Section 10 (10D) and Section 80C of the Income Tax Act. Guaranteed return plans can be purchased for up to 30 years and often provide larger annualised returns over time. It's essential to emphasise that these refunds are tax-free. Guaranteed return policies also include insurance coverage, which pays a lump sum to your beneficiary in the case of death.

 FD V/S Guaranteed Return Insurance Products

Here is the comparison between fixed deposits and guaranteed return insurance products that will help you in deciding the best option for yourself. 

1. Investments - With a minimum investment of Rs. 1,000, you can begin investing in fixed deposits. The maximum investment, on the other hand, is unlimited. In the case of guaranteed return plans, the policy premium varies from plan to plan. It is decided by various parameters such as the policyholder's age, the tenure chosen, and so on. It usually costs between Rs. 2500 and Rs. 5000 per month, depending on the plan selected.

2. Guaranteed Returns - Fixed Deposits provide a guaranteed return on investment and are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 Lakhs in terms of security. You can also take interest on your fixed deposit monthly, quarterly, or at the end of the term. Guaranteed return policies, on the other hand, provide fixed returns that are stated beforehand.

3. Tenure - Fixed deposits can be used for both long-term and short-term investments, with terms ranging from one to five years. The life insurance policy, on the other hand, provides life insurance as well as guaranteed returns for a minimum policy tenure of 10 years, which can be extended to 30 years or more.

4. Payout - Fixed deposits require you to take the payout amount as a lump sum at the conclusion of the policy term. You can take the accumulated corpus in the form of long-term annual / monthly instalments in guaranteed return plans. You can also take the entire corpus as a lump sum payment.

5. Withdrawal - Partially withdrawable fixed deposit schemes are available. Breaking an FD account before the maturity period ends, on the other hand, impacts the interest rate of the investment, resulting in a low return on investment. Premature withdrawals are also permitted after 3-5 years of policy duration in guaranteed return plans. Your returns, however, will be smaller than what was originally promised. It is best to stick with fixed deposits if you fear you will need to withdraw money early.

6. Taxes - In most cases, fixed deposits do not provide any tax benefits. However, you can invest in tax-saving fixed deposits for a five-year term and earn tax benefits under section 80C. On the other hand, under sections 80C and 10(10D) of the Income Tax Act 1961, you can receive a tax benefit on the premiums paid and the maturity benefits from a life insurance policy.

Take Away

Fixed deposit accounts encourage you to save by allowing you to invest for a period of one to five years. Guaranteed return plans offered by insurance firms, on the other hand, are ideal if you have a lengthy investment horizon and are preparing for the future. If you are in a high tax band, guaranteed return plans are a great way to optimise your after-tax earnings. Otherwise, if your income tax bracket is low, fixed deposits may be a smart option for you. Furthermore, if you do not have a separate term insurance policy, you may consider investing in a guaranteed return investment plan.

Also read - Top Single Premium Life Insurance Policy In India

Life Insurance or Fixed Deposits? Which Is Better?

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.