RD and LIC policies are two different financial products used for different purposes. Where RDs are investment schemes, LIC policies are insurance contracts that guarantee money to nominees and insurers after the maturity period.
Both of these financial products need investors to accumulate savings over a period of time to gain financial protection. Let’s discuss more them in detail. Let’s learn about RD vs LIC!
Recurring Deposit (RD)
A recurring deposit is a type of savings account offered by banks and other financial institutions. Here, you can save a fixed amount of money every month for a fixed tenure and earn an interest rate on the amount you saved. The interest rate you make on the saved amount is decided before you open a recurring deposit account and remains fixed throughout the tenure of the deposit, ensuring consistent returns during the entire investment period.
Tenure for RD
The tenure of the recurring deposit generally ranges from 6 months to 10 years, depending upon the investor’s preference. The minimum amount required to open an RD account differs from bank to bank; however, it is generally low enough for anyone to start investing.
Who Is RD For?
It is an ideal investment option for individuals who do not have significant savings but still want to invest their money safely and securely. Moreover, the interest rates on recurring deposits are usually higher than those on savings accounts, making it an attractive investment option. This risk-free savings account is a great investment option for people who don’t want to take financial risks.
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Life Insurance Corporation (LIC) Policy
A LIC policy is a life insurance policy where a contract is carried out between you (the insurance holder) and the insurance company. In this contract, the insurer has to pay a specified amount of money to the nominees or designated beneficiaries of the policyholder upon the death of the policyholder.
LIC policies are designed to provide financial protection to the policyholder’s family or dependents in the event of the policyholder’s death. The policy’s beneficiaries can use the death benefit to cover funeral costs, mortgage payments, and other living expenses.
Generally, the pay-out dates for LIC policies are:
- After the death of the insurance holder
- Once the policy matures
Tenure for LIC
Term life insurance policies offer coverage for a specified period of time, usually between 10 to 30 years. These policies are generally less expensive than other types of life insurance policies and provide coverage for a fixed period.
Who is LIC for?
Not everyone is suitable for LIC policies. Since the nominee of your LIC policy gets a monthly income or lump sum from the policy after your death or the insurance maturity, it is best suited if you’re the sole bread earner of your family and have people like your spouse, kids, and other family members dependent on you. Moreover, a LIC policy is a long-term commitment where cancellation in between can result in penalties. Furthermore, you cannot treat LIC policies as savings since they are taken for someone dependent on you rather than for yourself.
RD vs LIC: Difference Between Recurring Deposit and LIC Policy
While both come with their own pros and cons, one will always be better for you depending on your current financial situation and future financial goals. Here are a few points of differences to help you understand what makes RD and LIC policies different from each other:
|Type of Scheme||Investment||Insurance|
|Target Audience||Everyone willing to save in a risk-free way||The breadwinners of the family who have dependents|
|Risk||Completely safe||Completely safe|
|Tenure||Till 10 years||Has a flexible tenure|
|Purpose||Savings for a fixed period||Financial protection for dependents if something happens to the bread earner|
|Loan||Is available for a loan facility||Is available for a loan facility|
|Premature Closure||Closures before maturity are allowed||Closures before maturity are allowed but with penalties|
|Tax Deductions||If the interest rate earned on the savings is more than ₹10,000, tax is deducted and must be declared||Tax deductions are available on premiums|
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