Comparison Between LIC and Recurring Deposit

Life Insurance Corporation Policy

Life Insurance is a contract that you draw out with a company to pay premiums towards a policy. The premiums are determined based on the policy you choose, the tenure and your age. This policy is beneficial at the time of maturity as you will receive a lump sum of money at maturity value. The policy will also pay out in the event of the insured's death or on any of the events that you are insured against. The main payout dates are:

1. Upon unfortunate death of the insured
2. When the policy matures
3. Any specified dates mentioned in the policy

LIC policies are not suitable to everyone. It is a good policy in case you have dependents. As a breadwinner, you would worry about your family members, spouse and loved ones if anything were to happen to you. If you have a life insurance policy, your nominee will receive either a lump sum or a monthly income to help them cope financially. In the event the policy matures before death, then it turns into an investment that you benefit from after saving for so many years. Some important points to remember about LIC policies are listed below.

1. LIC policies are suitable for people who have dependants.
2. Anyone who is of legal age can avail of a policy.
3. Taking out an LIC Policy is a long-term commitment.
4. Cancellation of policies will result in penalties and might be a loss.
5. With Life Insurance plans, policyholders can opt to save money in systematic plans to meet the costs of important life events such as having children, their marriage and education, and so on.
6. Policies can be taken for your spouse and children as well.
7. LIC policies should be treated as insurance rather than savings.
8. Policies under the "with profit" scheme can be extremely profitable if the market performs well. The premiums payable are usually higher, but these participating policies can share in the profits of the fund, if any.
9. An LIC Policy can be offered as collateral to avail of a loan.
10. Premiums paid towards LIC are eligible for tax deductions.

Recurring Deposit (RD)

An RD is a savings scheme offered by banks to help individuals save regularly and systematically build up a fund. The amount saved earns interest, but the interest is not eligible for tax deductions.

1. Recurring deposits can be started with as little as Rs. 10. This depends on the limits set by the bank.
2. The minimum period for an RD is usually 6 months.
3. The maximum period offered by banks is 10 years.
4. The interest rates offered on these deposits vary between banks. You should check the bank's interest chart before opting for a tenure. Banks usually offer higher interest rates on certain tenures such as 500 days. So going for the longest tenure doesn't necessarily fetch you a higher rate of interest. Although, with a long tenure you will earn more interest overall.
5. Withdrawals are usually not allowed.
6. You can close the deposit prematurely.
7. Banks run different RD schemes with flexible investment options to cater to different needs of the people.
8. TDS will be applicable on the interest earned on an RD. If you're interest is lower than Rs. 10,000 in a year, then TDS is not applicable.
9. The interest earned is taxable income and should be declared in the income tax declaration.

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