Benefits of Life Insurance
19 Dec 2019
Life insurance is a must in today’s world. Modern living is an expensive business, and people have to bear the burden of huge costs like children’s education, EMIs on home loans, healthcare and so on. So it is important for every earning member to have a life insurance policy to protect the financial interests of his or her family. There are many benefits of life insurance policy, which we will look at in this article.
Features of life insurance
Let’s look at the features and advantages of life insurance policy:
- Protection: The first and foremost objective of a life insurance policy is to ensure the financial protection of your family, and this could include dependent parents, spouse, children or siblings. The demise of the sole earning member could put dependents to considerable hardship, especially since cost of living is very high these days. Life insurance gives you the assurance that your family members will be looked after in the event of your untimely demise.
- Contract: Life insurance is basically a contract between the insurers and the individual who takes out the policy. You pay premiums every quarterly/half yearly/yearly to the company. In return, the insurer will give a lump sum to your family in the event of your demise.
- Premiums: Premiums are paid quarterly / half yearly which you need to pay to get life insurance. The amount will vary from person to person, depending on the tenure of the policy, age of the policyholder, health and type of policy.
- Affordable: Life insurance is an affordable way of ensuring the financial well-being of your family. Premiums on policies, particularly term insurance, are quite low and worth your while for the protection they offer.
- Easy to buy: Buying insurance from company is quite easy. Insurance companies have specified persons, who will visit you at your home or office and help you with options and paperwork. You can also do it online at your convenience.
- Tax benefits: Another one of the benefits of life insurance policy is that you can deduct the premiums you have paid from your taxable income. Under Section 80C of the Income Tax Act.
- Savings: There are some life insurance products that combine savings and insurance. This can be a good way of saving for the future and protecting your family at the same time
Types of life insurance
Now that we’ve seen the essential features of life insurance policy, let’s look at the types:
This is the most basic, and most popular, of life insurance policies. You purchase a policy for a certain period for which you pay premiums. For example, if a policyholder wants a policy till the age of 60, he or she can take one. And if the policyholder passes away before 60, the nominee is paid the death benefits.
Unit-linked Insurance Plan
A Unit-Linked Insurance Plan (ULIP) combines investment with insurance. At the end of the policy, the policyholder gets a certain sum. This is unlike a term plan where the payout is made only on the death of the policyholder. Part of the premium is paid for life insurance, while the remainder is invested in either stocks or bonds, depending on the investor’s risk appetite and investment goals. The investments yield returns which are then given to the policyholder after the end of the policy period
Benefits & Features of Term Deposit
Earning income from your investments doesn’t have to be a complicated exercise. It is possible to earn a decent interest income out of the amount lying in your bank account by opening a term deposit account. A term deposit is any amount kept with the bank for a fixed period of time. With a Bank of Baroda fixed term deposit, you can open a term deposit bank account for a period as short as 7 days and earn income.
Benefits of Term Deposit:
Easy and convenient:
Opening a bank term deposit is very convenient. It can be opened online through NetBanking, or via the mobile banking application. Forms for a term deposit are available online and in branches.
Competitive interest rates:
Bank of Baroda offers competitive interest rates on term deposit schemes. The interest rates differ based on the period of the fixed deposit.
Bank of Baroda offers different options for fixed term deposits. The periods can be as short as 7 days or go up to 10 years.
Loan/Overdraft facility available:
Bank of Baroda term deposit customers can avail a loan/overdraft facility against their time deposit. The loan amount is available up to 95% of the fixed deposit amount. The rate of interest on these loans is 1.5% to 1.75% over and above the fixed deposit rate.
Term deposits can be used to create investments in the name of children and senior citizens.
You can use the nomination facility to nominate different people for different fixed deposits. Nomination can be done online and in the form as well.
Premature withdrawal allowed:
Each term deposit opening form has an option, callable or non callable. If the callable option is selected, it allows you to withdraw your term deposit prematurely. The rate of interest paid will be 1% less than the time deposit rate of interest.
Features of Term Deposit Scheme:
Fixed Term Investments:
Each bank term deposit is kept for the fixed duration that is selected. This amount is blocked for that duration and unless the callable option is chosen, the amount cannot be withdrawn before maturity.
Earn Interest half yearly:
Interest is earned half yearly compounded quarterly on these deposits. It is credited to the fixed deposit account on maturity. Monthly or Quarterly payment of interest in linked SB account is also available in selective schemes.
Beneficial rate for senior citizens:
Senior citizens get a higher rate of interest on these deposits. Bank of Baroda gives 0.5% extra to senior citizens for their term deposits.
No TDS if interest amount is less than Rs. 10,000/-
The limit for deducting TDS is Rs. 10,000. If your income is below the no tax limit, you can fill Form 15G/15H with the bank and TDS won’t be deducted.
Auto renewal of fixed deposit:
Instructions can be given to the bank to auto renew the term deposit once it matures. The principal and interest amount will be renewed automatically on maturity.
Minimum deposit amount:
The minimum deposit amount is Rs. 1,000 and can be increased in multiples of Rs. 100.
Opening a fixed deposit with Bank of Baroda is really easy and simple. It can be done online within a matter of minutes and opening it in a branch is convenient as well.
Difference between Fixed and Recurring deposits
Understanding the differences between fixed deposits and recurring deposits
The process of wealth creation requires discipline. Money must be put away systematically, over a period of time for wealth to grow. Whether you choose to invest in the stock market, commodities market, mutual funds or even opt for conservative methods of savings such as fixed deposits and recurring deposits; each way of savings comes with its own set of features and benefits. Most people begin with small monthly savings in the form of a recurring deposit, which they convert into a fixed deposit upon maturity. But this is just one way to go about it. In this article, we shall highlight the key differences between fixed deposit and recurring deposits. However, to do so, we need to understand what a fixed and a recurring deposit actually is.
Recurring deposit v/s fixed deposit
Fixed deposits or FDs (also so known as term deposits) refer to the financial instruments provided by banks through which one can lock away a sum of money for a specific duration and earn a monthly, quarterly, half-yearly, annual or cumulative interest at the end of the term. As the term ‘fixed’ suggests, one cannot withdraw money from a FD until the end of the term. Should you choose to ‘break’ your FD prematurely, you have to pay a penalty to the bank. A recurring deposit, on the other hand, refers to a disciplined way of putting away a fixed sum of money in an account every month. One needs to open a special recurring deposit account and can earn the same interest rate as offered on FDs. RDs are a great way to put away savings every month until a more substantial amount of money is accrued, which can then be put away as an FD.
FDs and RDs – key differences
Let us look at the main differences between FDs and RDS
The purpose of the deposit: Investors can put away their idle savings in an FD and earn a specific rate of interest, which is higher than the interest accrued when the money is sitting idle in the savings account. RDs, on the other hand, allow one to inculcate a disciplined habit of saving a fixed sum of money every month.
The duration of the deposit: You can open a fixed deposit for a minimum duration of 7 days, whereas the maximum duration of the deposit is about 10 years. On the other hand, the minimum duration for the RD is six months, whereas the maximum deposit tenure is 10 years.
Renewals and withdrawals: With regards to fixed deposits; one can roll over a deposit for another term, which may be different from the original term chosen. If you do not opt to withdraw an FD, the bank can auto-renew the deposit, but the interest rate may be lower, higher or the same; depending upon the prevailing rate of interest as offered by the bank. However, if you choose to withdraw the deposit before maturity, you have to pay a certain penalty. With regards to renewals and withdrawals of RDs, it is possible for one to close an RD before the chosen term and reinvest it into a term deposit; the account holder can earn an interest rate, with a 1% reduction as penalty. Also, it is not possible to make partial RD withdrawals. However, should you need money urgently; you can take a loan against your RD instead of breaking the deposit and withdrawing the cash.
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