Truth behind FD with 'free insurance'

Nothing says "safe" like a fixed deposit.

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But in a world where financial products are being aggressively repackaged, even the staid FD is getting a facelift, with free life or health insurance thrown in. Sounds like a win for depositors. But free, as always, comes with fine print. And the real price may not show up in your returns, but in what you unknowingly give up.

In recent months, banks have launched or, in some cases, revived FD products that come bundled with insurance. Health, life, accident: take your pick. These bundled offerings target affluent retail depositors by promising protection alongside returns. This is especially true if you park a sizeable sum for a year or more.

One such offering, launched just a few days ago, provides a Rs. 5 lakh super topup health cover with a 375day deposit of Rs. 10 lakh or more. Similar products in the past launched by other private sector and public sector banks have included hospital cash payouts, critical illness coverage and term life insurance. On paper, it all looks generous. But scratch beneath, and it's clear the real beneficiary may not always be the depositor.

Value and Trade-offs

To be fair, the FD with complimentary/free insurance appeal is obvious. The depositor sees an FD offering the usual interest rate, plus a health or life insurance cover and assumes it's an added bonus. There's no visible premium, no separate policy document to pay for. In that sense, it feels like a freebie.

But that perceived value comes with tradeoffs. In most cases, the insurance cover is valid only for the first year. Renewals? Not the bank's responsibility. If you extend the FD or let it roll over, the insurance benefit disappears.

Premature withdrawal? The cover vanishes. Some banks cancel it entirely if you withdraw more than 50 per cent of your original principal. You may also be ineligible for recovering the same FD under the same scheme again, even if you rebook it. Then there's the opportunity cost.