There is no constraint on the total number of instalments every financial year. The deposits should be made punctually every year during the tenure, and these types of deposits are exempt from income tax under Section 80C.
LIC or PPF - Which is Better?
While talking about investment opportunities, the presence of the Life Insurance Corporation of India (LIC) and the Public Provident Fund (PPF) automatically comes into the scenario. PPF is a long-term savings scheme with minimal savings enabling individuals to generate a substantial corpus with tax-free returns.
Alternatively, LIC is intended to provide life coverage against any unforeseen incident apart from being a safe investment option. Anyone can invest in these options as per their financial needs. However, before investing, let us explore PPF vs LIC policies in detail.
What Is LIC?
The Life Insurance Corporation of India (LIC) is the nation's largest government-owned life insurance organisation that provides a range of insurance plans. When it comes to a LIC policy, you are required to pay premiums as per a predetermined due date every time to keep the policy active and receive a substantial payment upon its maturity.
However, in the event of a policyholder's demise within the tenure of an insurance policy, that person's nominee will get the entire insured amount.
What Is a Public Provident Fund (PPF)?
Introduced in 1968 by the National Savings Institute under the Finance Ministry, the Public Provident Fund has emerged among the country's most popular long-term investment schemes.
The scheme aims to help small investors to leverage the 3-way benefits of it, including great returns, safety, and tax benefits. It also offers lucrative interest rates while you do not have to pay any tax (deductible under 80C) on your returns cumulated with the interest rate.
What Are the Differences Between PPF and LIC?
Some of the important differences between Public Provident Fund (PPF) and Life Insurance Corporation of India (LIC) policies are discussed below:
Public Provident Fund (PPF)
Life Insurance Corporation of India (LIC)
The Public Provident Fund (PPF) scheme is governed by the Indian Government.
The Insurance Regulatory and Development Authority of India (IRDAI) regulates life insurance.
In PPF, the interest rate is decided and reviewed by the Government. Presently, it stands at 7.10%
The rate of interest for insurance depends on the type of policy alongside the market performance.
PPF is a long-term investment scheme that lasts 15 years and can be extended for 5 years.
Life insurance policies are available for a term ranging between 5 and 30 years.
You need to contribute to your PPF account annually.
You must pay the life insurance premium periodically throughout the policy's tenure.
PPF enables an individual to save a substantial amount of funds to meet their financial goals in the future.
Life insurance policies aim to compensate for the financial loss due to an insured person's death after increasing corpus.
In the event of an account holder’s demise, the PPF account is closed ahead of time, and the nominee gets the existing balance.
In the event of an insured person’s demise, the insurance company gives the assured sum to that person’s family members.
Public Provident Fund (PPF) permits a loan facility and partial withdrawals from 3rd year and 7th year, respectively.
Insurance policies come with a lock-in period of 3 years, after which you can make claims.
What Are the Common Benefits of LIC?
Death BenefitIf you are your family's primary breadwinner, you are likely concerned about your dependents and loved ones and what will happen to them if something undesired occurs. Thanks to the availability of life insurance policies, if any unfortunate incident happens to you, the insurer will compensate the entire insured money to your nominee if you have a policy.
Flexible Payout OptionChoosing the specific payout option is essential to ensure sensible use of money after your leave for the heavenly abode. If you believe that your family members and loved ones can handle the insurance money properly after your death, you may opt for a bulk payout of the insurance claim amount. Conversely, if you see that your family cannot manage funds correctly, you may go for monthly payouts of an insurance claim.
Coverage for Extended DurationAnother special feature of life insurance policies is that it offers insurance plans for a longer duration. You have the complete freedom to select the tenure of your life insurance policy between 5 years and 30 years, wherein the policy will give protection until the chosen tenure is over.
Availability of RidersAnother notable feature of life insurance plans is the involvement of riders. You can choose multiple riders at your convenience at the time of purchasing the insurance policy. This enables you to get extra coverage on your existing policy. Some examples of riders are an accidental death benefit, permanent disability, critical illness, etc.
Availability of Tax BenefitsAs per Section 80C of the Income Tax Act, you are entitled to tax benefits on your insurance policy's premiums, wherein you can get tax deductions of up to ₹1.5 Lakhs. Apart from this, as per Section 10D of the Income Tax Act, you can also get tax benefits on the claim amount.
What Are the Common Benefits of PPF?
Extended Lock-In PeriodPublic Provident Fund (PPF) is a long-term savings approach with a lock-in period of 12 to 15 years. This signifies that you can only withdraw funds collected in the PPF account once it matures. However, in special cases, premature withdrawal is allowed, wherein lenders charge a penalty ranging from 0.5% to 3% of the interest rate for closing the deposit early.
Steady ReturnsPublic Provident Fund or PPF is a popular investment vehicle for small and large-scale investors for its security and steady return on maturity. Since the scheme provides substantial returns, it has been an ideal choice for investors who are unwilling to take risks. Furthermore, being a government-guaranteed plan, individuals can utilise a PPF to diversify their investment portfolio and save a retirement corpus.
Tax ExemptionsRegarding Public Provident Fund (PPF) benefits, tax exemption is considered one of its chief features. Income Tax exempts the total amount of funds invested in the PPF account of an individual. Thus, according to Section 80C of the Income Tax Act of 1961, the entire investment value can be claimed as a tax exemption. Therefore, you have permission to make an entirely tax-free investment of up to ₹1.5 Lakhs annually.
Loan Against a PPF AccountA Public Provident Fund (PPF) account holder can borrow some funds against their balance in the PPF account. They can avail credit against PPF by considering 25% of the total balance available in PPF once the account reaches its 3rd financial year. Currently, the PPF charges 1% interest on the loan against PPF. This date marks the day when funds are distributed to an applicant.
Maximum and Minimum Investment Amount
Individuals can invest ₹500 every year. Moreover, a Public Provident Fund (PPF) account can receive a maximum investment amount of ₹1.5 Lakhs in a single financial year.
After understanding PPF vs LIC alongside their features and benefits, you can easily decide and choose the ideal investment option. Both are great investment options while aiming in different directions to help you build a tax-free corpus with absolute security.
While you can generate a substantial amount with minimal investment in PPF, LIC offers you peace of mind by providing financial security to your loved ones if you leave for your heavenly abode.
FAQs About All You Need to Know About PPF Vs. LIC
If the LIC premium is paid twice by mistake, the insurance provider will refund the amount to your bank account within 6 to 8 days.
A Public Provident Fund (PPF) fulfils the aim of long-term savings and retirement, while a LIC policy fulfils the purpose of insurance. The working patterns are different, so there is no specific better option. You need to get the one most suitable for you.
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.