The Public Provident Fund is a type of investment that encourages small amounts of savings. A life insurance policy is a type of insurance that provides protection from unfortunate occurrences like death.
This article compares LIC and PPF and goes into detail about each financial product’s features.
Life Insurance Policy (LIC): What is it?
Corporation for Life Insurance, A state-owned insurance, and investment firm, is called LIC. The Life Insurance Corporation was founded in 1956. LIC was created post the Life Insurance of India Act was passed.
It provides a way for people to get insurance to safeguard their loved ones against threats. A LIC policy is a contract that requires ongoing premium payments or a one-time payment to the insurance provider.
Upon the LIC policy’s maturity or the unfortunate passing of the policyholder, one will receive a lump sum payment.
The people who need life insurance the most are those who have dependents who depend on their income. Consequently, the nominee will get the insured sum in the terrible event that a policyholder passes away.
Therefore, LIC serves as a risk cover for the family of the policyholder. The policyholder will receive a lump sum payment if the insurance expires prior to the insured person’s passing. The same might be used for the policyholder’s retirement.
Section 80C of the Income Tax Act of 1961 allows for the tax deduction of insurance premium payments.
However, the following prerequisites must be satisfied in order to claim a deduction:
- If the policy is issued after April 1, 2012, the premium cannot be greater than 10% of the amount insured.
- The premium paid for life insurance plans issued prior to April 1, 2012, should not be more than 20% of the amount assured.
If the premium payment does not exceed 10% of the sum assured, the maturity amount from a life insurance policy is completely excluded from tax under Section 10 (10D).
The sum the policyholder gets at the conclusion of the term is completely taxable if the premium is greater than 10% of the insured amount. Additionally, a TDS of 5% is applicable to the revenue portion of the maturity value of policies not covered by Section 10 (10D).
TDS is only deductible if a life insurance policy’s maturity value reaches INR 1,00,000.
Additional read: Lumpsum vs SIP
Public Provident Fund (PPF): What is it?
The Indian government launched the Public Provident Fund program. In 1968, the National Savings Institute introduced it. This long-term post office savings program is backed by the government, so the returns are assured.
Every three months, the Ministry of Finance releases the PPF Interest Rate. The yearly compounded PPF rate for the latest quarter, January 2022 through March 2022, is 7.1%.
According to Section 80C of the Income Tax Act of 1961, investments up to Rs 1.5 lakh each fiscal year are totally tax-free at the disposal of investors.
Additionally, the proceeds from interest and maturities are tax-free as well. As a result, a person investing in PPF to save for retirement should not be concerned about taxes.
Following is the table comparing LIC vs PPF
LIC vs PPF
People frequently mix up investments with insurance. Investments are for a secure future, whilst insurance is for risk protection.
Having sound financial standing is vital for any investment. A person needs an emergency reserve for unforeseen costs, insurance to safeguard against terrible situations, and investments to ensure a solid financial future.
Therefore, if a person has dependents who depend on their income, they must have insurance. The market offers a wide variety of insurance products, including term insurance, ULIPs, and endowment plans.
A term policy and PPF investments, however, are advised for investors. In the most economical manner possible, it offers investment security and insurance safety.
That being the case, the question shouldn’t be LIC or PPF or LIC vs PPF. Which term policy works best with PPF should be the question instead.
Conclusion
There are insurance programs that also provide investing alternatives, including ULIPs. However, when it comes to expense ratio, they are on the upper end of the spectrum.
They also have a number of unstated fees. Therefore, it is advised that people separate their insurance needs from their investment demands and purchase term coverage while investing in PPF.
If there’s any confusion regarding this or any other financial matter, EduFund’s team of efficient financial advisors is always available to help you.
