Suppose you’re a young professional in India, sitting at his desk, pondering how to secure his financial future. Your family suggests the trusted path of a Life Insurance Corporation (LIC) policy (which is our father’s favourite), while your colleague swears by the long-term benefits of a Public Provident Fund (PPF). Confused, now you wonder: which option aligns best with your financial goals?
This is a common crossroads for many individuals planning their financial journey in India. PPF and LIC are two of the most popular instruments, each offering distinct advantages tailored to different needs. While PPF is a tax-efficient savings scheme that helps individuals build a substantial, long-term corpus with minimal risk, LIC policies go a step further by combining the security of life insurance with the benefits of a safe investment.
To make the right choice, understanding the features, benefits, and differences of these options is key. Let’s dive deeper to uncover how these financial tools can empower your investment decisions.
Overview of LIC
To put it simply, the Life Insurance Corporation (LIC) is a government-owned insurance and investment company established in 1956 under the Life Insurance of India Act. It provides insurance policies designed to protect your loved ones from financial risks.
When you take an LIC policy, you agree to pay regular premiums (or a one-time premium) to the company. In return, LIC promises a lump sum payment either at the policy’s maturity or in case of the policyholder’s untimely death.
These policies are especially helpful for individuals with dependents who rely on their income. If the policyholder passes away, the nominee receives the insured amount, providing financial security for the family. Alternatively, if the policyholder survives the term, the maturity amount can be used as a financial resource, often for retirement planning.
In essence, LIC serves as both a safety net for your family and a long-term savings option for your future.
What Are The Key Features and Benefits of Choosing Plans From LIC?
Here is a list of the key features and benefits of choosing plans from Life Insurance Corporation of India.
Death Benefit:
As the primary breadwinner, your top concern may be the financial well-being of your loved ones if something unforeseen happens to you. LIC policies address this by providing a death benefit. In the unfortunate event of your passing, the entire sum assured under your policy is paid to your nominee. This ensures that your family has the financial resources they need to cope with life’s uncertainties.
Flexible Payout Options:
LIC offers flexibility in how the claim amount is disbursed, helping you ensure the money is used wisely. If you trust your family to handle the funds responsibly, you can opt for a lump-sum payout. Alternatively, if you feel that structured financial support would serve them better, you can choose monthly payouts to provide a steady income.
Coverage for Extended Durations:
One of the major benefits of LIC policies is that they allow you to select the duration of your coverage, offering plans with tenures ranging from as short as 5 years to as long as 30 years. This flexibility lets you align the policy with your long-term goals, ensuring financial protection throughout the chosen term.
Availability of Riders:
Another major highlight of LIC is that it offers a variety of optional riders to enhance the coverage of your basic policy. These can be added at the time of purchase for extra protection. Popular riders include accidental death benefits, coverage for permanent disability, and critical illness protection, giving you a safety net against specific risks.
Tax Benefits:
LIC policies also provide significant tax advantages. Under Section 80C of the Income Tax Act, you can claim deductions of up to Rs. 1.5 lakh on the premiums you pay. Additionally, the claim amount received under Section 10(10D) is tax-free, which makes LIC policies a protective measure and a smart financial tool.
What is The Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a trusted long-term investment scheme introduced under the Public Provident Funds Act of 1968. Since the Government of India backs it, PPF is considered one of the safest and most secure investment options available. Its appeal lies in its attractive interest rates and tax-free returns, making it a popular choice for risk-averse investors.
One of the standout features of PPF is its government-guaranteed interest rate, which is reviewed and announced quarterly by the Ministry of Finance. Currently, for this quarter, the PPF interest rate is 7.1% per annum, and the interest is compounded annually which could help your money grow steadily over time.
From a tax perspective, PPF offers significant advantages. You can invest up to Rs. 1.5 lakhs per financial year, and this amount qualifies for a full tax deduction under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned and the maturity proceeds are entirely tax-exempt, which means you don’t have to worry about any tax liabilities on your earnings.
What Are The Key Features and Benefits of PPF?
Listed below are the salient features and benefits of PPF.
Extended Lock-In Period:
One of the biggest benefits of PPF is that it encourages disciplined long-term savings by having a 15-year lock-in period. This means the funds in your PPF account can only be withdrawn upon maturity, which ensures you stay committed to your financial goals. However, in specific circumstances, premature withdrawal is permitted, though it may incur a penalty ranging from 0.5% to 3% of the interest rate. Furthermore, this structure makes PPF ideal for individuals who wish to cultivate a secure financial habit while saving for the future.
Steady Returns with Zero Risk:
As a government-backed scheme, PPF offers steady and reliable returns, which makes it an excellent choice for risk-averse investors. The interest rate, reviewed quarterly by the Ministry of Finance, ensures that your investment grows consistently. Furthermore, this stability attracts both small-scale and large-scale investors who are looking for a safe option to diversify their portfolios or build a retirement corpus.
Tax Exemptions Across the Board:
PPF is one of the few investment schemes that offers a triple tax advantage. Contributions of up to Rs. 1.5 lakhs annually are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Moreover, the interest earned and the maturity amount are completely tax-free, which makes it a highly tax-efficient savings tool.
Loan Facility Against PPF Balance:
PPF account holders can also use their accumulated balance as collateral for a loan. Starting from the 3rd financial year of the account, you can borrow up to 25% of your total balance. The loan comes with an attractive interest rate of just 1%, which makes it a cost-effective way to access funds without breaking your long-term savings.
Flexible Investment Limits:
Last but not least, PPF accommodates both modest and substantial contributions. The minimum annual investment is just Rs. 500, which ensures accessibility for all income groups. On the other hand, the maximum allowable investment per financial year is capped at Rs. 1.5 lakhs, which may enable significant savings while staying within tax-benefit limits.
What Are The Differences Between LIC and PPF?
Let’s take a look at the comparison between LIC and PPF to help you choose the best option as per your needs.
| Parameter | Public Provident Fund (PPF) | Life Insurance Corporation of India (LIC) |
| Regulators | Governed by the Government of India under the PPF Scheme, which ensures stability and security for investors. | Regulated by the Insurance Regulatory and Development Authority of India (IRDAI), which oversees the life insurance industry. |
| Interest Rate | The Government of India decides and reviews the interest rate for PPF quarterly. Currently, it stands at 7.1% per annum (compounded annually). | The interest rates for LIC policies vary depending on the type of policy and the market performance. The rates are subject to change based on market conditions and policy type. |
| Tenure | PPF comes with a 15-year lock-in period, after which you can extend the term by 5 years in blocks. | LIC offers policies with flexible tenure options, ranging from 5 to 30 years, depending on the specific plan chosen. |
| Deposit Frequency | Contributions to a PPF account are made annually, and the investor must make a minimum deposit each year. | Premium payments for LIC policies are typically made periodically (monthly, quarterly, or annually) throughout the policy. |
| Investment Objective | PPF is focused on helping individuals build a substantial savings corpus for future financial needs, such as retirement. | LIC policies are designed to provide financial protection to the family of the insured in the event of their untimely demise. They also offer an opportunity to accumulate a corpus over time. |
| Liquidity | PPF allows loan facilities against the balance from the 3rd year and partial withdrawals from the 7th year. | LIC policies typically come with a 3-year lock-in period, after which policyholders can access their funds through claims, partial withdrawals, or loans, depending on the type of policy. |
LIC vs PPF: Which is Better?
When deciding between PPF and LIC, it’s important to understand that they serve different roles in financial planning. PPF is a great choice for those looking for a safe, long-term investment that offers tax benefits and steady returns, making it an excellent option for retirement planning. Its low-risk nature and tax-free returns make it ideal for individuals focused on building a secure savings corpus over time. On the other hand, LIC policies are better suited for those who need life insurance coverage along with the opportunity to grow their savings or investments. LIC offers a mix of protection and investment, making it a good option for those who want to secure their family’s future financially.
Ultimately, the decision between PPF and LIC depends on your financial goals, risk tolerance, and the length of time you wish to invest. For many, a balanced approach that includes both PPF for secure, long-term savings and LIC for life coverage and investment diversification may be the best solution.
