LIC Versus PPF

Overview of LIC

Life Insurance Corporation (LIC) is a state-owned insurance and investment company established in 1956 following the passage of the Life Insurance of India Act. LIC offers insurance policies designed to protect dependents against financial risks. Policyholders pay regular or single premiums. Upon the policy's maturity or the policyholder's death, a lump-sum payment is made either to the policyholder or their nominee. 

LIC policies are ideal for individuals with dependents. They provide financial security to the family in case of the policyholder's death and serve as a retirement fund if the policy matures beforehand. 

Key Features of LIC 

Below are some of the key features of LIC. Take a look: 

• Life Cover: LIC term plans primarily provide life insurance coverage, which ensures financial security for the policyholder's family in case of an untimely demise.

• Variety of Plans: LIC offers numerous plans catering to different financial goals, such as pure protection, savings, and investment.

• Tax Benefits: Premiums paid towards LIC policies are eligible for tax deduction under Section 80C. The maturity proceeds are tax-free under Section 10(10D), subject to certain conditions.

• Returns: The returns on LIC policies depend on the type of plan. Endowment plans and money-back policies offer guaranteed returns, while ULIPs are market-linked and thus can offer higher but variable returns.

• Risk: The risk varies by policy type. Traditional plans offer low risk and guaranteed returns, whereas ULIPs carry higher market risk.

Overview of Public Provident Fund (PPF)

PPF is a government-backed savings scheme launched by the National Savings Institute in 1968. It is a long-term post office savings scheme and offers tax benefits and a guaranteed return. The PPF Interest Rate, announced quarterly by the Ministry of Finance, currently stands at 7.10% per annum, compounded annually.

Under Section 80C of the Income Tax Act, 1961, investors can enjoy complete tax exemption on investments up to Rs 1.5 lakhs per financial year. Additionally, the interest earned and the maturity proceeds remain tax exempted. This tax-free status relieves investors, particularly those saving for retirement, from concerns regarding tax implications.

Key Features of PPF:

The following are the key features of PPF:

• Interest Rate: The government sets the interest rate on PPF, which is subject to change every quarter. Currently, it is around 7.1% per annum, compounded annually.

• Tenure: The minimum tenure is 15 years, which can be extended in blocks of 5 years after maturity.

• Tax Benefits: Contributions to PPF are eligible for tax deduction under Section 80C of the Income Tax Act. The interest earned and the maturity amount are also tax-free.

• Investment Limits: The minimum annual contribution is INR 500, and the maximum is INR 1.5 lakh.

• Risk: Being a government-backed scheme, PPF is considered one of the safest investment options with no risk of capital loss.

Comparison Between LIC & PPF

Here's a comparison between Public Provident Fund (PPF) and Life Insurance Corporation (LIC) policies:

**This table clearly and concisely compares the key features, benefits, and conditions of PPF and LIC policies, helping individuals make an informed choice based on their financial goals and needs.

Wrapping It Up

PPF and LIC serve different purposes in financial planning. PPF is ideal for individuals seeking a secure, long-term investment with tax benefits. It is particularly suited for retirement planning due to its low risk and tax-free returns. On the other hand, LIC policies are suitable for those seeking life insurance coverage along with savings or investment benefits. The choice between PPF and LIC depends on individual financial goals, risk appetite, and investment horizon. A balanced portfolio might include PPF for secure long-term savings and LIC policies for insurance coverage and diversified investment.