PPF vs LIC: A Detailed Comparison

When it comes to investment avenues, there are different options available in the market. You can choose from fixed-income instruments or market-linked securities. Moreover, depending on your investment horizon, you can invest in long-term and short-term avenues.

PPF and LIC policies are two famous investment avenues.PPF is a long-term saving scheme that helps accumulate a guaranteed corpus with fixed returns. On the other hand, LIC helps plan for emergencies and gives financial security. Both PPF and LIC plans have their respective features, benefits and limitations.

You can invest in one or both of these avenues depending on your financial needs and goals. However, before investing, you should understand these avenues, their similarities, and their differences. So, let’s explore PPF vs LIC policies.

What is a LIC Policy?

LIC stands for Life Insurance Corporation of India. It is a state-owned life insurance company that offers different insurance policies. Most of these policies cover the risk of premature death.

In a LIC policy, you have to pay regular premiums or one single premium to receive a lump-sum payment upon maturity of the policy. However, if a policyholder unfortunately passes away within the policy’s tenure, the nominee will receive the insured amount. Thus, LIC acts as a risk cover for the policy holder’s family.

What is PPF?

PPF stands for Public Provident Fund. It is a long-term government-backed savings scheme that has a tenure of 15 years and offers a fixed interest rate. You also get the option to extend the investment duration in blocks of five years.

The PPF account gives you tax benefits since your investments and returns are tax-free as well. That is why the PPF scheme is favoured by many to create a secured corpus for their long-term financial goals.

Differences Between LIC vs PPF Policies

Some of the significant differences between PPF and LIC Policies are listed below:

PPF vs LIC: Similarities

While PPF and LIC are quite different as investment avenues, they share some similarities too. These are discussed below:

• Partial withdrawals
  Under the PPF account, you can make partial withdrawals from the account balance up to specified limits. These withdrawals do not affect the continuity of your investments and can be done from the seventh year of opening the account.
  Under unit-linked life insurance plans offered by LIC, partial withdrawals are available after the completion of five years.
  
• Loan facility
  You can get a loan against your PPF account from the third year until the end of the seventh year. Traditional life insurance plans, like endowment policies, also offer loans after the lock-in period of three years is complete.
  
• Revival
  If you miss contributing to the PPF account in any financial year, you can revive the account in the next year. In life insurance plans, if you miss the premium payment, you get a revival period during which you can restore the coverage.
  
• Tax benefit on investment
  The amount you invest in the PPF or life insurance scheme is allowed as a deduction under Section 80C. The maximum limit of deduction is Rs.1.5 lakhs. For life insurance policies, deduction is restricted to 20% of capital sum assured in respect of policies issued on or before 31-3-2012 and 10% in case of policies issued on or after 1-4-2012. In case of policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the limit will be 15% of capital sum assured. 

• Tax benefit on returns
  The returns earned and the maturity benefit received from the PPF account is entirely tax-free in your hands.
  In the case of life insurance policies, too, the death benefit is altogether tax-free in your nominee’s hands. Even in the case of maturity benefits, if the premium was less than 10% of the sum assured, for policies issued after 1 April 2012, and 20% for policies before 1 April 2012, the amount you receive would be entirely tax-free under Section 10(10D) of the Income Tax Act, 1961.

Final Thoughts

Both PPF accounts and life insurance policies have their own set of benefits. Thus, it would help if you understood what these avenues are all about before investing in them. Don’t compare PPF vs LIC to determine the best one because they are very different. Instead, assess your financial needs and then make a choice. You can choose both PPF and life insurance policies to enjoy the benefits that they provide. While the PPF scheme would help you create a long-term, tax-efficient corpus, the life insurance policy would give financial security. So, as you plan for your goals, you can secure your planning with life insurance.

So, rather than LIC vs PPF, invest in both and maximise tax savings.

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