Home»Personal Finance»Life Insurance Vs PPF: A Quick Comparison

Life Insurance vs PPF: What works better for you?

Dailybhaskar.com  
The author, Deepak Yohannan, is CEO of MyInsuranceClub.com, India’s first Web Aggregator for insurance products approved by IRDA. For related queries, please write to him at deepak@myinsuranceclub.com
 
The saving needs of each and every individual are unique. Most individuals do not make wise decisions in terms of investments as they will often invest in certain products without fully evaluating the product features and their own financial needs. With the numerous investment options available, choosing the most suitable product becomes all the more confusing. Thus, one needs to do a proper evaluation and then choose a product according to his requirements and not base their decisions on random suggestions.
 

Insurance is one of the most important investment avenues for security reasons. However, today, most individuals consider insurance to be just another investment option overlooking its protection feature. As such, comparison of insurance products against other saving products often arises. 
I have often come across a question of whether a Life Insurance Product is better vis-à-vis a PPF.

This question has intrigued me as the 2 products are widely different but at the same time I feel the need to answer it since the question has risen. 

Public Provident Fund (or PPF in short) is a Long Term Debt Scheme which had been introduced by the Government of India. Under PPF, an individual makes periodical payments into his PPF account and get a lump sum amount after maturity. The interest rate of a PPF is 8.8% p.a. compounded yearly from April 1, 2012.

There is no compulsion on the amount of contribution required every year in a PPF Account. One can deposit any amount from Rs 500 to Rs 1 lakh per annum for which he would get a tax rebate under section 80C and can vary the amount each year.

Under life insurance (LI in short), an individual makes small regular payments to avail the risk cover (called SA) which is paid in case of death or maturity. Life Insurance also provides a Tax Rebate for the premium payment towards the same but the contribution amount is fixed for the policy tenure opted. 

Though both LI and PPF involve regular payments towards savings and have certain similar features, they are very different from each other. So, it would be prudent to study their respective drawbacks and benefits over each other. First let’s highlight the similar features.

SIMILARITIES

A) Both LI and PPF are long-term saving instruments. The term under LI ranges from minimum 5 years to maximum 30 years which sometimes even continues till death. The term under PPF is for a period of 15 years and can be increased in 5 year blocks.

B) The contribution under LI and PPF are exempted under section 80C of the Income Tax Act up to a maximum limit of 1 Lakh. Moreover, the maturity amount or death benefit under LI and the maturity amount and interest earned under PPF are also exempted from tax.

C) Loans are possible from both PPF and LI subject to terms and conditions. Not all LI Products have Loan facilities and it also depends on the Surrender Value. However in a PPF Account, 60% of the credit balance of the PPF can be availed as a loan.

D) There is a Lock-In Period of 5 years in both PPF and LI during which there is no withdrawal possible.
 
These are the basic and the most common similarities of PPF and LI. Now there are some differences as well between the two. 
 
Click the next slide to see when PPF scores over life insurance and vice versa... 

 

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