Life Insurance vs PPF: What works better for you?
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- 2 of 2PPF Over Life Insurance
A) Minimum investment under PPF is as low as Rs. 500 and there is no fixed amount. Any amount from Rs 500 to Rs 1,00,000 can be paid towards the PPF Account. However, in a LI Policy, the premium payment is more or less fixed for the entire tenure opted for thus making it a rigid contribution with lesser flexibility.
B) Returns are always guaranteed @8.8% with no capital risk in a PPF whereas all LI Products do not guarantee returns. Some policies like Endowment Policies guarantee returns while others like Unit Linked Insurance Plans do not. There are some plans which do not have any maturity benefit at all.
C) Partial withdrawal is allowed after the end of the 4th Financial Year in a PPF whereas not all LI Policies offer facilities of Partial Withdrawal. Some plans like Unit Linked Plans do but most Traditional Policies do not.Life Insurance over PPF
A) The first and foremost reason of choosing a LI product is protection. Insurance guarantees money in the event of any contingencies (death or illness) or any other event against which the policy has been taken. For example, if you have paid only 1 year’s premium and then meet with death, then in a LI Policy, the entire amount of Sum Assured or the coverage opted for is paid. However, in the same example, only the amount contributed towards the PPF along with interest would be paid in a PPF Account.
Thus, the amount paid by the insurer may be much more than the premium paid in a LI Policy since protection is a primary objective of the plan. However, under PPF this feature is non-existent and the nominee of the accountholder gets only the total of the amount deposited with interest accumulated @8.8%.
B) PPF is a long term investment (15 years) and cannot be taken for a shorter period while LI can be for a shorter duration (starting at 5 years).
C) Also PPF is not as liquid as LI because LI Policy can be surrendered and the money can be withdrawn in case of an emergency. However, in PPF only investment made in Year 1 only in Year 7 can be withdrawn in case of an emergency.
Thus, both are important financial instruments and can be opted for under different requirements but only after carefully weighing the pros and cons of the same and analyzing your own financial needs and responsibilities without investing blindly as per the trend of the market or advices based on other’s needs and wants.
The author, Deepak Yohannan, is CEO of MyInsuranceClub.com, India’s first Web Aggregator for insurance products approved by IRDA. For related queries, write to him at email@example.com
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