Should I Invest In Life Insurance Instead Of PPF
Published On Apr 20, 2022 9:39 AM By InsuranceDekho
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Life insurance policies best suit individuals who have dependents that rely on their income. Hence when a policyholder, unfortunately, passes away then the nominee will receive the insured amount. Hence LIC acts as a risk cover for the policy holder’s family. In case the policy matures before the death of the person, then the lump sum amount will be paid to the policyholder. The same can be used towards the retirement of the policyholder.
Public Provident Fund is an initiative by the Government of India. It was launched by the National Savings Institute in 1968. The government backs this long term post office savings scheme, and hence the returns are guaranteed. The PPF Interest Rate is announced by the Ministry of Finance every quarter. For the current quarter, January 2022 – March 2022, the PPF rate is 7.1%, compounded annually.
The investment up to Rs 1.5 lakhs per financial year is completely tax free in the hands of investors u/s 80C of the Income Tax Act, 1961. Moreover, the interest and maturity proceeds are also exempt from tax. Hence an investor investing in PPF for saving up for retirement need not worry about the tax.
Features of a Life Insurance Policy (LIC)
Following are the features of Life Insurance Policy:
- Policy Holder: The policyholder is the one who pays the premiums for the life insurance policy. They also sign a life insurance contract with the company.
- Premium: It is the amount that the policyholder pays the insurance company for covering their life.
- Maturity: It is the time duration after which the policy term completes, and the life insurance contract ends.
- Insured: The life of the policyholder is insured through life insurance. Upon the policyholder’s death, the insurance company is liable to pay the insured amount to the dependents.
- Sum Assured: Sum assured is the total amount that the insurance company pays to the dependents on the event of death of the policyholder. The sum is paid in case any event occurs that is specified in the life insurance contract.
- Policy Term: The policy term is the duration for which the insurance company provides life cover. Also, it is the period during which the contract is active. These terms are listed in the life insurance contract.
- Nominee: The nominee is the person who will receive the predetermined compensation as part of the policy. The policyholder can nominate the name of the person while opening the scheme.
- Claim: The nominees can file a claim to receive the predetermined payout amount on the event of death of the policyholder. The amount thus received from the policy acts as a risk cover.
Features of Public Provident Fund (PPF)
Following are the features and benefits of Public Provident Fund:
- Tenure: The tenure of a Public Provident Fund account is 15 years. Hence, the lock in period is also 15 years. Furthermore, the account can be extended by a block of five years. Also, the extension does not require any additional investments by the subscriber. Therefore, it is suitable for retirement planning.
- Eligibility: All Indian citizens can invest in PPF. Also, one can open the PPF account in the name of a minor and the parent or guardian can operate it. However, Non Resident Indians and HUFs cannot invest in Public Provident Fund.
- Number of Accounts and Mode of Deposit: Every investor can open only one public provident fund account. Also, the account cannot be held jointly. However, one can open an additional account on behalf of a minor.
- Minimum and maximum investment amount: The minimum investment amount for a PPF scheme is INR 100. Also, the minimum deposit per annum is INR 500. On the other hand, the maximum deposit in a PPF account is Rs 1.5 lakhs p.a.
- Deposit frequency: The deposit frequency can be either once a year or a maximum of 12 installments in a year. Also, it is necessary to make at least one deposit every year to keep the account active.
- Risk: The Government of India backs the PPF scheme. Therefore, it is among the safest investment schemes available to individuals. The Public Provident Fund scheme offers guaranteed and risk-free returns.
- Nomination: An individual can nominate a nominee either during the account opening or subsequently.
- Loan: Subscribers can avail a loan against their PPF deposits. However, one can take a loan only between the third and the fifth year of the account tenure. Furthermore, the loan amount cannot be more than 25% of the deposit amount made till the end of the second financial year.
- Taxation: Public Provident Fund investments fall under the category of Exempt – Exempt – Exempt (EEE). In other words, the investment, interest earned, and redemptions are all tax exempted. Under Section 80C of the Income Tax Act, 1961, PPF investments up to Rs 1,50,000 in a year qualify for tax benefits.
People often get confused between investment and insurance. Insurance is for risk protection, while investment is for a secured future. For any investor having good financial health is important. For good financial health, one needs to have an emergency fund for unexpected expenses, insurance for protection against unfortunate events, and investments for a secured future.
Also read- Importance And Benefits Of Life Insurance