LIC Versus PPF

When it comes to financial planning in India, two of the most popular instruments are the Public Provident Fund (PPF) and Life Insurance Corporation of India (LIC) policies. Both offer unique benefits and serve different purposes in an individual's financial portfolio Let’s explore how their features, benefits, and differences can help investors make informed decisions. 

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Policies Sold

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:

Parameters Life Insurance Corporation (LIC) Public Provident Fund (PPF)
Overview A state-owned insurance and investment company offering various life insurance policies to provide financial security and savings. A government-backed savings scheme offering tax benefits and guaranteed returns.
Establishment Established in 1956 after the Life Insurance of India Act was passed. Introduced in 1968.
Objective Provides life insurance coverage along with savings or investment benefits. Purely an investment product aimed at long-term savings with tax benefits.
Interest Rate Varies by policy type; traditional plans offer guaranteed returns, while ULIPs offer market-linked returns. Around 7.1% per annum, compounded annually (subject to quarterly changes by the government).
Tenure Varies by policy type; terms can range from a few years to lifetime coverage. Minimum tenure of 15 years, extendable in blocks of 5 years.
Tax Benefits Premiums qualify for a tax deduction under Section 80C; the maturity amount is tax-exempt under Section 10(10D), subject to certain conditions. Contributions eligible for tax deduction under Section 80C; interest earned and maturity amount are tax-free.
Investment Limits Premium amounts vary based on the chosen policy and coverage. Minimum annual contribution of INR 500; maximum of INR 1.5 lakh.
Risk Risk varies by policy type; traditional plans are low risk, and ULIPs, due to market linkage, are higher risk. Low risk with guaranteed returns, backed by the government.
Liquidity Loans available against policies; early surrender may result in losses. Long lock-in period of 15 years; partial withdrawals are allowed after the 7th year.
Flexibility Wide range of policies with varying terms, premiums, and benefits for customization. Limited flexibility with fixed contributions and tenure.
Purpose Suitable for financial protection of dependents and savings or investment goals. Ideal for secure, long-term savings, particularly for retirement.
Maturity Benefits If conditions are met, the lump-sum amount will be paid upon maturity or the policyholder's death, tax-free under Section 10(10D). Lump-sum amount at maturity, tax-free.
  • Provides life insurance cover along with savings or investments.
  • Variety of plans to meet different financial goals.
  • Tax benefits on premiums paid and maturity proceeds.
  • Tax-free returns.
  • Secure investment with government backing.
  • Flexibility in terms of tenure extension.
  • Useful for long-term financial goals such as retirement.

**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.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:-
++Returns are 10 years returns of Nifty 100 Index benchmark

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