LIC vs PPF: Which is a better option in the long run?

The Life Insurance Corporation of India (LIC) takes care of an individual’s insurance needs. The government-backed entity provides schemes like life insurance, auto and home insurance. An LIC life insurance policy is a crucial step if one wants to secure the future of their loved ones in case of any unfortunate event. When it comes to long-term investments, people also choose to go in for Public Provident Fund (PPF). Since both schemes are government-backed, they offer low risk to the investors. Take a look at which scheme can be better for you.

LIC

LIC policy can help secure the financial future of any dependents in case of the untimely demise of the policyholder. The policyholder has to pay premiums till the term of the contract is over or their life ends. The nominee can file a claim to receive the funds if the policyholder passes away.

PPF

PPF is a long-term post office savings scheme. It has a tenure of 15 years, which can be extended by the investor. Every investor can only have one PPF account. The minimum investment amount is Rs 100 and the minimum deposit per year is Rs 500. The account cannot be held jointly. Non-Resident Indians (NRIs) cannot open a PPF account.

LIC vs PPF: Differences

Tenure: PPF has a minimum tenure of 15 years. LIC policies have a flexible tenure, which can be chosen by the customer.

Returns: LIC policy offers lower returns of about 4 to 6 per cent. On the other hand, the PPF interest rate is 7.1 per cent annually right now.

Liquidity: Insurance policies have a lock-in period of three years, after which they can be encashed. PPF allows loan facility from the third year and partial withdrawal from the seventh year.

Tax exemptions: The death benefit under LIC policy is tax free. The premium paid for the policy qualifies for tax deduction u/s 80C of the Income Tax Act. As for PPF, the investment falls under the Exempt – Exempt – Exempt (EEE) category. In other words, the interest, investment and redemptions are not taxed. Investments of up to R 1.5 lakh in a year qualify for exemption u/s 80C of the Income Tax Act.

LIC vs PPF: Which is better in the long run?

One needs to take their needs into account before investing in either LIC schemes or PPF. Both schemes offer tax benefits and are low-risk. If the motive of the investment is to create some wealth to beat inflation in the long run, the PPF may be a better choice. On the other hand, a LIC policy is the way to go if the focus is on insurance.