Life insurance vs PPF: What should you opt for?
Retirement can be one of the most stress-free yet the challenging phase of your life. While you might dream about a comfortable retirement stage at home, you might also worry about the lack of finances after the flow of your professional income stops. Since your finances can be your major concern, you might aim to save as much as possible before you near the retirement period.
Although savings can be essential, investment in a pension plan can be an imperative part of your retirement planning process. A pension plan can provide you with retirement benefits as well as allow you to generate retirement income. While there are different types of pension plans such as a unit-linked pension, National Pension Scheme (NPS), many of you might be confused to choose between Life Insurance (LI) and Public Provident Fund (PPF). Before you choose between the two, let’s first understand the meaning of LI and PPF in detail:
What is LI?
Life insurance can be a retirement investment plan that can offer financial coverage to your loved ones in your absence. Due to the primary objective of family protection, it can provide death benefits to your family to maintain their standard of living after your demise.
What is PPF?
PPF is a government-backed investment plan that can allow you to generate retirement income as well as offer decent returns on your investment. When you invest in a PPF account, you can withdraw funds, borrow loans, and extend your PPF account.
Although LI and PPF are two different financial products, they can be similar in their approach. Typically, both these products can be alike to one another in the following things as mentioned below:
- Tenure
Since LI and PPF are long-term financial products, their tenure can vary from 5-30 years.
- Lock-in period
Both the policies, LI and PPF, have a lock-in period of five years, initially. During the lock-in period, you might not be able to withdraw your funds.
- Tax exemption
Under LI and PPF, you can claim a deduction up to Rs. 1,50,000 on your taxable income in accordance with Section 80C of the Income Tax Act, 1961.
- Loan payout
While few of the life insurance products might offer loans, you can take a 60% loan amount based on your credit balance under a PPF account.
Since you might have established the similarity between LI and PPF, you might be confused on what basis should you make the final selection. Although PPF can let you accumulate wealth, you should choose LI over a PPF account for a secure retirement period since it can offer various advantages. Therefore, let’s go through the following benefits that can be provided by LI:
- Protection
The major advantage LI can offer over PPF is the provision of a life cover to safeguard your family members in your absence. When you purchase a life insurance product, you should pay the premiums regularly in return for the coverage.
- Tenure
Although PPF has a minimum tenure of 15 years, you might not be able to discontinue your investment before the completion of the whole term. If you buy a life insurance policy, you might have the liberty to select a short duration.
- Liquidity
A PPF account might not be as liquid as a life insurance product. Under LI, you can surrender your policy and withdraw your funds during an unfortunate event such as loss of income, physical disability, loss of income, and so forth.
As highlighted above, LI and PPF should be two of the most crucial instruments of your retirement planning process. However, evaluate your financial requirements, responsibilities, and so forth before choosing a final plan for you. As a policyholder, see to it that your selected policy aligns with your financial goals.
