People often confuse investment with insurance needs. Some individuals go for tax benefits not understanding the implications of returns, insurance, lock-in etc.
Many investors often ask whether it would be advisable to go for a LIC policy like Jeevan Anand or a Public Provident Fund (PPF) account?
LIC Jeevan Anand And PPF: The Difference explained
1) Insurance is the biggest difference between the two
Life Insurance Corporation (LIC) policies offer you a life cover like most other players in the private insurance space as well do. Jeevan Anand policy is a term policy from LIC that offers protection and investment.Though, one cannot expect very high returns from an Endowment plan.
A Public Provident Fund (PPF) on the other hand does not offer you life protection. So, if you have an insurance need there is no point in buying a PPF account. If you are looking to build a corpus for your retirement, then it makes sense to go in for a PPF account.
2) Returns are far superior in the case of PPF
PPF offers you an interest rate of 8.70 per cent, though it varies every year. The returns from traditional LIC Endowment plans like Jeevan Anand cannot match these returns. In fact, if you get returns from life insurance policies in the range of 4-5 per cent, you should be pleased.
3) Both offer benefits under Sec 80C of the Income Tax Act
LIC and PPF, both offer tax benefits under Sec 80C of the Income Tax Act. So, if you are looking for tax benefits, both the instruments can offer you tax exemption up to the current limit of Rs 1.5 lakhs per annum. Read more on tax benefits under Sec 80C to Sec 80U
The Public Provident Fund tends to provide a far superior rate of returns compared to an LIC policy like Jeevan Anand. What you should do is invest in the PPF and take a term policy online, which is cheaper and faster. In the term policy you do not get your money back, but, you are provided with solid insurance. So, like an endowment policy, it does not give you your money back, but, at the same time it provides you higher insurance in case of death.
Let's take an example. Say you are a 30 year old healthy individual and you buy a term policy like Jeevan Anand and pay Rs 9000 annually. In case of an unfortunate event of death you would not get more than Rs 1.5 lakhs, though you would get your money back after the term, in case there is no death.
On the other hand if you buy a term policy, though you would not get the money back, you could easily get a insurance coverage of Rs 1 crore for the Rs 9000 paid.
Hence, invest in a PPF and take a term policy from LIC or any other private insurance company. LIC has the best track record when it comes to claims, though many private players are now trying to match this.
The interest rate on the PPF has dropped only recently. The government will now fix the interest rates of the PPF every quarter. So, one cannot be sure as interest rates will kep declining.