All About Life Insurance Vs ELSS
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A life insurance policy is essentially a contract between an individual and an insurance provider, where the company promises to pay a specified amount of money to the family or beneficiary of the individual, in return for regular payments over a period of time. These payments are known as premiums and are usually paid on an annual basis. The individual who buys the insurance is known as the policy holder. Life insurance assures a lump sum amount to be paid to the family if the policyholder passes away unexpectedly. Though money cannot make up the loss, it ensures no financial hiccups to the family even after the demise of the breadwinner.
Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily invests in the stock market or Equity. Investments of up to 1.5 Lac done in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act. The advantage ELSS has over other tax Saving instruments is the shortest lock-in period of 3 years. This means you can sell your investment only after 3 years, from the date of purchase! However to maximise returns from ELSS funds, it is recommended to keep your investments intact for the maximum duration possible. If you have an ELSS SIP (Systematic Investment Plan), each instalment has a lock-in period of three years, which means each of your instalments will have a different maturity date.
Benefits Of Life Insurance
Here are some of the benefits of life insurance:-
Tax benefits
Enrolling for a life insurance policy can guarantee you tax benefits.The premiums you pay towards the policy make you eligible for tax exemptions of up to ₹1.5 lakhs of your taxable income, under Section 80C of the Income Tax Act. The death benefits are also fully tax exempt, under Section 10(10)D of the ITA.
Guarantee of fixed returns
Life insurance policies guarantee that you get a fixed amount after a fixed timeline. You need to go through the structure of different life insurance products.Read through the structure and terms and conditions of different life insurance products to choose a policy that best suits your needs. Whatever you choose, you can rest assured that the promised death benefits will be disbursed to the beneficiary, if the information provided by you at the time of enrolling for the policy was accurate.
Risk mitigation and coverage
These policies provide the quintessential risk coverage in terms of monetary compensations to mitigate and cover risks after the policyholder’s death.By enrolling for life insurance, you are protecting your family against financial risks that would occur if the primary breadwinner meets an untimely death.
Provision for loan
Certain policies provide the option of loan and allow you to borrow a sum of money.This means that if you need to take on a loan, for instance, to fund the education or marriage of a child, you can use the life insurance policy as collateral.
Health expense coverage
Most of these policies cover the health and treatment expenses that may occur.occur if the policyholder falls ill. You can also choose riders to increase the coverage of the insurance policy to protect your finances even while you are alive.
Advantages of ELSS Mutual Funds
Here's a look at the advantages of ELSS Mutual Funds:
- Shortest lock-in: ELSS has the shortest lock-in period of three years. Tax-saving fixed deposits have a five-year lock-in, while PPF has a 15-year maturity. All in all, ELSS offers more liquidity in the medium term.
- Potentially higher returns: Unlike ELSS where return is market linked, other 80C investments like PPF or FDs are fixed income products. ELSS has the potential to generate significantly higher wealth in a medium to long-term investment horizon.
- Better post-tax returns: Long Term Capital Gains from ELSS are tax free up to a limit of ₹1 lac. Gains over 1 lac attracts a tax rate of just 10%. Lower tax rates, coupled with higher returns ensure the best post tax returns.
- Regular investing is hassle-free and convenient: It is easy to invest in ELSS funds through a monthly SIP.
Conclusion
So, what’s the answer to the question about which is better - ELSS or life insurance? Well, that depends on your needs. If you would like to combine insurance and investment at the same time and can invest for a longer period, your best bet would be life insurance. Otherwise, ELSS is the way to go.
Also read: All About Postal Life Insurance Premium Calculator Explained
