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Endowment Insurance Or Sukanya Samriddhi: The Right Choice?

If you had to choose an absolutely safe, tax-free and long-term investment for your daughter's marriage or education, would you choose an Endowment Insurance Policy or the Sukanya Samriddhi Scheme?

Obviously and undoubtedly, Sukanya Samriddhi Scheme!

Listed below are many reasons why the choice is a no-brainer at all.

1. Higher Returns
You will very easily earn around 1.5 to 2.5% higher returns with Sukanya Samriddhi Scheme as compared to an endowment insurance policy. The interest rates on Sukanya Samriddhi Scheme have always been around 8-9%. Whereas endowment insurance will yield at best around 5.5-6.5% returns. Why get into such a low-yield investment product?

2. Lower Costs
You pay ZERO cost when you invest in the Sukanya Samriddhi Scheme. Whereas in an insurance policy, the commission payable to the agent, policy administration charges and such other costs add up to a very large and sizeable sum. This high cost is clearly reflected in the poor returns that such policies generate. Why pay such a huge cost for no additional benefit? (Note: Life cover in an insurance policy will cost extra in the form of mortality charges.)

3. Flexible Investment
With an insurance policy you are committed to pay the fixed amount of premium year after year for 15-20 years. Whereas, with Sukanya Samriddhi Scheme you have the option to decrease or increase (upto a max of Rs.1.50 lakhs) your investment in any year as per your financial comfort. Given the uncertainties in life, this flexibility to change your investment is a big boon; especially when a long tenure of almost around two decades is involved.

Compared to insurance, Sukanya Samriddhi Scheme is a sure-shot winner.

4. Better Liquidity
You cannot part-withdraw even a single rupee from your insurance policy. You will have to wait until maturity to access your money. Whereas Sukanya Samriddhi Scheme allows you to withdraw up to 50% of the amount, as at the end of previous year, for education purposes. It also permits early withdrawal for marriage purposes. In short, you get the money when you need it the most.

5. Premature Closure
You cannot close your insurance policy before THREE years are complete. Even after that you have to pay heavy 'surrender charges' if you exit from your insurance plan before maturity. Whereas you can prematurely close your Sukanya Samriddhi Scheme at ANY TIME, wherein you will be paid the Savings A/c rate of interest. In other words, herein you not only don't pay any penalty, but also earn some returns at least.

Note: There is another provision to prematurely close your Sukanya Samriddhi Account with full interest. This is after FIVE years from the date of opening the account and on compassionate ground (such as medical support in case of life-threatening diseases).

Of course, the only drawback with Sukanya Samriddhi Scheme is that only your daughter(s) are eligible for it. You can't invest in this scheme for your son(s). But worry not, you have the PPF Account for them.

In terms of long time-frame of 15-20 years, safety, Sec 80C benefit and tax-free returns, Sukanya Samriddhi Scheme and Endowment Insurance are almost similar.

However, when it comes to the other key parameters — namely returns, costs, flexibility, liquidity and premature closure  Sukanya Samriddhi Scheme is a sure-shot winner.

For more details, you can refer to the following blog posts:
Sukanya Samriddhi Scheme spells trouble for insurance
New Rules On Sukanya Samriddhi Scheme Are Notified

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