Agents like to project traditional insurance plans as instruments that offer triple benefits: life insurance cover, long term savings and tax savings. The reality is quite different. Traditional policies are not the best form of life insurance. A term plan can give a 10 times bigger cover at a fraction of the cost. Nor are they a good investment because the returns are barely 5-6%. But they are certainly the worst way to save tax. They require a multi-year commitment and are not very liquid.

Last year, the insurance regulator tweaked the charges on traditional insurance plans and introduced some customer-friendly rules. Traditional products will now offer an insurance cover of at least 10 times the annual premium. The surrender value will depend on the premium paying term of the policy and the minimum surrender value now stands at 30% of all the premiums paid.

Despite these changes, the plans don't qualify as good investments. The only benefit is that the income is tax-free, but then, so is the income from the PPF and tax free bonds. Another positive feature is that you can easily get a loan against such policies.