INSURANCE POLICIES

For the third consecutive year, traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the "triple benefits" of life insurance cover, long-term savings and tax benefits. Actually, these policies give very little cover. A premium of `20,000 a year will get you a cover of roughly `2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Go ing by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free.

The bigger problem is that once you sign up for these policies, they become millstones around your neck. Buying these low-yield policies was a big mistake.If I stop paying the premium, they will lapse and I will lose the premiums paid till now. We suggest he should turn these plans into paid-up policies after three years.

Insurance should not be mixed with investment. The only insurance policy she has is a pure protection term plan.