If you ask simply your friends during the months between Jan and March, you will get one simple answer, trying to file tax or finding methods to save taxes. In fact these are months during which people generally make financial mistakes. You insurance advisor might be the most happiest and the busiest person during the period but you might technically mess up your long term financial plan during this process. People end up buying costly life insurance plans just to get tax exemption under Section 80C and they forget the long term effects. This is a common phenomenon is not just with your friends but if you try doing a survey of policyholders you will find 9 out 10 Indians have done so.
So that you don’t make up all these bad choices try looking into the reasons listed below.
Your insurance requires multi year commitment. Tax investments under Section 80C should also be looked with the same perspective as you do for other investments. Over the year your individual priorities may change, say 2 to 3 years down the line you might end up taking a home loan and the principal that you pay post that would be technically covering the total limit under the tax exemption. In case if you have brought a policy a year before just of save tax the extra premium that you have to pay in the succeeding year without getting any tax benefit may pinch your pocket.
From the return angle, the return from investment is very low and the costs involved are comparatively high. Locking you money into insurance products just to save taxes when there are more effective instruments like ELSS in mutual funds which give better returns and also the investments made do also fall under the exemption of Section 80C. If you really looking for cover to built a protection net around you financial goals then you should just buy a term plan to do so and do not just it to save tax. The cost of the term insurance plan is always very low compared other categories of life insurance.
Tax deduction is not the core. Just buying a life insurance plan from the perspective of just savings a small amount of tax is not at all worth. If you actually have a financial plan in places which have certain pre-decided financial goals and you are only bread earner of your family, you should plan your life insurance plan keeping that into perspective. You should look at the existing liabilities to define the cover of your term
Buying Best Life Insurance Policy always requires a detailed planning and you should always understand the long effects of the money saved through your life insurance policy. Always try to evaluate your goal’s financial value first to understand the cover that you require and not to do things in haste considering only taxation.