Tax Saving Investment – A Myth!

No investments happening. Life busy with day to day work and family responsibilities. Getting lot of spurious calls about different investment plans. Huge loads of information pouring in through different channels. Need to do investment. But don’t know where to start. Agents keep calling and notion is they are there to cheat me.
Somewhere in 1st quarter of the year (Jan-Mar), office sends email to submit investment proofs to save tax. I need to do some investments to save tax.

Then suddenly a close relative knocks your door. He suggests insurance plan which is apt for you. At least he is saying. It is difficult to say NO to him as you don’t have any logical reason. So you go with the flow. Anyways you wanted to do investments. Why not his plan? Whatever he explained looked very nice. Again he is close relative why he would cheat. May be he himself does not know that he is cheating!!

Then he gives super benefit. The plan offers tax benefit under section 80C. You are now engaged as you need to submit investment proof. So you buy insurance plan to save tax. You are very happy taken a prudent decision.
Next year again same thing happens. You invest in some other insurance plan to save more tax.

In 2-3 years’ time, you decide to buy home. So takes home loan. Then you come to know home loan principal can be used to utilize sec 80 C limit. Then you club EPF & home loan principal. Suddenly you come to know insurance policies bought is no longer serving for tax benefit as you are already exceeding your Sec 80 C limit. Now you start to get a feeling that this policy has become a liability. Cannot do any further new investments as money is locked in premiums. Then you try to analyse the returns. To your surprise when you try to calculate percentage returns it is coming very less (5 – 6 % p.a.). Earlier plan was showed with the sum assured which looked very high. Absolute returns looked very high. But CAGR (Compounded Annual Growth Rate) was very low.
Then you try to see if protection is enough. Oh the sum assured is also very low in the event of untoward incident to me, sum assured will not be able to give apt financial protection.

Conclusion – plan does neither provide good returns nor protection as well.

Wealth Doctor tells Sohan there are better tax saving investment instruments like

For family protection can take Term cover. But money locked in insurance premium. How should I come out?
Now I decide to read the policy documents for features and term and conditions (Should have read within 15 day free lookup period). Even call center agent from the insurance policy had called to explain the terms and condition. I had ignored it.
Now what to do????

Wealth Doctor comes to rescue. There are 4 options now:

1. Let the policy lapse
2. Surrender the policy
3. Make it paid-up
4. Continue with borrowed money

For you – turning into paid-up is best as you had already paid 3 premiums. Your future premium will stop. Same money you can divert to better saving options. Get a term cover for 1 Cr for Rs. 12,000 per year.

Life is now set.

Rohan enters a Bank. Relationship manager takes him to his cabin. He analyses his balance from the bank account. Suggests keeping idle cash in account fetches only 4 % return. We have super insurance plans which can provide better returns and good life cover and the story continues…