Life insurance policies should be essentially seen from the point of covering your liabilities and to provide sufficient insurance cover to take care of the loss of income due to the untimely death of the bread earner.
But most of us make the mistake of treating insurance as investments and end up investing a sizeable portion of the tax-saving component in investment linked insurance plans, which might not provide the perceived returns and adequate cover.
For someone who is young and has a family, the tax planning should begin with taking a term insurance plan of appropriate sum assured.
Deciding on the insurance cover early can save you from repeating the mistake which Nikhil did.
Even pension plans offered by life insurance companies can be avoided due to the high charge structure and rigidity at the time of maturity.
Also, remember that single premium policies and high premium-low cover policies won’t be able to claim any tax benefits once Direct Tax Code is implemented.