As we enter the peak tax-saving season, you will notice an increase in advertisements related to tax-planning products. Expect an escalation in the noise surrounding tax-saving products like life insurance and mutual funds. These advertisements will almost certainly be followed up by persistent calls from telemarketers, not to mention personal visits from your friendly neighbourhood insurance agent. So as an investor you are likely to be very busy over the next few months dealing with people who will be going all out to make you buy what fetches them the highest commission, in this case life insurance.

Being financial planners, we have observed that salaried individuals are primarily concerned, more than anything else, about tying up their tax-planning in time to meet the deadline set by the employers. They don't dwell too much on the instruments that must form part of their tax-saving kitty; their objective is getting the tax-planning out of the way as soon as possible so that they can get on with their work as usual.

While we empathise with the salaried individual's focus on his work, we believe there is a case to treat tax-planning as more than a mere distraction. For one, it's the investor's hard-earned money; so treating it like someone else's business is not a very healthy attitude. Since it's his money (or your money if you happen to be that salaried individual) it's only natural to treat the money as sacred and ask a lot of questions before taking an investment/insurance decision. If they find themselves constrained for time, then they must begin the tax-planning exercise a little earlier, which is what we have been advocating to our clients for several years now.

Since a lot of noise that you will be hearing over the next few months will revolve around life insurance, particularly of the now-very-familiar ULIPs (unit linked insurance plans) variety, you must be armed with the right kind of background knowledge. This will help you pose the right questions to the telemarketer and/or counter the insurance agent's sales pitch.

1) First ask them to explain term plans

We are pretty confident that the one telemarketing call you will never receive or the one the life insurance advertisement will never project will be about term plans. So when you get a call from the insurance company or interact with your agent, make it a point to ask them about their term plans and how they compare with their peers.

Term plans allow you to take an insurance cover at an affordable premium, which makes term plans the cheapest form of life insurance. They are a lot cheaper than the ULIPs and endowment plans that most telemarketers and agents are very eager to sell. In fact, the life cover that you are looking for (and is presumably an accurate representation of your human life value) is most likely to be available only with term plans; both endowment and ULIPs will either not provide you such a high life cover or will do so only at a very high premium. If term plans are so beneficial why don't insurers talk more about it? It's because insurance agents earn more commissions on endowment plans and ULIP than on term plans (commissions are calculated as a percentage of the premium which is higher for ULIPs and endowment plans than for term plans).