What are the Functions of LIC? Understanding the Role of Life Insurance Corporation of India

In India, there is no one who has not heard about the Life Insurance Corporation of India (LIC). It is the largest Indian insurance and investment company in India. It was founded in 1956 by the Parliament of India as the LIC ACT. You must be wondering what LIC is doing? what are the functions of LIC? How they are giving a dividend to the policyholders? This article is all about that. We will discuss all these points in this article.

Around 245 insurance companies and provident societies were merged to create the LIC. LIC is the largest insurance company in India with an estimated asset value of Rs. 3111847 crore ($450 billion) as of 2019.

What is LIC?

The Life Insurance Corporation was incorporated and started on 19th January 1956. This was done by a merger of 16 insurance company and 75 provident societies on that day. The LIC Act was passed by the Parliament on 18th June 1956, which then came into effect from 1st July 1956.

Life Insurance Corporation has started its journey as a corporate firm from 1st September 1956. Its all working is governed by the LIC Act.

One of the core functions of LIC is an investment. It is an investment institution. Its main function is to gather money from the people and invest it into the different securities and financial markets in India and abroad.

As a rule, LIC is required to invest at least 75% of the funds in Central and State Government securities. Thus LIC is the largest investment institution in India as on date.

It gathers the funds from the people by issuing insurance policies and invest that funds into financial markets in India. It also provides term loan and bonds to gather money from the market.

Not only that, the LIC has become the world’s largest insurance company in terms of a number of policies issued. As of 2019, the total coverage of policies including individual, group and other social schemes has crossed 13 crores.

Objectives of LIC of India

Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost.
Maximize the mobilization of people’s savings by making insurance-linked savings adequately attractive.
Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return.
Conduct business with utmost economy and with the full realization that the money belongs to the policyholders.
Act as trustees of the insured public in their individual and collective capacities.
Meet the various life insurance needs of the community that would arise in the changing social and economic environment.
Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy.
Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

Functions of LIC

The main function of LIC is to collect the savings of the people through a life insurance policy and invest that money in various financial markets.
One of the main functions of LIC is to invest fund into government securities so as to protect the capital of the people who have given their money to LIC.
LIC has to issue an insurance policy at affordable rates to people.
LIC provides direct loans to industries at lower interest rates. The rate of interest is as low as 12% for the entire tenure.
It is one of the major stakeholders in many of the blue-chip companies in the Indian stock market.
It also provides refinancing activities through SFCs in different states and cities.
It also invests in the various corporates via bonds and securities, thus supports corporate funding in an indirect way.
It also gives loan to the various national projects which are important for economic growth.
It provides financial supports to socially-oriented projects like electrification, sewage, and water channelizing, etc
It also gives a housing loan at reasonable rates.
It is the main channel between savings and investment for the people in India.

Here are some additional functions of LIC.

LIC, or Life Insurance Corporation of India, is a state-owned insurance company that offers a range of life insurance products and services to individuals and organizations. The primary functions of LIC are as follows:

Providing life insurance: LIC offers a range of life insurance policies to individuals, including term insurance, endowment plans, whole life plans, money-back policies, and unit-linked insurance plans. These policies provide financial security to individuals and their families in case of unforeseen events like death, disability, or critical illness.
Promoting savings: LIC also offers insurance policies that help individuals save money for their future needs. These policies provide a guaranteed return on investment, and individuals can choose to receive the lump sum amount or regular payouts at the end of the policy term.
Supporting economic growth: LIC plays a significant role in supporting the Indian economy by investing in government securities, corporate bonds, and other financial instruments. It helps in channelizing the savings of individuals and institutions towards productive sectors of the economy.
Offering group insurance: LIC offers group insurance policies to employers, employee associations, and other organizations. These policies provide life insurance coverage to a group of people, and the premium is usually paid by the employer or the group.
Providing pension plans: LIC also offers pension plans that help individuals save for their retirement. These plans provide a regular income to individuals after they retire, ensuring financial security during their golden years.

Overall, LIC’s functions revolve around providing financial security to individuals and organizations, promoting savings, and contributing to the growth and development of the Indian economy.

Should you buy LIC Policy?

If you ask me this question, my direct answer is big NO! The reason behind is :

The LIC is gathering money from the people like you and me and invest it in the financial market where it makes huge money and in return, you will get peanuts.
The return from the LIC policy is not even beating inflation rate in India.
Most of the people who are buying LIC products are unaware of the alternatives available in the market. And hence they relay on the LIC for their safety and investment.
Most of the LIC’s plans are endowment plans which don’t give good returns.
Even if I want to buy an insurance policy, I would prefer to buy only term plan which is pure life cover plan. There are no returns after 20-30 years. You pay the premium and forget it if you are alive.
See the picture below. That is exactly what LIC is doing with you when you buy LIC policy.

Buying a life insurance policy is a very good decision. However investing in life insurance is not a good decision at all.

Various LIC Schemes

LIC has launched various schemes catering to different categories and segment of the Indian economy. Its main product is insurance plans for individuals. Below is the list of the major LIC policies available in India.

Insurance Plans

Whole Life Plans

» LICs Jeevan Umang

Money-Back Plans

Term Assurance Plans

RIDER

Pension Plans

Health Plans

Group Scheme

Conclusion:

LIC is the oldest investment institution in India. It gathers money from the household savings and invests it in the financial markets. But it doesn’t give you good returns on your investment. I always keep telling people that don’t mix insurance with investment. Both are different as they have different objectives. From the above list of functions of LIC, it is clear that LIC is investment institute. Why should you invest your money into low return schemes? Why can’t you learn the simple rules and logics of investment on your own? Why can’t you take investment decisions on your own?

Investment is not rocket science. It is simple and easy to understand if you want to learn. It is easier than the algebra you learn in the school days.

Last year I have stopped all my LIC policies which were running since the last 15+ years and paid-up my home loan to full. Now I am debt free and investing my savings into mutual funds on my own.

FAQs

Can I buy LIC policies online?

Yes, LIC offers online policy purchase options through its official website, making it convenient for customers to buy and manage policies from the comfort of their homes.

How do LIC’s investments benefit policyholders?

LIC’s investments in various sectors contribute to the growth of the economy and generate higher returns, which, in turn, can lead to higher bonuses and better policy performance for policyholders.

Is LIC only for the rich?

No, LIC offers a wide range of policies suitable for people across different income levels, making it accessible to both the affluent and the economically disadvantaged.

What happens if I miss paying a premium on time?

LIC provides a grace period during which you can pay the premium without any penalty. However, it’s essential to pay the premium within the grace period to keep the policy in force.

Can I nominate more than one person in my LIC policy?

Yes, you can nominate more than one person as a beneficiary in your LIC policy. The nomination can be modified as per your preferences.

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