Prepared By

Praveen
Introduction to the act
Act passed by parliament on june 18, 1956
Came into effect from july1,1956
Lic of india is a body corporate having
prepectual succession
common seal
Having the powers
to acquire, hold and dispose of property
can sue and be sued by its own name
 Objectives of LIC of India

Spread life insurance widely and in particular to the rural

areas, to the socially and economically backward claries
with a view to reaching all insurable persons in the country
and providing them adequate financial cover against death
at a reasonable cost
Maximization of mobilization of people’s savings for
nation building activities.
Provide complete security and promote efficient service to
the policy-holders at economic premium rates.
Conduct business with utmost economy and with the full
realization that the money belong to the policy holders.
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 interest of the
insured public by providing efficient service with
courtesy.
 Role and Functions of LIC

 It collects the savings of the people through life policies and invests
the fund in a variety of investments.
 It invests the funds in profitable investments so as to get good return.
Hence the policy holders get benefits in the form of lower rates of
premium and increased bonus. In short, LIC is answerable to the
policy holders.
 It subscribes to the shares of companies and corporations. It is a
major shareholder in a large number of blue chip companies.
 It provides direct loans to industries at a lower rate of interest. It is
giving loans to industrial enterprises to the extent of 12% of its total
commitment.
 It provides refinancing activities through SFCs in different states and
other industrial loangiving institutions.
 It has provided indirect support to industry through subscriptions to
shares and bonds of financial institutions such as IDBI, IFCI, ICICI,
SFCs etc. at the time when they required initial capital. It also directly
subscribed to the shares of Agricultural Refinance Corporation and
SBI.
 It gives loans to those projects which are important for national
economic welfare. The socially oriented projects such as
electrification, sewage and water channelising are given priority by
the LIC.
 It nominates directors on the boards of companies in which it makes
its investments.
 It gives housing loans at reasonable rates of interest.
 It acts as a link between the saving and the investing process. It
generates the savings of the small savers, middle income group and
the rich through several schemes.
 Formerly LIC has played a major role in the Indian capital market. To
stabilise the capital market it has underwritten capital issues. But
recently it has moved to other avenues of financing. Now it has
become very selective in its underwriting pattern.
 Importance Of Insurance

Insurance basically means the protecting yourself from financial

loss. It is a type of risk management which is mainly used to
evade against the possibility of a contingent, uncertain loss. In
this the insured (entity who buys insurance) transmits the rate
of potential loss to another entity in swap for
financial compensation which is known as the “premium”.
Insurance is important because it allows the businesses, persons
and entities to care for themselves against considerable financial
hardship and potential losses at a reasonably nominal price.
Insurance is complicated because when a person buys insurance
he/she buys a promise. There are various types of insurance;
some of them cover individuals, business and other units.
 Peace of Mind:

Security wish is a wish which leads to work more and

if this wish is unfulfilled then it creates tension in the
mind of a person and hence causes reduction in work.
The security evicts fear of automobile accident, fire,
damage and death. These all are ahead of the human
control and when may upset or weaken the mind of
humans. Therefore, by insurance much of uncertainty
that centers about the wish for security and its
accomplishment may be eradicated.
Provides Safety:

The insurance provides safety against the loss on a

particular incident. In the case of life
insurance compensation is made when the term of
insurance is expired or death occurs. The loss to the
family at an early death and imbursement in old age
are sufficiently provided by insurance companies.
Additionally, safety and security against untimely
death are provided by life insurance.
Encourages saving:

The fundamentals of protection as well as investment

are there in the case of life insurance. In this type of
insurance the deposited financial money cannot be
withdrawn in an easy manner before expiry date of the
term of the policy. The saving in systematic way is
possible because premiums are required to be
compulsorily paid regularly in life insurance. If
a person saves in bank then it is voluntary and he/she
can easily omit months and then discard the program
totally.
Defends Mortgaged Property:

At the death of the proprietor of the mortgaged assets, the

property is taken over by the lender of money and the family will
be destitute of the uses of the assets. Besides, the mortgagee
desired to get the belongings and property insured since at the
damage or devastation of the property he will lose his right to get
the loan replayed. The insurance will provide ample amount to
the dependents at the untimely passing away of the property
owner to pay off the unpaid loans. In the same way, the mortgagee
gets sufficient money at the obliteration of the property.
Moreover, insurance protects the people from financial
destruction and fulfills the various needs. These needs can be old
age needs, family needs, education needs, clean up funds,
readjustment needs and various others.
How LIC Policies Work ?

 Most of the investors just take things for granted

and keep dragging the policies assuming it would be
the best thing in their financial life. In this article I will
show you how Life Insurance Corporation (LIC)
policies work and talk about few aspects like LIC
bonus, LIC premiums and different other aspects
which will help you in understanding how these
policies work.
Moneyback Plans or Non-Moneyback Plans

 A lot of LIC policies pay you on a periodic basis

like at the end of 4th, 8th and 12th year, and then
finally at the end of the maturity period. These policies
are Money back policies, the example can be LIC
Jeevan Surabhi or LIC Komal Jeevan. A lot people get
attracted to these moneyback plans because they get
money “many” times in between and it looks attractive
to them, but the premiums are generally higher for
these policies.
LIC Bonus & Additions to your Policy

The biggest confusion I see is generally in Bonus by

LIC. One thing which investors in these policies don’t
know and don’t care for to find out is that there are
different kinds of bonuses in LIC policies and they are
calculated differently. Let’s see them one by one.
Simple Reversionary Bonuses
 Generally when we say “Bonus”, it is this “Simple
Reversionary Bonus”, which is declared per thousand of the
Sum Assured on annual basis at the end of each financial
year. This bonus is declared today, but is paid at the end of
maturity period only or on death, whichever is earlier. So for
example if you hold a policy of Rs 10,00,000 Sum assured and
the bonus for this year is Rs 60 per thousand sum assured,
then your bonus amount is Rs 60,000 for this year, but you
will only get it at maturity (after many many years) or on
death, but by then it’s worth would be much lesser than
today (this 60,000 today and 60,000 after 20 yrs).
Final Additional Bonus (FAB)

 There is another kind of bonus in LIC which is

generally called as “FAB” or Final Additional Bonus
and it’s paid to those policies which are of a longer
duration and has run for more than 15 yrs (The
premiums are paid for all 15 yrs). This is generally a
token of appreciation for being with the policy for long
duration. The FAB is generally not paid for policies
which have “Guaranteed Additions” (explained
below). Here is an indicative list of FAB.
Loyalty Additions

 This is again a bonus which is declared for being

loyal to the LIC and completing a longer tenure.
Generally it’s declared at the end of the policy, but for
some policies it might be applicable after completion
of 5 or 10 yrs. For example – In Jeevan Saral, the policy
holders will earn such additions after a minimum of
ten policy years have been completed. This is usually
an amount declared per thousand of sum
assured depending on the corporation’s performance.
Loyalty additions are totally non-guaranteed.
Guaranteed Additions

 For a lot of LIC policies there is a term

mentioned like “Guaranteed Additions”. These are
assured sums which are given to policyholders for a
specific period at start or end of some event along with
the sum assured at the end of the term. Like for
example, , Jeevan Shree-1 policy provides for the
Guaranteed Additions at the rate of Rs. 50/- per
thousand Sum Assured for each completed year for
first five years of the policy. The Guaranteed Additions
are payable along with the Basic Sum Assured at the
time of claim.