LIC Full Form and Definition
LIC stands for Life Insurance Corporation of India. It started its operations as a corporate firm in September 1956 after the Life Insurance of India Act was passed by India’s Parliament in June 1956. The LIC Act came into effect from July 1956. It helped in the nationalization of the private insurance industry in India. LIC of India was formed by merging 154 life insurance companies, 16 foreign companies and 75 provident companies. It is one of the largest financial institutions in India. It has an asset value of over 2,529,390 crores. The headquarters of LIC is in Mumbai, Maharashtra.
The main slogan of LIC is- “Yogakshemam Vahamyaham” meaning “Your welfare is our responsibility”. It is in Sanskrit and is obtained from the 22nd verse of the Bhagavad Gita’s 9th chapter. The chairman of Life Insurance of India is Mr M.R Kumar.
Role of LIC in Indian Economy
LIC is known as India's largest government-owned life insurance and investment corporation. The main role of LIC is to invest in global financial markets and different government securities after gathering funds from people through their various life insurance policies. At least 75% of these gathered funds are to be invested in Central and State Government securities, as stated by one of the LIC rules.
Functions of LIC
The major functions of LIC are as follows:-
Collect people’s savings in exchange for an insurance policy and promote savings in the country.
Protect the capital of the people by investing funds into government securities.
Issue insurance policies at affordable rates
Provide various loans like direct loans to industries, housing loans, loans to various national projects at reasonable interest rates.
Objectives of LIC
LIC aims to spread awareness about the importance of life insurance among people living in rural areas and people who are a part of socially and economically backward classes.
It aims to meet several life insurance needs of the community people who are subjected to change with the changing social and economic environment.
It aims to conduct business economically while taking into consideration that the money belongs to the policyholders.
It aims to maximize the mobility of people’s savings through attractive insurance-linked savings.
It aims in providing utmost job satisfaction to all the agents and employees of the corporation and promotes building a co-operative work environment to deliver efficient service with courtesy to its insured public.
It aims to deploy the funds to the best advantage of the investors and the community as well.
Types of LIC Life Insurance Plans
LIC provides numerous schemes to its policyholders. It offers different schemes for different categories and segments of the Indian economy. It is the largest insurance policy company in terms of the number of policies it has issued to date. Some of the policies are as follows:-
LIC’s Jeevan Pragati
LIC’s Jeevan Labh
LIC’s Single Premium Endowment Plan
LIC’S Jeevan Lakshya
LIC’s Jeevan Tarun
What are the Basic Policies of the Life Insurance Corporation of India?
The basic policies in Life Insurance Corporation of India (LIC) are term insurance, cash value insurance, straight life insurance, and limited payment life insurance. The details of each of these policies are given below:
Term insurance: This insurance is like an insurance protection contract, similar to auto insurance, home insurance, or health insurance. Therefore, it ensures the individual against any risk of financial loss in case of death and does not include any savings plan. In this insurance policy, the owner buys a fixed amount of coverage and pays an annual premium based on their age. The policy is for a fixed period of time and thus the coverage stops if it is not renewed. These policies are available for five years, ten years or fifteen years where the amount of premium to be paid remains constant. The life insurance can also be purchased with a condition of 65 years of age, that is, the insured does not become 65 years of age and in this case, the amount of premium to be paid increases annually. There is decreasing term life insurance also available wherein the coverage of the insurance decreases with time so that the annual premium to be paid remains constant. Term insurances provide maximum coverage to the premium spent.
Cash value insurance: In this kind of policy, the amount of actual insurance decreases over time and the savings component of the policy increases over time. This type of insurance is funded by the premium payments done by the insured along with the earnings of the saving element in the policy. These insurance policies are of two types: straight life policy and a limited payment policy that provides coverage to the insured throughout life.
Straight life insurance: the insurance is throughout life. In this type of insurance, the amount of protection decreases as the savings amount increases, though the total coverage of the policy that includes the protection and savings elements remains the same. The premium in these policies is higher than the term insurance which is based on the age of the individual when he or she buys insurance. The premium for this policy remains constant. The face value of insurance refers to the amount which is paid when the insured person dies.
Limited payment life insurance: in this type of policy the insured person pays the total amount of policy in a limited number of years, that is, usually 20 to 30 years or by the age of 65. After the completion of the term, the policy remains active for the whole life of the insured if he or she has not withdrawn the amount at any point in time. The amount of premium to be paid every year in this policy is obviously higher than the straight life policy.
Did You Know?
The first company in India that provided insurance coverage was The Oriental Life Insurance Company, established in 1818, in Kolkata. Surendranath Tagore founded the Hindustan Insurance Society which later became Life Insurance Company.
Solved Examples
LIC was Established in Which Year?
June 1956
September 1956
July 1956
October 1956
Ans: (b) September 1956
2. Where is LIC Headquartered in?
Kolkata
Pune
Mumbai
Chennai
Ans: (c) Mumbai
FAQs on LIC: Understanding Life Insurance Corporation of India
1. What is the Life Insurance Corporation of India (LIC), and who is its owner?
The Life Insurance Corporation of India (LIC) is an Indian statutory corporation and a state-owned insurance group and investment company. It was established on September 1, 1956, by an Act of Parliament. The Government of India is the owner of LIC, making it a public sector undertaking whose primary objective is to spread life insurance across the country, especially in rural areas, and provide financial cover at a reasonable cost.
2. What are the main objectives and functions of LIC?
The primary objectives and functions of the Life Insurance Corporation of India are multifaceted, focusing on both social welfare and economic development. Key functions include:
- Spreading Life Insurance: To extend insurance coverage to all sections of society, including those in rural and socially backward areas.
- Mobilisation of Savings: To encourage public savings by offering attractive insurance and investment plans, thereby channelling these funds into national development projects.
- Utmost Economy: To conduct business with the highest level of efficiency and economy, ensuring policyholders get the best value.
- Acting as a Trustee: To manage the funds entrusted by policyholders with the utmost care and act in their best interest.
- Investment in Nation-Building: To invest funds in sectors that align with national priorities, contributing to the economic development of India.
3. How does LIC contribute to the economic development of India beyond just providing insurance?
LIC plays a crucial role in India's economic development by acting as a major financial institution. It mobilises a significant amount of public savings through its insurance policies. These accumulated funds are then channelled into the economy through strategic investments in:
- Government Securities: Providing the government with long-term funds for infrastructure and social sector projects.
- Capital Markets: Investing in the stock market, which provides stability and liquidity to the financial system.
- Socially-Oriented Sectors: Funding projects in housing, electricity, water supply, and other key areas that drive national growth.
By doing this, LIC converts individual savings into national capital, fuelling economic progress.
4. What is the fundamental difference between LIC and private life insurance companies?
The fundamental difference between LIC and private life insurance companies lies in their ownership, primary motive, and scale of operations.
- Ownership: LIC is a state-owned corporation, backed by the Government of India, which gives it a sovereign guarantee. Private insurers are owned by private entities, often in collaboration with foreign partners.
- Primary Motive: LIC's primary motive is social welfare and ensuring widespread insurance coverage. Private companies are primarily driven by profit maximization for their shareholders.
- Market Reach: LIC has an unparalleled reach, particularly in rural and remote areas, due to its long-standing and extensive network of agents and branches.
- Public Trust: Due to its government backing and long history, LIC generally enjoys a higher degree of public trust and has a larger market share.
5. What is the importance of the principle of 'Utmost Good Faith' when applying for an LIC policy?
The principle of 'Utmost Good Faith' (Uberrimae Fidei) is a foundational concept in insurance. Its importance lies in the fact that an insurance contract is based on mutual trust. When applying for an LIC policy, the applicant has a legal duty to voluntarily disclose all material facts accurately. This includes information about their health, age, income, and lifestyle. LIC uses this information to assess the risk and determine the premium. If a policyholder hides a material fact and it is discovered later, LIC has the right to declare the policy null and void, potentially leading to the rejection of a claim.
6. From a Commerce student's perspective, what key factors should be analysed when choosing an LIC plan?
A Commerce student should analyse an LIC plan not just as a safety net but as a financial product. Key factors include:
- Sum Assured vs. Premium: Evaluating the ratio of the life cover (sum assured) to the annual premium. Is the coverage adequate for the cost?
- Policy Term and Goals: Aligning the policy term with long-term financial goals, such as funding education, marriage, or creating a retirement fund.
- Type of Plan: Understanding the difference between a pure protection plan (Term Insurance), an endowment plan (Insurance + Savings), and a ULIP (Insurance + Investment).
- Rider Options: Assessing additional benefits like critical illness cover, accidental death benefit, and disability riders, which enhance the policy's utility.
- Bonus and Returns: For participating policies, understanding how bonuses are calculated and the potential for long-term wealth creation.
7. What is the basic process for a nominee to make a death claim from an LIC policy?
The death claim process for an LIC policy is designed to be systematic. The basic steps for a nominee are:
- Intimation of Death: The nominee must first inform the serving LIC branch office about the death of the policyholder as soon as possible.
- Submission of Documents: The nominee needs to submit a set of required documents, which typically includes the claimant's statement (claim form), the original policy document, the official death certificate, and proof of age of the deceased if not already provided.
- Verification by LIC: LIC will then verify the submitted documents and the legitimacy of the claim. In some cases, it may conduct an investigation to ensure no material facts were hidden at the time of policy purchase.
- Claim Settlement: Upon successful verification, LIC processes the claim and disburses the sum assured, along with any applicable bonuses, to the nominee.
