LIC IN INDIA

ABOUT LIC
Every day we wake up to the fact that more than 220 million lives are part of our family called LIC. Humbled by the magnitude of the responsibility LIC carry and realise that the lives that are associated with it are very valuable indeed. Although this journey started five decades ago, we are still conscious of the fact that, while insurance may be a business for LIC, being part of millions of lives every day for the past 52 years has been a process called TRUST 53 Years Of Trust Thy Name Is LIC

MISSION
"Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development."

VISION
"A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

OBJECTIVES OF LIC
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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 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 moneys belong 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.

Importance of Life Insurance in India

One of my good friend had a small argument with me, that she would not invest inTerm Plan of Insurance, because she will not get any returns out of it. I believe investing in a term plan looked a very unprofitable thing to her as she never gets back the money she paid as premiums, if she survives. ~2~

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Endowment plans looked nice to her, because they provide money if you are dead and even if you survive. You get back money as the prize for not dying!!!. With respect to Term insurance, she understood the fact that her family will get the money from insurance company in case of her death, but she was concentrating on the fact that she would not get back anything if she survives. What is the return in that case? Nothing!!! , and looked like someone is fooling you with a product called Term Insurance, where you are investing premiums to get nothing at the end. Let me now tell why this happens and some give you some insight on this matter. I have already talked earlier in my last post Life Insurance and how to go about it, about Term Insurance. Let me now take more deep dive into it and talk about the reasoning part. I will first talk about fundamentals of Insurance and then talk about Endowment Policies and why are they popular, and what people dont realise about them, and how Term insurance is the right thing for most of the people.

Basics of Life Insurance

What happens in a average family:
There is someone who earns and his family comprises of wife, kids, parents. If not all there is a subset of these family members. The head of the family earns and his family lives happily. All the expenses are met from the earnings of this main member, most of the time the husband. Now consider this person dies in an accident or for that matter because of any event. What happens? What happens to his family members other than the psychological trauma . If ~3~

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theydont have money to take care for them selves ,either some one from family have to take up the job and start working which may not be possible for them, or They have to decrease their standard of life to maintain the expenses . They are now totally unsecured from futures point of view. In short they are totally messed up , which should not have happened. I gave this detailed explanation for the circumstances because i wanted you to understand how bad can happen and proper measures must be taken care for this.

What is the solution?

Adequate Coverage!!!, this cant be compromised You must have a backup plan which can give your family the same kind of income which confirms that they are not short of money in case the main earner is gone. If there are some debts like Home Loan, or any other tasks which need money apart from regular income, the cover must be good enough to cover that too.. For example: Robert has a family expenses of 25,000 per month and there is a Home loan of Rs 25 lacs to be paid within 10 yrs. He is 27 yrs old. He has a wife, 2 kids and parents. All of them are dependent on him financially. He has investments of 5 lacs. Now in this case. In case he dies, who will take care of Home loan, how will provide them enough money to live life comfortably. They need 25k * 12 = 3 lacs per year, which they can get per month if they have 35-40 Lacs of money. If they put this in bank, they will get Rs 25,000 per month as interest which they can use. Considering inflation it will not be enough after some years, but lets leave it now for this example. Add home loan of 25 lacs to this 40 lacs and what we come to know is that this family must be covered with minimum Rs 65 lacs. Rs 75-80 Lacs is a decent cover for this family. Now if he takes a cover of 80 lacs for his family, from that day he can happily live all his life without any tension, thinking what will happen if he is not there. He will be attain peace of mind, and not be worried for it. He must get a lot of internal peace because his Family is protected with a good enough cover to take care for them. And this is what you get in return from Insurance. No monitory return can give you more satisfaction than peace of mind. ~4~

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So before doing anything else, his first step is to give adequate cover to his family and thats the most important responsibility for him as a Husband, Father, Son. He must understand that this is not an investment for monitory benefit later in his life, but its for his family happiness and future. One point to remember and not forget is that this is the minimum cover required for family and anything less than this will be taking risk with family future.

Endowment or Money back Policies

Lets discuss the problems with these plans with respect to the above example.

High Premium:
For an 80 lacs cover for say 30 yrs, the premium payable will be At least 2-2.5 lacs/year (this is a conservative figure). So now premium so high is not possible for anyone like Robert, so what they do? They go with a kind of cover for which they can pay premium easily , can then they take cover for 5 lacs , 10 lacs or maximum 20 lacs. And guess who suffers in case of his death : HIS LOVED ONEs . It might also happen that they are compromising on a lot of small things which are important at that moment in time , like buying a bike for son , which they cant buy because of the insurance they have to premium, or some vacation they could have gone to with family , but compromise on that because of premium.

Money back at the end of the maturity is like a penny after so many years:
This is some thing most of the people overlook. They just see the numbers , 5 lacs 10 lacs or 20 lacs . And at the time of taking Insurance it looks good figure to them , because they see numbers , they dontsee its value after many years, They dont consider Inflation into account . In case of above example , if Robert takes a cover of 15 lacs by money back policy , what happens if he survives the tenure. He gets 15 lacs at the end , Great Money after 30 yrs . Isnt !!!

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Lets see how great this money is? His monthly expenses will grow from 25,000 per month to 1.5 lacs per month (considering inflation of 6%) . Now this money will help him survive for not more than 10 months For so many years he pays high premium each year, just to get back money to cover his 10 months monthly expenses. ? What the hell!!!

Under Insurance:
Because of the fact that people want money back on survival and because of high premium, people end up taking policy for which they have to pay premium under there budget, which means less cover. Without realising the fact that they are highly under insured , the reason for this is that they see Insurance as investment product and not a protection cover for there family. When they die , there family get the money from Insurance company , but most of the time its not enough for them and it erodes very soon.

Term Insurance Policies

Lets discuss the features of Term Policies with respect to above example.

Cheap Premium:
The premium is very low for Term insurance Policies. For above example . The yearly premium for Rs 75 lacs cover for 25 yrs is just Rs 20,000 yearly or just 1,600 per month !!! . This is in any way affordable for most of the people. Its providing the fundamental requirement of Good cover and low premium and if you think of returns , Good cover and low premium can themselves be seen as good enough return. You family protection at low cost is the return you get.

Opportunity to invest rest of the money in High return Investments :

With term Insurance you save a lot of money in premium and now you can invest this money as per your wish in high return instruments , anyways in Endowment policies you put money for long term and you get it after so long time. So you can now always put your saved money in things which are long term investment products and return great returns.

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One of those things is Equity Diversified Mutual funds and Direct Equity (depending on persons ability and interest). In long term Equity Diversified gives fabulous returns (15-20 yrs) and the risk is minimisedbecause of long term. And if you consider India growth story , it looks great in long term , hence Equities for long term is the most obvious choice . They will give you return of 15%+ CAGR. (15-20 yrs) Also it will be flexible , you can not invest for a year or two , if you want to use the money for your family vacation or some important event.

Benefits of Life Insurance policies

Life Insurance is considered to be an important part of an individuals investment portfolio, not necessarily to accumulate wealth, but to feel financially secure. Other then this when you opt for a life insurance policy you enjoy other benefits also, like tax-deduction options, and in some cases long term capital gains. What is important when you opt for a policy is the term and plan related to that particular policy. Always remember Life Insurance is primarily made keeping your family and those who are dependent on you in mind. There are various companies that would ask you to opt for a policy from them, and incase if you are an amateur investor and try to push things in a hurry, you might end up settling for a wrong deal. Here, we will discuss on a few guidelines that an individual should follow prior to opting for a policy or while assessing an insurance plan. When you decide to invest in Life Insurance, it is imperative that you understand your financial status, your future liabilities & commitments and then opt for a policy that would suit your needs in the longer run. Insurance is by and large regarded as one of the best savings cum investing scheme. Students who earn while studying and those who take up full time employment after their studies see insurance as a profitable scheme to regulate their savings. Important factors that an individual needs to understand prior to opting for Life ~7~

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Insurance Policies are 1) Requirements, term (duration) and premium to be paid 2) Nature and benefits of the policy in the longer run & 3) Coverage of the policy. The need and income of an individual helps him decide the amount of Life Insurance Premium. The insured should also think about the benefits that he and / or his nominee will receive before deciding to go for a particular policy. Lifeinsurance covers the risks of loss due to the death of the insurer. Hence it is advisable that before you purchase the policy; take a look at the plan of the policy in detail. Most of the Life Insurance Companies would provide you with a ULIP (Unit Link Insurance Plan). Consulting an expert or your friends, & other reliable sources like the internet, that would provide accurate data helps. Analyzing the different categories of insurance, conducting a proper market research, checking your financial constraints where you ensure that you pay your insurance premiums simultaneously is important. Ideally all life insurance companies invest the insurance premium funds in the various types of projects meant for developments and attractive returns. This project varies from government funded bonds to private companies. As an investor and depending upon your risk tolerance you can divide your investment funds in various modes which can be Balance, Maximizer, and Minimizer. Balance fund manager will invest your fund equally in government sector bonds as well as in private sector. In Maximizer mode your complete fund is invested in private equity market, which completely depends on market conditions. This fund at times may give you unexpected results and at times may even ruin your principal amount. In the last type of investments the fund is completely engaged in government bonds, wherein risk is almost null with assured returns. Like other investment modules Life Insurance also has advantages and disadvantages. The prime advantage is financial security for the obvious reasons. It helps facilitates economic movements. Life insurance companies collect premiums from multiple investors hence gathering large funds. This money is used to finance trade and other financial development activities. Last but not the least it helps in reduction of tax payments. Policy holders are entitled to claim income tax exemptions for paying the premiums. The amount and the extent to which they are allowed depends on other factors like the persons income and if the insurer is a private player or run by the state. ~8~

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Drawbacks include incompetent facilities as all Life Insurance Companies are not able to provide the exact kind of life insurance policy as desired by consumers. Moreover the services of insurance agents could sometimes do more bad than good. Some of them try to convince their clients to invest more or to choose certain policies which are not much beneficial to the clients. A person will find himself in trouble if he invests more than what is actually required. But as the number of advantages out numbers the disadvantages, investing in Life Insurance is always considered to be a good move. Another important factor that needs attention during the framing of the policy is Life Insurance Quotes. Life Insurance quotes are the prices at which life insurance policies are proposed to be sold and vary from company to company or individual to individual, mainly depending on the term of the policy. Other important issues that address the quotes are age and income, the physical features and family details of the insurer. The time through which an insured pays the premium for the policy is called Life Insuranceterm. On a general basis, there are no standard premiums as far as term insurance is concerned. A person can decide the amount to be paid on the basis of his requirements in terms of coverage and affordability in terms of finance. As of now the top 5 life insurance companies in India are Reliance Life Insurance, HDFC standard Life insurance, Bharti-axa life insurance, ICICI Prudential life and off-course LIC India. The following companies were considered after being judged on parameters such as the insurance quotes, the term that the insured had to pay the premium for, the cover that the policy was covering, etc, etc. All in all getting an insurance done for yourself at the earliest, once you start earning is an excellent way to get your financial future secured.

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Conclusion: Insurance is not an investment product , its a Protection instrument for your Family or any one your want to cover. There are other products for your investments . Let your finances be the way you want your life to be , SIMPLE !!! Dont mix Insurance and Investments. There are products like ULIPS(What are ULIPS) and Endowment or Money Back policies which never excited me. They complicate things , confuse people. They can be good if you understand how to make most out of it, but it require knowledge and expertise. They offer some flexibilities , but still they are not worth it .

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