What does LIC do with my money?

Published on: Thu May 11 2023

When you purchase a life insurance policy, you are essentially entering into a contract with the insurance provider, and in this case, the Life Insurance Corporation of India (LIC). In exchange for regular premiums paid by you, LIC promises to provide financial protection to your beneficiaries in the event of your untimely demise. But what exactly does LIC do with the premiums you pay? Let's take a closer look.

Investment of Premiums

LIC is a financial institution, and like any other financial institution, it invests the money it receives. The premiums paid by policyholders are pooled together, and the company invests these funds in various asset classes such as government securities, equity shares, corporate bonds, and real estate. The investment strategy followed by LIC is conservative, with a focus on generating stable returns while minimizing risks.

The investments made by LIC are guided by a number of factors, including the investment objectives of the company, the prevailing market conditions, and the regulatory guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI). The aim of the company is to maximize the returns on its investments while maintaining a sufficient level of liquidity to meet its obligations towards policyholders.

Payment of Claims

One of the primary objectives of LIC is to provide financial protection to its policyholders. In the event of the policyholder's death, the company is obligated to pay out the sum assured to the beneficiaries nominated by the policyholder. The sum assured is the amount of money that the policyholder is entitled to receive in the event of his or her death.

LIC has a well-established claims settlement process, which is designed to ensure that the beneficiaries receive their due in a timely and hassle-free manner. When a claim is made, LIC verifies the authenticity of the claim and the documents submitted by the claimant. Once the claim is verified, the company releases the payment to the beneficiary.

Operating Expenses

Like any other business, LIC incurs operating expenses in running its operations. These expenses include the salaries and benefits of its employees, office rent, utilities, and other administrative costs. The company also spends money on advertising and marketing to attract new customers.

The operating expenses of LIC are borne by the premiums paid by policyholders. However, the company is required by law to maintain a certain level of solvency ratio, which means that it must have sufficient funds to meet its obligations towards policyholders. To maintain its solvency ratio, LIC sets aside a portion of its premiums as a reserve fund.

Payment of Bonuses

One of the unique features of life insurance policies offered by LIC is the payment of bonuses. A bonus is a share of the profits earned by the company, which is distributed to policyholders in the form of an annual bonus or a terminal bonus.

The bonus paid to policyholders is determined by a number of factors, including the investment performance of the company, the mortality experience, and the persistency of the policies. The bonus paid by LIC is not guaranteed and is subject to change depending on the performance of the company.

Conclusion

In conclusion, when you pay premiums to LIC, the company invests the funds in a variety of asset classes to generate stable returns while minimizing risks. The company also sets aside a portion of its premiums as a reserve fund to maintain its solvency ratio. In the event of your untimely demise, LIC pays out the sum assured to your beneficiaries. The company also pays out bonuses to policyholders, which are determined by a number of factors, including the investment performance of the company and the persistency of the policies. The operating expenses of the company are borne by the premiums paid by policyholders, but the company is required to maintain a certain level of solvency to meet its obligations towards policyholders. Overall, LIC plays a critical role in providing financial protection to millions of Indians and contributes to the country's economic growth by investing in various asset classes. The company has a strong track record of honoring its commitments towards policyholders, and its claims settlement process is well-regarded in the industry.

As a policyholder, it is important to understand the workings of the insurance industry and the role played by your insurance provider. By knowing how your premiums are utilized by LIC, you can make an informed decision about which type of policy to purchase and how much coverage to opt for. It is also important to regularly review your policy to ensure that it meets your changing needs and to make any necessary adjustments.

In conclusion, LIC is a trusted insurance provider in India, with a long and illustrious history of providing financial protection to its policyholders. The company invests its premiums in a variety of asset classes to generate stable returns while minimizing risks. It pays out claims to beneficiaries in the event of the policyholder's untimely demise, and also pays out bonuses to policyholders based on the company's investment performance. The operating expenses of the company are borne by the premiums paid by policyholders, but the company is required to maintain a certain level of solvency to meet its obligations towards policyholders. Overall, LIC plays a critical role in ensuring the financial well-being of millions of Indians and contributes to the growth of the country's economy.

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