Objectives & Functions of LIC

07/07/2020 1 By indiafreenotes

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.

Activities of LIC

The LIC subscribes to and underwrites the shares, bonds and debentures of several financial corporations and companies and grants term-loans. It maintains a relationship with other financial institutions such as IDBI, UTI, IFCI, etc. for coordination of its investment.

The LIC is a powerful factor in the securities market in India. It subscribes to the share capital of companies, both preference and equity and also to debentures and bonds. Its shareholding extends to a majority of large and medium sized non-financial companies and is significant in size.

It is no doubt to say that the LIC acts as a kind of downward stabilizer of the share market, as the continuous inflow of fresh funds enables it to buy even when the share market is weak.

Investment Policy

The investment policy of the LIC of India should bring a fair return to policy holders consistent with safety. Since the funds at the disposal of the LIC are in the nature of the trust money, they should be invested in such securities which do not diminish in value and give the highest possible return.

In other words, principles of safety, yield, liquidity and distribution should be taken into consideration while investing insurance funds. The way in which these funds are invested is a great significance not only to policy holders but also to the entire economy.