CHAPTER 1

INTRODUCTION, OBJECTIVES AND

CHAPTER PLAN

INTRODUCTION:

HISTORY OF INSURANCE

The history of insurance explains the progress of modern business of insurance

against risks like life, property, cargo, health and accidents. The insurance industry
helps to reduce risks and spread of risks from the individual to the group of people.
This industry provides major Source of long-term finance for both private and public
sectors. The insurance business is now a profitable business and also provides
employment opportunities for a large number of persons with attractive salary and
other benefits.

INSURANCE IN ANCIENT WORLD

The term insurance is as old as civilization. There is evidence of practices

resembling insurance for sharing or distributing risk in the ancient world. As early as
3000 B.C, Chinese traders used the first method of transferring or sharing risk.
Chinese merchants shipped their goods by boats, down river and, as of treacherous
fast-moving water, not all the boats reached there safely. To limit the loss due to any
one boat turnover in the water, the traders devised the plan of distributing their
goods on each other’s boats; so that the loss was shared by all rather than particular
individual.

The Babylonians adopted a system which was recorded in the famous Code of
Hammurabi, i.e., 1750 B.C. for transferring the risk about loss from merchants to
money lenders. If a trader received a loan for funding his cargo, he would pay the
lender an extra amount in exchange for the guarantee of lender to cancel the debt if
the cargo be stolen or dashed to pieces on the rocks or lost at sea. This system was
adopted as the risks of sea trade by Phoenicians and then by the Greeks.

In ancient Persia, Achaemenian rulers were offered annual gifts for the different
racial groups under their control. This function would be known as an early form of

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political insurance and Persian king was officially bound to protect the group from
loss or harm. The residents of Rhodes created the ‘General Average’ in early 1000
B.C.; this general average allowed the group of traders to pay to insure their
commodities to be shipped together with any merchant whose goods were discarded
during travelling, whether to storm or sink, would be reimbursed from collected
premiums.

In the ancient Athenian ‘Maritime debt’ was sanctioned for voyages with the
condition that loan amount would not be repaid if the cargo was lost at the sea.
According to safe or danger, the rates for loans were different and decided as an
intuitive value of risk which resembled with insurance, in the 400 B.C.

Ancient Benevolent Societies developed a system, similar to life insurance whose

members contributed to a fund to help the members of society in any calamity. In
ancient times as early as 2500 B.C., a club was introduced by Egyptian stone masons
for the funeral of its members. The Greeks and Romans burial societies, funded with
contributions of members of group, were evolved a common structure to help the
families of deceased members as well as meeting the expenses of funeral. Guilds in
the middle ages served as a resembling motive. Several aspects of insuring goods
have also been seen in the Jewish Talmud. Although these examples show some
characteristics of insurance, the modern insurance business as such existed during
the commercial revolution in England.

INSURANCE IN MEDIEVAL ERA

In the thirteenth century, marine insurance, the oldest form of insurance appeared in
Italy. Lombard traders spread this trade to the other parts of the continent and then to
England, when they reached England to control commercial and financial activities
during fifteenth century. This was separate insurance contract rather than by
insurance companies. As early as fourteenth century, individual insurance contracts
were developed in Genoa and marine insurance was expanded widely in the next era
and rate of premiums were automatically determined according to variation of risks.
A trader, who wanted protection of his cargo, would prepare and calculate an
information chart about the ship, its destination and other main information. The
person, who accepted this risk, wrote his name under the terms of agreement. This

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practice of ‘writing under’ the agreement was the cause of generating the term
‘under writer’. Such type of insurance contracts made insurance separate from
investment and this separation proved very useful in marine insurance. ‘The Legal
Treatise on Insurance and Merchants’ Bets’ was the first printed book on insurance,
written by Pedrode Santarem in 1488 and published in 1552.

ORIGIN OF MODERN INSURANCE BUSINESS

Modern branches of insurance became more sophisticated in eighteenth century in

Europe and there developed some particular form of insurance in London in the 17th
century.

1. Property Insurance:

Property insurance in modern era can be outlined from when the Great Fire of
London destroyed more than 13000 houses during five days. The destructive effects
of the fire provided momentum for modern fire insurance. An English economist
named Nicholas Barbon and his eleven associates established the first fire insurance
company, ‘the Insurance Office for Houses’, for rebuilding the city. His insurance
office insured initially 5000 houses and at the same time, he started the business of
insuring newly built homes against loss of fire. After the success of this business,
other joint venture companies soon followed it. Each company opened its own fire
department to prevent or minimize the damage from huge destructive fire. The
company also started issuing ‘Fire Insurance Marks’ to its customers. To identify the
properties, insured by the company, it was necessary that insurance marks would be
deployed on the main door of the property. The Hand and Hand Fire & Life
Insurance Society, established in 1696 at Tom’s Coffee House in London, was one
such prominent company for 135 years. The company served with its own fire
brigade to fight and prevent the fire. From the year 1710, the Sun Fire Office, one of
the oldest property insurance companies is still in working.

2. Business Insurance:

When under writing scheme for business insurance started, at the end of 17th century,
London became an important centre for trade and demand for marine insurance was
increasing continuously at this trade centre. Edward Lloyd opened a coffee house in
Tower Street of London and it soon became the main meeting place for ship-owners,

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traders and information regarding shipping. This coffee house was eventually
established as Lloyds of London. After Lloyd’s death, in 1713, the participatory
members of the insurance agreement constituted a committee and moved to the
Royal Exchange on Cornhill as the society of Lloyd’s in 1774.

3. Life Insurance:

There are facts of life insurance in 16th century in London. A group of marine under
writers issued the first modern life insurance policy to Mr. William Gybbons in 1536
for one year term in amount of £ 400 in London. Unfortunately, Gybbons died
within one year and the under writers paid the amount of £ 400 to his family. The
first modern life insurance company was the amicable society for a Perpetual
Assurance Office, a London based company and this company was founded in 1706
by William Talbot and Sir Thomas Allen. For the first plan of life insurance, it was
decided that each member would be paid a fixed annual premium according to per
share with the condition that each member age should be 12 to 55 year. This
‘Amicable Fund’ was divided among the widows and orphans of deceased members,
in the proportion of the amount of shares paid by policy holders. In the beginning,
about 2000 members started this Amicable Society.

Later, Edmund Halley prepared a mortality table in 1693, but in 1750, mathematical
and statistical tools were also used for the growth of life insurance. A new company
was established by a mathematician and actuary, James Dodson which presented
premiums to cover the risks of life insurance for long term, when Amicable Life
Insurance Society refused Dodson to cover his life insurance owing to his old age.

In 1762, his follower, Edward Rowe Mores introduced the ‘Equitable Society’ for
the Assurance of Life and Survivorship. He was the first mutual insurer who
innovated new premium schemes for life insurance that varied with the age of the
insured person and became very successful and the pivot of modern life insurance
upon which all life insurance schemes were completely based.

Mores introduced new reference for the chief official of insurance who he called an
actuary. William Morgan was appointed as the first modern actuary in 1775 and he
served as actuary till 1830. The society evaluated the first actuarial liabilities in 1776
and allocated the first reversionary bonus (1781) and interim bonus (1809) to its

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policyholders. Further, to protect the interest of policy holders, the directors of the
society tried to ensure that each member of society should be given a fair return on
their respective investment.

4. National Insurance:

In 19th century, the Government in different countries started the national insurance
programs against illness and old age. As early as 1840, Govt. of Germany introduced
the welfare programs in Prussia and Sexony states. Chancellor, Otto Von Bismark
began old age pension schemes, accidental insurance and medical insurance in 1880,
which established Germany as a welfare state. These welfare programs got the
support of German industry also because the main objective of his paternalistic
programs was to win the support of lobour classes for his kingdom and to prevent
the migration of labour classes to America where wage rates were higher but welfare
programs did not exist.

H.H.Asquith and David Lloyd George govt. began the legislation structure for
insurance in Britain. The first contributory insurance system was adopted against
sickness and for British unemployed labour class according to the national Insurance
Act 1911. Maternity benefits also provided by this insurance act. To provide
benefits to unemployed classes, it was decided that a fixed amount should be
contributed by each worker, employer and taxpayer. Only some particular industries
could avail benefits of these insurance schemes likes construction, shipping etc.
Under this scheme, 2.3 million unemployed persons were insured by 1913 and
approximately, 15 million insured for illness benefits according to Beveride report.
After Second World War, this program became more popular.

INSURANCE IN ANCIENT INDIA

The origin of insurance in India has been lost in the ages. The earliest form, similar
to insurance was found in ‘Rigveda’, Yagnavalka, (Dhamasastra) and Kautilya
(Arthasastra). In Rigveda, the term ‘Yogakshema’ was used for the activity akin to
insurance more than five thousands year ago. In ‘Manu Smiriti’, Manu also
expressed that a special charge will be levied in carrying of goods from one place to
another to ensure their safe transport. Manu Smiriti says ‘merchants should be paid
an amount of taxes or duties in account of purchase and sale of goods, according to

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the distance of journey, chance of accident and risk’. Ancient India was very famous
for marine business.

MODERN INSURANCE IN INDIA

Insurance in its modern form was introduced in India by British insurance company
which established a life insurance company named ‘The Oriental Life Insurance
Company’ in 1818 in Calcutta. Finally this company failed in 1834 and was
converted into ‘New Oriental’. In 1823, Bombay Life Insurance Company in
Bombay, Madras Equitable Life Insurance Society in Madras in 1829 and Madras
Widows in1834 were introduced accordingly. A non- Life Insurance Company
named Triton Insurance Company was formed in Calcutta in 1850. During the same
period, many foreign insurance companies came to India, e.g., The Universal Life
Assurance Company opened its branch in 1840 and Standard Life Insurance
Company in 1846. The eminent social reformer, Son of Bengal, Raja Ram Mohan
Roy appealed the rich Hindus of Calcutta to form a company for the life insurance of
poor Hindu widows. During this period discriminatory practices were adopted by
foreign insurance companies for Indians as these companies did not provide life
insurance for Indians and if they covered life of Indians then an extra premium up to
15 to 20 per cent had been charged.

The Bombay Mutual Life Assurance Society, the first Indian life insurance company
formed in 1870, was the first one to sell life insurance policies to Indians at normal
rate. Another company established in 1871 in Meerut was the Indian Life Insurance
Company. Pandit Ishwar Chandra Vidya Sagar also established a life insurance
company named the Hundu Family Annuity Fund in 1872 in Calcutta. In 1874, Mr.
D. M. Dastur, an Indian actuary, founded the Oriental Govt. Security Life Assurance
Company. In 1892, another notable company was ‘Indian Life’ which was
established by residents of Goa living in Karachi. During the period from 1876 to
1899 so many small society funds and provident societies were formed. These are
shown in the table 1.1 with their territory and year of origin.

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 TABLE- 1.1i

Name of Company Place of Origin Year of Commencement

1. Bombay’s Widow Pension Fund Bombay 1876

2. Indian Ordinance Bombay 1883

3. Indian Christian Madras 1884

4. Goanese Mutual Bombay 1885

5. Mangalore Roman Catholic Madras 1888

6. B.B. &C. I. Zoroastrian Bombay 1888

7. Parsi Zoroastrian Bombay 1888

8. Bombay Zoroastrian Bombay 1889

9. Guezerat Zoroastrian Bombay 1891

10. Hindu Mutual Bombay 1891

11. Indian Life Bengal 1892

12. Punjab Mutual Punjab 1893

13. Sind Hindu Bombay 1894

14. Bharat Insurance Company Punjab 1896

15. Empire of India Bombay 1897

16. Simla Mutual Punjab 1899

Postal department of India, first of all, launched Postal Life Insurance Scheme in
1883 for its employees as monthly allowance. In the beginning, whole life insurance
plans was sold but in later 1898, Endowment plans were also launched.

During the period 1900-1912 many foreign life insurance companies started their
business in India, namely as the Phoenix, the Atlas, the National and the Norwich
Union. A rise of nationalism in India proved blessing for the Indian life insurance
industry and several insurance companies were introduced by India. In 1896, a
purely Indian company ‘Bharat Insurance’ was launched in Lahore and ‘Empire of
India’ was established in 1897 in Bombay. The Swadeshi Movement (1905-06)

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provided a great momentum to Indian life insurers. Mr. Panna Lal Banerjee formed
the first Indian life insurance company named, ‘National Insurance Company’ in
1906 and Sir Rajendera Nath Mukherjee established ‘National Indian Insurance
Company’ in the same year (1906) in Calcutta. The United India (1906) in Madras,
the Hindustan Co-operative Insurance Company (1907), the Swadeshi Life Insurance
(1908) and the Asian are some of large companies formed in this period.

The Indian Mercantile (1907), first Indian general insurance company was also
established during Swadeshi Movement. However, out of 40 new life insurance
companies, approximately 22 failed and most of provident societies also failed due
to their malpractices and unsound actuarial practices. By 1910, government started
to realize the need to control Indian life insurance business. During this period other
countries also passed insurance legislations, as in America, an insurance act was
passed in New York in 1906 and in England in 1909. Following these legislations,
two bills about insurance were introduced in the imperial legislations in 1911 and
two sets of legislations were passed under insurance act 1912:

(1) The Life Insurance Companies Act 1912

(2) The Provident Insurance Societies Act 1912.

According to the Life Insurance Act 1912, it is necessary that each actuary must
determine premium tables and periodically get valuation of insurance business.
However, due to discriminatory law, govt. decided that each Indian insurance
company must deposit a fixed amount of their funds with the government but it was
not required for foreign insurance companies. Many Indian and foreign insurance
companies closed down their business due to passing of insurance act 1912. But in
1913, many other insurance companies started their business as the Western India
Life Insurance Company Ltd. at Satara, the Industrial and Prudential Life Insurance
Company Ltd., Mysore Life assurance Company, Mysore and East and West
Insurance Company in Mumbai.

During the First World War (1914-18), no more insurance companies were
established in India but from 1919 to 1928, 39 life insurance companies were
introduced. Owing to establishment of all these companies, new life insurance
business grew up from Rs 49 million in 1914 to Rs 154 million in 1928. At the end

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of 1928, there were 4,12,446 policies in- force with sum assured of Rs 771.1 million
and number of life insurance office increased from 42 in 1919 to 56 in 1927. After
passing of new insurance act 1928, it is necessary that all insurance companies either
Indian or foreign must submit its annual statements to the government which show
full details of their business both inside and outside India. Owing to support of 1928
act, during time period 1929-39, 176 new insurance companies were started. 20
companies out of 176 insurance companies were introduced in Calcutta, 13
companies in Mumbai, 6 companies in Delhi and 5 companies in Madras.

INSURANCE ACT 1938

Rapid growth of insurance business in India generated several malpractices as

increasing lapsed policies, wrong valuation, unwanted and unhealthy competition,
number of fraud companies and exploitation of policy holders extra. All such
malpractices were required to be controlled by government. For this, to examine the
different aspects of insurance business in India, a committee was appointed by the
government under the chairmanship of Mr. S.C. Sen. On the recommendations of
this committee a bill was passed by the government which was called the Insurance
Act 1938. The salient features of this act were:

1. It is compulsory for each insurance company to be registered and will submit its
statements of investment returns and financial conditions.

2. To prevent entry of insurance companies with insufficient financial Source, each

insurance company must deposit a fixed amount to government in the form of
security.

3. Under section (27) of this act, it is compulsory for insurers that they must invest
55 per cent of funds in Govt. securities and other approved securities with at
least 25 per cent in Indian Govt. securities.

4. Commission of agents has been fixed at 40 per cent for the first year premium
and 5 per cent of renewal premium in the case of life insurance plans.

5. Supervision of the insurance companies will be done to control all types of

insurance operations and insurers must be submitting its annual financial
reports.

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With the beginning of Second World War in September 1939, insurance industry’s
growth declined in the subsequent three years up to 1942. But there was steady
growth in life insurance business which was Rs 629.34 million in 1943 and rose up
to Rs 1,227.8 million in 1945 and it reached at Rs 1,314 million in 1946. During this
period, share of foreign insurance companies in total business decreased from 16.2
per cent in 1938 to 9.3 per cent in 1945.

When India became independent on 15 August, 1947, partition of the country put up
set back on life insurance business. At the time of partition, insurance companies
which head office and branches located in Pakistan quickly transferred its assets and
records in India. Prior to partition, 10 per cent insurance companies were situated in
Pakistan, but after partition only 3 per cent companies were left in Pakistan. Thirteen
insurance companies from Lahore and two from Karachi had been transferred in
India. Most of transfers took place due to communal riots.

Table-1.2ii
Location of Head Office of Insurance Companies

30.09.1946 15.11.1947 07.10.1948

India 218 236 234

Pakistan 21 09 06

Total 239 245 240

For the comfort transfer of assets of 29 insurance companies which had been
migrated from Pakistan, the Evacuee Insurance Companies Association was formed
under the chairmanship of Mr. Santhanan and an agreement was prepared between
Indian and Pakistan Govt. in 1947 to solve business related issues connected with
partition but nothing could be achieved. Finally, in March 1948, insurers met in
Calcutta and decided to sever connections with Pakistan.

PROGRESS OF LIFE INSURANCE BUSINESS (1914-57)

Insurance business data are not available from establishment of first life insurance
company (1818) up to 1914. Government of India started to publish information
about life insurance business in Indian Insurance Year Book from 1914. In 1914, 44

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life insurance companies wrote Rs 22.44 crore as total business in-force and life fund
of Rs 6.36 crore. Insurance companies increased to 195 by 1940 and 209 by 1948.
Total number of policies in-force rose from 7, 48,997 in 1914 to 30,16,000 in 1948.
Total life fund sum also increased up to Rs 150.39 crore in 1948.

According to first annual report of LIC of India, total numbers of policies inside and
outside of India were 8, 31,491 and sum assured under these policies was Rs 260.84
crore in 1955. Before nationalization of Indian life insurance industry, there was
stagnation, but nationalization of this industry proved productive for this sector.

Nationalization of Indian life insurance business was not a hasty step taken by Govt.
of India. For a long time, it was under consideration of Govt. due to some major
causes. Indian life insurance industry was facing many malpractices as:

1. The per capita life insurance in India was only Rs 25 in 1956 as against Rs
8,365 in the USA, Rs 6,647 in Canada, Rs 2,544 in Australia and Rs 1,840 in
UK. Further, from management side, profit was thoroughly distributed among
the insurers themselves.
2. According to amendment act 1950, a person could purchase only five per cent
share holding of an insurance company, however, the same person who already
controls the company or companies, now also used to continue the same
company or companies through ‘Benami’ shares holding for his own interest.
3. The record of private insurance companies was very poor. The ratio of
management expenses to the premium income for Indian insurers was 27 per
cent compared to 15 per cent for companies in UK and 17 per cent in the USA
in 1954.
4. Investment management of insurance companies was eluded and returns on
investment and the findings were also very unpleasant.
5. Insurance companies were found to grant loans on inadequate securities as
floating securities, buying properties at inflated prices and standing sugar cane
etc. Policy holder’s money was used to finance enterprise irrespective of their
capacity.
6. During 1944-54, 25 life insurance companies became bankrupt and another 25
companies transferred their business to other companies. During the period
1956, 75 insurance companies were unable to announce any bonus.

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All these adverse developments affected the thinking of Govt. to take correct steps
about the life insurance industry of India.

NATIONALIZATION OF INDIAN LIFE INSURANCE INDUSTRY

After independence of India, congress party incorporated the concept of socialistic

society in its manifesto and it gave the opinion of the nationalization of Indian life
insurance business for improving its functioning. The first Finance Minister, Dr.
C.D. Deshmukh said, “misuse of power, position and privilege that we have reasons
to believe occurs under existing conditions is one of the most compelling reasons
that have influenced us in deciding to nationalize life insurance.”

In relation to nationalization of life insurance business, on January 19, 1956, the

management of life insurance business of all 245 life insurers (as 154 Indian and 16
non-Indian insurers and 75 provident societies) operating in India, was taken over by
the central Govt. of India under the Life Insurance (Emergency Provisions)
Ordinance, 1956. For the nationalization of life insurance industry, a bill was
introduced in the Parliament in February, 1956 and this bill became an Act on July 1,
1956. Under section 3(1) of the Life Insurance Corporation Act, 1956, the
corporation to be established with effect from such date as the Central Govt. may be
notified in its Official Gazette, appoint. Finally the corporation was established by
Govt. of India, named Life Insurance Corporation of India on September 1, 1956.
Mr. M. H. Patel from India Civil Service was appointed as first chairman of the LIC
of India. At the time of inauguration, the LIC of India had five Zonal Offices, 33
Divisional Offices, and 212 Branch Offices. Govt. of India started LIC with a capital
contribution of Rs 5 crore.

ORGANIZATIONAL STRUCTURE OF THE LIC OF INDIA

The organization of the corporation is shown in section (18) of the LIC Act, 1956.
Under clause (1) the Corporation was to have a central office which has been
established in Bombay and under clause (2) the Corporation shall have five zonal
offices in Bombay, Calcutta, Delhi, Kanpur and Madras. Under the zones there are
the divisional offices and under divisional offices there are branch offices. The
management of the Corporation is a five-tier basis as the central office, the zonal
offices, divisional offices, the branches/sub-offices and development centre.

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To deal the functioning of the Corporation, it has been empowered to appoint
different Statutory and Advisory Committees/Boards under section (19) of the LIC
Act, 1956. The Corporation has appointed the following committees:-

At Central Office-

1. Executive Committee.
2. Investment Committee.
3. Services and Budget Committee.
4. Public Relations Committee.
5. Buildings Committee.

In Each Zone-

1. Zonal Advisory Board.

2. Employees and Agents Relations Committee.

The Executive Committee consists of five members with one chairman and four
other members. This committee has all the powers and authority for the general
direction about its business. The Investment Committee consists of seven members
to investigate matters related to the investment of its funds.

The Public Relations Committee consists of five members to consider the

achievements, progress and future plans extra. The corporation constituted a
Buildings Committee on September, 14 1964 with five members to advice on
matters relating to the property and buildings etc. of the Corporation.

Zonal Advisory Board was constituted for the matters concern to the zonal level and
Employees and Agents Relations Committee was constituted to advise the zonal
managers in relation to the welfare of the agents and employees of the corporation.

CURRENT POSITION OF MANAGEMENT

Formation of the Board: Under section 4(1) of the LIC Act, 1956, the Corporation
constitutes a Board of maximum 15 members including the chairman and all 15
members are appointed by the central Govt. This Board manages the life business of
the corporation at national level.

PROGRESS OF THE LIC OF INDIA SINCE NATIONALIZATION

Nationalization of life insurance business was a key step for insurance sector when
Life Insurance Corporation of India was recognized by merging 245 life insurance

13
companies. After nationalization, this sector played a major role for the economic
development of the country as the LIC of India emerged a great supplier of financial
reSource for economic planning since 1956. The LIC of India has enjoyed monopoly
in life insurance business during the period 1956-2000. However, it precisely worked
for the people and country. When we see the progress and performance of the LIC,
the aim of nationalization was actually achieved. The main achievement of the LIC
is to extend the knowledge about the insurance among the common man throughout
the country and even in rural area also. It has been able to win the trust of ordinary
uneducated people of the country. If we see comparative position of the LIC from
1957 to 2015, we shall find a successful journey.
Table-1.3
The LIC of India –Progress: (1957-2015)
Sr.
No. As on As on As on
31 Dec. 1957 31 March 2000 31 March 2015
Business in Force
1 i) No. of policies (in Lakhs)
56.86 1,013.89 2,776.82
ii) Sum Assured (Crores)
1,474.00 5,36,450.82 40,44,458.04
(Individual)
Premium Income
First Year (Crores) 13.72 4,956.10 78,507.71
2
Renewal (Crores) 74.35 19,251.88 1,61,159.94
Total Premium (Crores) 88.65 27,461.71 2,39,667.65
Policy Payments
Death Claims (Crores) 7.89 1,637.70 11,029.66
3
Maturity Claims (Crores) 20.81 7,628.55 83,372.06
Total 28.70 9,266.25 94,401.72
4 Life Funds (Crores) 410.41 1,54,043.73 18,24,194.95

5 Investment (Crores) 381.90 1,39,032.15 19,46,249.32

Share to Govt. of Surplus (5%)
6 14.50 265.02 1,803.05
(Crores)
7 No. of Divisional Office 33 100 113

8 No. of Branch Office 240 2,048 2,048

9 No. of Agents on Roll 2,07,373 7,14,615 11,63,604

10 No. of Employees on Roll 30,768 1,22,867 1,17,453

11 Overall Expenses Ratio (%) 27.30 21.16 15.65

Source: First Statutory Report of LIC and Annual Reports of LIC for the Period
2000 to 2015.
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1. Business in-Force:

Table-1.3 shows that policies in-force of the LIC of India increased from 56.86 lakhs
in 1957 to 1,013.89 lakhs in 2000 and 2,776.82 lakhs in 2015. Sum assured amount
of individual business rose up from Rs 1,474 crore in 1957 to 5,36,450.82 crore in
2000 and Rs 40,44,458.04 in 2015. Thus sum assured amount increased by 2,744
times from 1957 to 2015.

2. Premium Income:
First year premium income of the LIC increased from Rs 13.72 crore in 1957 to Rs
4,956.10 crore in 2000 and Rs 78,507.71crore in 2015 and renewal premium income
enlarged from Rs 74.35 in 1957 to Rs 1,61,159.94 crore in 2015. Total premium
income of the Corporation rose up from Rs 86.65 crore in 1957 to Rs 2, 39,667.65
crore in 2015. This amount is 2,766 times more from 1957 to 2015.
3. Policy Payments:
The progress of claims settlement shows that death claim increased from Rs 7.89
crore in 1957 to Rs 11,029.66 crore in 2015 and maturity claims went up from Rs
20.81crore in 1957 to Rs 83,372.06 crore in 2015.
4. Life Fund:
Growth of life funds is a basic indicator of the progress of the LIC of India. It started
its journey with a mere amount of Rs 410.41 crore in 1957 which increased to Rs
1,54,043.73 crore in 2000 and Rs 18,24,194.95 crore in 2015. Thus life funds of the
Corporation increased by 4,449 times from 1957 to 2015.
5. Investment:
Mobilization of savings is the main objective of the LIC. To achieve this goal, LIC
extends its business even in remote and rural areas of the country. Savings are main
source of investment. For economic and social development of the country, this
Corporation provides a huge amount of funds. In 1957, its investment was merely Rs
381.90 crore which increased to Rs 1, 39,032.15 crore in 2000 and Rs 19, 46,249.32
crore in 2015. This is a gigantic amount and it enlarged by 5,096 times more from
1957 to 2015.
6. Network Structure:
For an organization, expanding of its office network through country-side is an
important factor for mobilization of business and to provide the services door to door

15
to its consumers. For this, the LIC of India expanded its office network by opening
branches and divisional offices. In 1957, the LIC had 33 Divisional Offices which
increased up to 113 in 2015. In the same way, the LIC started its business with 240
Branch Offices in 1957 which increased up to 2,048 in 2015 and most of branches
were established in semi-urban and rural areas of the country. In 2015, there were
1,202 satellite offices to provide services at doorstep of the consumers. For this
purpose, the LIC of India has a huge agent strength of 11, 63,604 in 2015 and
number of employees on roll is 1, 17,453 in 2015.
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
Under the chairmanship of R.N. Malhotra, Govt. of India appointed a committee to
suggest about the structure of Indian insurance industry, its regulation, supervision
and working of LIC and GIC. The committee recommended that insurance industry
should be liberalized and insurance sector must be spread in rural areas of the
country.
On the recommendations of Malhotra committee, Indian cabinet approved the
Insurance Regulatory Authority (IRA) Bill on March 6, 1999 for the LPG of the
Indian insurance industry. The Parliament of India passed a Bill on December 7,
1999 which was subsequently called as Insurance Regulatory and Development Act
(1999).
After passing of this Bill, monopoly of the LIC of India was abolished and now,
Indian insurance market was opened for private sector. According to IRDA Act
(1999) private insurance players were given license with the condition of joint
ventures between Indian and foreign companies. This Bill provides the permission
of 26 per cent of FDI minimum of Rs 100 crore in the case of life insurance
companies and Rs 200 crore for non-life insurers. This was a revolutionary step for
Indian insurance industry under the guidelines of IRDA. The main objectives of the
IRDA are:-
• To protect the interest of policy holders and to secure smooth growth of the
insurance industry for providing long term funds for the economic development
of the country.
• For each life insurers, it is mandatory to maintain solvency margin of Rs 50
crore and Rs 100 crore in the case of a reinsurer.

16
• According to this act, every life insurer must ensure that 5 per cent of its total
business should extend in rural areas of the country in the first financial year
and expand it up to 15 per cent in the fifth year.
• It is necessary for insurers to provide clear, correct and definite information
about its products and services to its consumer.
• To prevent insurance frauds and malpractices and to pay genuine claims
speedily.
• Each insurer must follow the regulations of IRDA for the investment of its
funds in the financial markets.
• IRDA has decided minimum qualification at least high class and training for
agents of the insurance companies.
• It is mandatory for insurers to prepare financial statements and to summit
auditor’s report about its business activities.
PENETRATION OF PRIVATE LIFE INSURANCE COMPANIES IN INDIA

After passing of IRDA Act (1999), several private insurers applied for the opening in
life and non-life insurance business in India. First of all the HDFC Standard Life
Insurance Company Ltd. Was issued a license in October 2000 as a life insurer. By
January, 2016, there are following 24 life insurance companies and 28 non- life
insurance players in Indian insurance market.

Insurance Companies Operating in India,

Life Insurers, as on 31 March, 2015.

Public Sector
1. Life Insurance Corporation of India

Private Life Insurers.

1. Aegon Religare Life Insurance Co. Ltd

2. Aviva Life Insurance Co. Ltd.

3. Bajaj Allianz Life Insurance Co. Ltd.

4. Bharti AXA Life Insurance Co. Ltd.

5. Birla Sun Life Insurance Co. Ltd.

6. Canara HSBC OBC Life Insurance Co. Ltd.

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7. DHFL Pramerica Life Insurance Co. Ltd.

8. Edleweiss Tokio Life Insurance Co. Ltd.

9. Exide Life Insurance Co. Ltd.

10. Future Generali Life Insurance Co. Ltd.

11. HDFC Standard Life Insurance Co. Ltd.

12. ICICI Prudential Life Insurance Co. Ltd.

13. IDBI Federal Life Insurance Co. Ltd.

14. India First Life Insurance Co. Ltd.

15. Kotak Mahindra Old Mutual Life Insurance Co. Ltd.

16. Max Life Insurance Co. Ltd.

17. PNB Met Life India Insurance Co. Ltd.

18. Reliance Life Insurance Co. Ltd.

19. Sahara Life Insurance Co. Ltd.

20. SBI Life Insurance Co. Ltd.

21. Shriram Life Insurance Co. Ltd.

22. Star Union Dai-ichi Life Insurance Co. Ltd.

23. TATA AIA Life Insurance Co. Ltd.

Source: (Annual report of IRDA 2014-15.)

THE NATURE OF INSURANCE

Insurance is a very complicated device, so it is difficult to define it, however, it has
two basic features:-

• It is a process of transferring or shifting risk from one individual to a group

• To share losses on equitable basis among all members of the group by applying
some basic rules.
Definition of Insurance:
From Individual Point of View:
From individual point of view insurance is a contract where by the individual pay a
certain amount of money (the premium) to insurer for a huge uncertain financial loss
which insured against. Thus, it emphasizes the transfer of risk.

18
From Society Point of View:
Insurance is a mechanism of reducing and eliminating risk through pooling a
sufficient number of homogeneous exposures into a group to estimate the losses for
the group as a whole- emphasizes the roll of insurance in reducing risk in the
aggregate.
TYPES OF INSURANCE
The following are main kinds of insurance
1. Life Insurance
2. Health Insurance
3. Property Insurance
1. Life Insurance: Life insurance is a contract between insured and insurer where
by the insurer provides protection against premature death and superannuation.
For this insured pays a small amount of premium to insurer as decided by him
and insurer pays a certain sum of money either on the death of insured or on
maturity of plan. Thus life insurance is a risk pooling plan through which the risk
of ultimately death is shifted from individual to the group.
2. Health Insurance: It is defined as insurance against loss by illness or accidental
injury. This insurance includes expenses of doctor bills, hospital charges,
medicines and expenses of long term disease.
3. Property Insurance: This insurance is protection against losses arising from
damage/destruction of property. It includes fire insurance, marine insurance,
automobile insurance etc.
TYPES OF LIFE INSURANCE CONTRACTS
The element of protection and investment is provided by the life insurance contracts.
The insurer pays a definite sum to the policyholder at the time of death or maturity
of plan. This provides protection to insured person and a definite sum of money must
be paid, this is element of investment also. The element of protection and investment
varies according to different types of plans. Therefore, the policyholders are free to
select the best plan according to their needs.
The following are different types of life insurance plans on the basis of
(a) Duration of policy
(b) Method of premium payment

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(c) Participation non Participation in profit
(d) Nos. of person covered
(e) Method of payment of policy amount
(f) New insurance policies

A. Policies according to duration of plans are (I) Whole-Life Plans (2) Term
Insurance Plans (3) Endowment Insurance
1. Whole-Life Plans: These policies are issued for life time; the amount of policy
will be paid only at the death of policyholder. Thus dependents of policyholder
will get the benefit of such policy.
2. Term Insurance Plans: Term insurance is insurance for limited term; covers
period from one year to seven years. Sum assured will be paid in the case of
death of policyholder during the period of policy. Nothing will be paid if
policyholder survives at the end of plan. Policyholder will pay premium amount
throughout of the period of plan or till the premature death of the life insured.
3. Endowment Life Insurance: Under Endowment life plan, the term of policy is
pre-determined such as 10 years or 20 years. The insurer promises to pay the
sum assured amount at the death or maturity of plan.
B. Policies According to Premium Payment:
These policies are of following types:
1. Single Premium Policy: Under this scheme, policyholder pays the whole
premium amount at the starting of the plan. Such types of plan are beneficial
who wants to get a windfall income or does not want to pay premium in
installment.
2. Level Premium Policy: Under this plan, life insured person will pay a regular
and equal premium amount at a definite interval. These installments may be
decided according to convenience of the policyholders as monthly, quarterly,
half yearly and yearly.
C. Policies According to Participation in Profits:
1. Participating Policies: A participating policy is one on which policyholder is
paid dividend by insurer. Policyholder is entitled to get share of the profit only
when insurer earns profit, however there is loss, the life insured cannot get
profit. According to law, the LIC of India distributes 95 per cent of its profit

20
 among policyholders.
2. Non-Participating Policies: Policyholders of non- participating policies are
not entitled to get dividend from insurer. They are entitled to get only face of
plan and bonus.
D. Policies According to Method of Payment of Policy Amount:
Policy amount can be paid in lump-sum and installments.
1. Lump-Sum Policies: In such policies total amount of policy is paid in a single
mode.
2. Installments Policies: Under these plans, the policyholders receive the amount
of policy in installments till a fixed period or up to death or both.
E. New Policies:
LIC of India has started many non- traditional policies according to needs of people.
The main feature of traditional policies is protection of insured person from
premature death or living too long. For the investment requirements of people, the
LIC of India launched many new policies as Dhanshree, Dhan, Dhanvarsha,
Dhanvridhi, Jeevan Akshay, Jeevan Anand, Jeevan Dhara, Jeevan Kishor, Jeevan
Nidhi etc. of varied modules and parameters.
LIFE INSURANCE PLANS OF THE LIC OF INDIA AS ON MARCH 31, 2016
LIC offers a basket of schemes to meet the various needs of an individual and his
family:
1. Endowment Assurance Plans:
(a) LIC’s Single Premium Endowment Plan
A single premium with-profits plan where the sum assured is payable along with
the accrued bonuses on maturity or on earlier death of the life assured.
(b) LIC’s New Endowment Plan
A regular premium with-profits plan which provides for applicable sum assured
along with accrued bonuses on maturity or on earlier death of the life assured.
(c) LIC’s New Jeevan Anand
This is a unique with-profits plan which combine the features of Endowment and
Whole Life Plan. On death during the policy term or on survival to the end of the
policy term, the applicable sum assured is payable along with the accrued
bonuses.

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(d) LIC’s Jeevan Rakshak
A regular premium with-profits plan which provides for applicable sum assured
along with loyalty addition, if any, on maturity or on earlier death of the life
assured.
(e) LIC’s Limited Premium Endowment Plan
A limited premium with-profits plan which provides for applicable sum assured
along with accrued bonuses on maturity or on earlier death of the life assured.
(f) LIC’s Jeevan Lakshya
It is a premium with-profits plan. On death during the policy term, the future
premium will be waived and Annual Income Benefit of 10 per cent of the sum
assured will be payable till the end of the policy term. On expiry of the policy
term, applicable sum assured along with accrued bonuses for full term shall be
payable irrespective of survival of the life assured.
2. Term Assurance Plans:
(a) LIC’s Anmol Jeevan-II
A pure term assurance plan where one can choose sum assured Rs. 6 lakhs to Rs.
24 lakhs.
(b) LIC’s Amula Jeevan-II
A pure term assurance plan with a minimum assured of Rs. 24 lakhs.
(c) LIC’s e - Term Plan
It is a pure term assurance plan which is available for on line sale only. Under
this plan, there are two categories of premium rates viz. Aggregate Category and
Non-Smoker Category.
3. Children Plans:
(a) LIC’s New Children Money Back Plan
This is a regular premium with-profits money back plan. Besides providing life
cover during the policy term, survival benefits as a per centage of the sum
assured shall be payable after every two years starting from 18 up to age 22
years. On the maturity at the age of 25 years the balance sum assured bonuses
shall be payable.
(b) LIC’s Jeevan Tarun
It is a limited premium with-profits money back plan which provides for life

22
cover during the policy term. Under this plan, the policy holder can choose one of
the four available options to decide the proportional of survival benefits (i.e., 0%/
5%/10%/20%) to be available each year for age 20 to 24 years. On the maturity at
the age of 25 years the balance sum assured bonuses shall be payable.
4. Pension Plans:
(a) LIC’s Jeevan Akshay-VI
An immediate annuity plan with a number of annuity options including annuity
certain and life thereafter, annuity with return of Purchase Price joint life annuity
ect.
(b) LIC’s New Jeevan Nidhi
It is a with profits differed pension plan which provides death cover during the
deferment period.
5. Micro Insurance Plans:
(a) LIC’s New Jeevan Mangal
IT is a without-profits regular premium micro insurance cum term insurance
plan. The available sum assured ranges from Rs 10000/ to Rs 50000/. The total
premiums paid by the policy holder are the maturity value.
(b) LIC’s Bhagya Lakshmi
A without- profit limited payment protection oriented micro insurance plan. The
available sum assured ranges from Rs 20000/ to Rs 50000/. 110 per cent of total
premium paid by the policy holder is the maturity value.
6. Health Insurance Plan:
LIC’s Jeevan Arogya
A health insurance plan which provides for fixed benefits for hospitalization and
various surgical procedures irrespective of actual cost incurred.
7. Unit Linked Plan:
LIC’s New Endowment Plus
A unit linked endowment plan which offers investment cum insurance during the
term of the policy.
8. Other Plans:
(a) LIC’s New Money Back Plans
Besides Providing life cover during the term ( 20&25 Years) of the policy,

23
 survival benefits at specified durations linked to the sum assured during the
term of the policy will be available. On the maturity the balance sum assured
along with the accrued bonuses shall be payable.
(b) LIC’s New Bima Bachat
It is a single premium with-profits money back plan with policy term of 9, 12
and 15 years. Besides providing life cover during the term of the policy,
survival benefits at specified durations linked to the sum assured during the
term of the policy will be available. On maturity the single premium paid
along with the loyalty addition, if any, shall be payable.
LIC’s Group Insurance Schemes:
LIC offers life insurance protection under group policies to various groups such as
employer-employees, professions, weaker sections of society etc. These are:-
1. LIC’s New Group Superannuation Cash Accumulation Plan
2. LIC’s New Group Gratuity Cash Accumulation Plan
3. LIC’s New Group Leave Encashment Plan
4. LIC’s New One Year Renewable Group Term Insurance Plan-I
5. LIC’s New One Year Renewable Group Term Insurance Plan-II
6. LIC’s Single Premium Group Insurance Plan
LIC’s Social Security Schemes:
AAM ADMI BIMA YOJANA
Aam Admi Bima Yojana has been launched from 01.01.2013. This scheme provides
life insurance protection to the rural and urban poor persons living below poverty
line and marginally above poverty line. The benefits under the scheme include death
cover of Rs 30,000/-, accidental death cover /permanent disability benefit due to
accident of Rs 75,000/- and partial disability due to accident of Rs 37,500/- for
premium of Rs 200/- per annum per member where Rs 100/- is borne by the Social
Security Fund managed by LIC. No addition premium is charged for accidental
benefit.
SCHOLARSHIP YOJANA
Under this scheme, a free add-on scholarship benefit is available for the children of
the members who are covered under Ama Admi Bima Yojana. Scholarship of Rs

24
600/- per half year is given to the students studying in classes IX to XII. Scholarship
is restricted to two children per family.
PMJDY SCHEME
Pradhan Mantri Jan Dhan Yojana was introduced on 28.08.2014 for targeting
comprehensive financial solution. Under this scheme Bank accounts were opened
and benefit were given to the account holders. One of the benefits is providing the
Life Insurance cover of Rs 30,000/- for the natural death only through Life Insurance
Corporation of India. There is a benefit of Accidental Insurance Cover of Rs
100,000/-, provided by Government through General Insurance Companies.

LIC’S INTERNATIONAL OPERATIONS

In present the Corporation directly operates in 13 countries through Branch

Offices/Joint Ventures Companies and Wholly Owned Subsidiaries.

Branch Offices:
1. Fiji (Suva and Lautoka) 2. Mauritius (Porlouis) 3. United Kingdom (Wembly)
Foreign Joint Venture Companies:
1. LIC (International) B.S.C. (c) Bahrain: A Joint Venture Company established
by the Life Insurance Corporation of India, commenced operations in July 1989
to satisfy the life insurance needs of Non-Resident Indians and local public. The
Company operates in 5 countries of Bahrain, Kuwait, USE (Dubai &Abu Dhabi),
Qatar, and Oman.
2. LIC (Nepal) Ltd: A Joint Venture Company promoted in 2001 by LIC of India
and Vishal Group of Industries, Nepal which is listed on the Stock Exchange
(Nepal Stock Exchange Ltd.). Present at 15 Branches and 5 Sales Centers within
Nepal.
3. LIC (Lanka Ltd.): A Joint Venture Company established jointly in 2003 by LIC
of India and M/S Bartleet Transcapital Pvt. Ltd. Operates from 24 Branches in
Sri Lanka.
4. Kenindia Assurance Co. Ltd., Kenya: A composite insurance company formed
in 1978 by LIC of India, New India Assurance Co. Ltd., Oriental Insurance Co.
Ltd., United India Insurance Co. Ltd., National Insurance Co. Ltd. And local
(Kenyan) shareholders.

25
5. Saudi Indian Company for Co-operative Insurance, K.S.A.: A composite
insurance company promoted jointly by LIC of India, LIC (International) B.S.C.
( c) Bahrain, New India Assurance Co. Ltd., and Al Hokair Group of Saudi
Arabia. This Company is listed on the Saudi Stock Exchange (Tadawul).
WHOLLY OWNED SUBSIDIARIES
Life Insurance Corporation (Singapore) Pte. Ltd. was introduced on 30.04.2012 in
Singapore. The company has started its operations.
LIC’S SUBSIDIARIES
a) LIC Housing Finance Limited:
LIC Housing Finance Limited was established in 1989 as subsidiary of LIC of India
for houses finance. Now it has 7 Regional Offices, 16 Back Offices, 219. Marketing
Offices and 1 customer service point in India. The company has provided finance to
more than 1.8 million houses in the country and has a long way and is surging ahead
with a clear vision to emerge as the best housing Finance Company through fair and
transparent business practices.
LIC HFL Care Homes Limited was introduced on 11.09.2001 as a wholly owned
subsidiary of LIC Housing Finance Limited. The main objective to promote this
company was to start and operate community living centre with the facilities of stay,
food, shopping, communication, guest house, etc. for the senior citizens in India.
b) LIC Nomura Mutual Fund Asset Management Company Limited:
LIC Mutual Fund was recognized by LIC of India on 20.04.1989 for taking part in
the business of mutual funds. Finally, Nomura Asset Management Strategic
Investment Pte. Ltd. and LIC Mutual Fund jointly set up a joint venture company
named LIC Nomura Mutual Fund Asset Management Company Limited on
18.01.2011. This company has launched 153 schemes till now and total numbers of
investors were 3, 18,170 on 31.03.15.
c) LIC Pension Fund Ltd.:
LIC Pension Fund Ltd. was introduced by LIC of India to manage funds under
National Pension System regulated by Pension Fund Regulatory and Development
Authority for the employees of Central Govt. who have joined services w.e.f.
01.01.2004. This scheme will be appropriate for the employees of State Govt. when
it is applied by the particular State Govt. Under ten schemes, this fund received Rs

26
6,580.68 crore during the year 2014-15. The total asset under management was Rs
24,010.12 crore as on 31.03.2015.
d) LIC Cards Services Ltd.:
This company was promoted as a wholly owned subsidiary of LIC of India on
11.11.2008. It provides credit card services for the employees, agents and
policyholders of LIC. LIC Cards Services Ltd. is currently operating its functions at
all Divisional Offices of LIC. Since inception, the company has distributed total
96543 credit cards.
WHAT IS INVESTMENT?
To achieve the objectives of economic development and full employment,
investment plays a major role in an economy. Investment plays a dual role; on one
hand it increases aggregate demand and on other hand it increases the production
capacity of an economy. Investment depends on savings. Saving is that part of
income which is not consumed but saved from income. A man can invest his savings
in financial assets or in real assets.
Meaning of Investment:
According to Oxford Advanced Learner’s Dictionary ‘investment’ means ‘the act of
investing something’. In this case, investment is use of money for profits. A broader
definition of investment is, “investment is the commitment of money or capital to
purchase financial instruments or other assets in order to gain profitable returns in
the form of interest, dividend and appreciation of the value of instrument.” Thus
investment is use of funds in assets to earn returns. According to economists,
investment is expenditure on fixed assets such as plant, purchasing new machinery,
expenditure on construction and equipment etc. which increases the production
capacity of an economy. This investment is called real investment.
Mrs. Joan Robinson posits, “By investment is meant an addition to capital, such as
occurs when a new house is built or a new factory is built. Investment means making
an addition to the stock of goods in existence.”
Financial investment is obligation on the side of the firms which have issued
financial securities for the collection of its financial Source. An investor can invest
its money to purchase shares, bonds, debentures and other financial instruments to

27
earn returns and capital gain over the years. This investment is certainly important
from the individual’s point of view as it increases individual’s total assets. However,
from the point of view of an economy, financial investment has no implication.
INVESTMENT AVENUES
In the past, there were limited investment avenues for investors to invest its funds.
At present, there is a wide range of investment avenues for investors and they can
choose correct investment options according to their requirements. Financial
instruments can be classified in to two categories: one is marketable securities and
other is non-marketable securities, based on transferability and non- transferability of
financial instruments.
Marketable securities are those securities that are transferable. These are shares,
corporate bonds, debentures, Indira Vikas Patras, Govt. securities etc.
Non-marketable securities are those securities that are not transferable, e.g., bank
deposits, post office savings, provident fund deposits etc. fall under this category.
Marketable Securities/ Negotiable Securities:
1. Shares: For the mobilization of funds, a firm can be issued two types of shares
(a) equity/ordinary shares (b) preference shares. The preference shareholders are
entitled to get the dividend and repayment of capital before the equity holders.
Rate of dividend is fixed in the case of preference shares. However, ordinary
shareholders’ dividend is not fixed. They have right to casting vote at general
body of the firm.
2. Debentures: Through debenture private companies take borrow from investors
for a long period at a fix rate of interest. There are many types of debenture in
stock markets as secured or unsecured, cumulative, convertible and non-
convertible, redeemable and non-redeemable debenture.
3. Bonds: Bond is a long term debt instrument that promises to pay a fixed rate of
interest for a given period of time to lender. Bonds are issued by public
corporations or Govt. to collect their financial Source. The date of maturity of a
bond is specified at the time of issue and principal amount of a redeemable bond
is payable at the time of maturity. There are different types of bonds as secured

28
 or unsecured bonds, redeemable and non-redeemable debenture, fixed floating
interest rate bonds, zero coupon bonds and callable bonds.
4. Govt. Securities: The securities issued by central, state and quasi-government,
are called govt. securities or gilt edged securities. These securities have high
security and safety. However, rate of interest on these securities is relatively
low. Govt. bonds and treasury bills come in this category.
5. Money Market Securities: Money market is a market where money is
borrowed for short term. Money market instruments are treasury bills,
commercial papers certificate of deposits.
Non Marketable Securities/Non- Negotiable Securities:
1. Deposits: Depositors get a fixed rate of interest from their deposits. The main
types of deposits are bank deposits, post office deposits and non banking
financial companies’ deposits.
2. Tax Saving Schemes: Govt. of India has offered many tax saving schemes for
people. Those who buy these schemes, get tax relief as per govt. norms. The
main tax saving schemes is NSC (National Saving Certificate), Employee’s
Provident Fund, Public Provident Fund Schemes, Pension Fund and Life
Insurance Policies.
3. Mutual Fund: A mutual fund is trust where people voluntary contribute their
saving in the units introduced by mutual fund to fulfill a common financial goal.
Investors purchase the units of mutual fund. Thus the amount collected in any
scheme will be invested in capital market by experts of mutual fund and earned
income will be distributed among investors according to units of scheme
purchased by them.
4. Life Insurance Policies: Another form of investment is to purchase the life
insurance policies that serve the purpose of protection and investment of the
investors. People according to their requirements purchase various types of
plans prevailing in the market.
INVESTMENT OF THE LIC OF INDIA
LIC of India has a huge accumulated amount of funds through different Source.
These funds are used for the investment by the LIC of India to generate income. The

29
main Source of funds of the Corporation are:-
Source of Funds:
1. Premiums: The main source of accumulated funds for the LIC is the premiums,
collected from different issued plans in the form of single premium, sum
premium or annuity considerations. The surplus amount of premiums after the
payment of claims and other expenses is a main part of its accumulated funds.
2. Interest: Interest earned form invested funds is another source of funds.
3. Capital Gain: Capital gain constitutes when sold price of a share exceeds its
purchased price. Thus it is also a part of the LIC’s funds.
4. Non-Payment of Claims: In certain cases, policyholders do not come for
receiving payment at all. Such type of money becomes a part of funds of the
LIC of India.
Needs of Investment:
1. Payments of Claims: Accumulated funds are invested by an insurer for the
payment of claims whenever they arise. It is main responsibility of an insurer to
pay its obligations with in time.
2. Proper Use of Funds: If an insurer does not invest its accumulated funds, its
total income cannot meet to its required obligations and it will be impossible for
insurer to pay claims in time according to commitment. So, it is most necessary
for an insurer to invest its funds for the earning of high returns.
3. Social Responsibility: An insurer collects a vast amount of funds from people
in the form of premiums. So, it is social responsibility of insurers to invest the
collected funds for the social and economic development of the country.
Objectives of Investment:
The main objectives of investment of an insurer are safety, profitability, liquidity,
diversification and increment of life business.
1. Safety: The primary purpose of the investors is to know whether the financial
securities in which money to be invested are secure or not, i.e., they will get
back money invested or not. The security of the funds depends on the capability
of the issuer of the securities to pay back the principal amount and other return

30
 on the maturity period. Investment done in the govt. securities is more secure
than private securities.
2. Rate of Return: To earn expected rate of return, an insurer must invest its funds
in such securities which yield the highest rate of return with keeping in view the
principle of safety. A prudent life insurer will always evaluate the earning
received from different investment options. The insurer will select such market
securities which provide maximum return with minimum risk.
3. Liquidity: Liquidity means, in which way financial securities can be converted
in to cash without any time delay with minimum loss. To meet short term and
long term obligations and other expenses it is necessary for an insurer to invest
its funds in such securities which are more liquid.
4. Diversification: Investment can be done in a single security in an industry and
for same period of maturity. It is very harmful for an investor because if the
price of this security goes down, investor will be in loss and issuer may be
bankrupt. So investment must be done in different types of securities and
according to different period of maturity. Diversification may be in the sense of
period of maturity, according to industry, sector of industry and geographical
distribution.
INVESTMENT REGULATIONS FOR THE LIC OF INDIA: LIFE BUSINESS
Under section 27(A) of the Insurance Act, 1938 and Insurance Regulatory and
Development Authority (IRDA) Act 1999, the following regulations have been
prescribed for the investment of the LIC of India. Under the chairmanship of LIC,
investment committee takes decision about investment of accumulated funds of the
Corporation. The investment committee follows IRDA prescribed norms while doing
investment. The main objective of the LIC’s investment is security of funds with
high returns.

The following are the latest regulations for the investment of the LIC of India which
were formulated by the Insurance Regulatory and Development Authority (IRDA) in
May 2001:-

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 TABLE-1.4
PATTERN OF INVESTMENTS SPECIFIED
BY THE AUTHORITY - Life Insurance
S.No. Type of Investment Per cent
i) Government Securities Not less than 25%,
ii) Government Securities or other approved securities (including (i) above)
Not less than 50%,
iii)Approved Investments as specified in Schedule
a) Infrastructure and Social Sector Not less than 15%
b) (Investments in 'Other than Approved Investments).
Not exceeding 35%

Source: Annual Report of IRDA 2001-02.

In the case with Pension and General Annuity business the Corporation shall invest
and at all times keep invested funds in the following manner:

TABLE- 1.5
PATTERN OF INVESTMENTS SPECIFIED
BY THE AUTHORITY - Pension and General Annuity
S.No Type of Investment Per cent
i) Government securities, Not less than 20%
ii) Government Securities or other approved securities
Inclusive of (i) above, Not less than 40%
iii) Balance to be invested in Approved Investments
Not exceeding 60%

Source: Annual Report of IRDA 2001-02.

UNIT LINKED PLANS (ULIP)

ULIP is commonly an investment plan that provides attractive benefits to the

investors as well as a life insurer. ULIP products are related to capital market and
dynamic growth of capital market creates the advantages and risk for the investors as
well as Life Insurance Company. Due to high return, ULIP life insurance products
are growing very fast in the present scenario. ULIP products were primarily

32
launched in Netherlands in 1953 and in UK in 1957. In India, these products were
first launched by the UTI in 1970. The LIC of India launched ULIP products in
2001. According to requirement of costumers, life insurers issue the different linked
plans. These plans offer a long-term investment option to the customers where return
on this investment is linked to the market performance. However, protection of
policyholders’ funds is the main aim of life insurers. Thus, these products offer the
opportunity of investment as well as life insurance to the customers. Recently, a
large number of products with varying benefits are available in the market. The
common types of ULIP products are unit linked, index linked or equity linked. The
funds collected from unit linked plans are invested in equities, bonds, real estate and
money market assets. Funds of index linked are invested in equities, bonds and
money market index while funds received from equity linked are invested only in
equities.

Investment regulations for linked life insurance funds as per IRDA regulation; the
Corporation shall invest and at all times keep invested his controlled funds at the
following way:iii

1. Approved Investment- not less than 75 per cent

2. Unapproved Investment- not more than 25 per cent.

OBJECTIVES OF THE PRESENT STUDY

The following objectives have been identified for the present study:

1. To analyse the portfolio mix of assets of LIC of India after the liberalisation of
Indian insurance industry.
2. To evaluate the investment portfolio of the LIC of India after ‘New Reforms
Era’ in Insurance Sector.
3. To assess the progress of life insurance business of the LIC of India after the
privatization of Indian life insurance industry.
4. To compare the financial performance of the LIC of India and private life
insurers over the Period 2008 to 2015.

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CHAPTER PLAN
In order to develop the present study in a systematic mode, the study is divided in
the following five chapters:
1. The first chapter consists of general introduction, objectives and chapter plan of
the study.
2. The second chapter involves review of literature and research methodology.
3. The third chapter deals with the first and the second objectives of the study, i.e.,
to analyse the portfolio mix of assets of LIC of India after the liberalisation of
Indian insurance industry and to evaluate the investment portfolio of the LIC of
India after ‘New Reforms Era’ in insurance Sector.
4. The fourth chapter explains the third and the fourth objectives of the present
study, i.e., to assess the progress of life insurance business of the LIC of India
after the privatization of Indian life insurance industry and to compare the
financial performance of the LIC of India and private life insurers over the
Period 2008 to 2015.
5. Chapter five posits the conclusions, policy implications and limitations of the
present research work.

LIMITATIONS OF THE STUDY

1. The present study analyses the investment portfolio of the LIC of India for the
period 2001 to 2015. Thus, selection of time span can be a shortcoming of the
present research work.
2. Problems faced by policyholders while selecting life products of LIC of India
are not covered.
3. Obstacles of policyholders in receiving their policies claims are also left
untouched in the study.
4. Behavior of customers while they purchase insurance plans of the Corporation is
not analyzed in this study.
5. Productivity per agent in LIC is not explained in the present research work.
6. For the present research work data are analyzed on annual basis.

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REFERENCES:

i Ray R.M.: Life Insurance, Ibid, Page 22.

ii Indian Insurance Year Books, 1947-1949.

iii Annual Report of IRDA 2001-02.

iv Annual Report of IRDA 2001-15.

v Annual Report of LIC 2001-15.

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