LIC Policy Investments: Safety First, Returns Second

Life Insurance Corporation of India (LIC) stands as a colossus in the nation's financial sector, managing a staggering pool of household savings exceeding ₹57 lakh crore. Beyond its primary role as an insurer, LIC functions as one of India's most significant long-term investors, wielding considerable influence across both the insurance industry and capital markets.

Millions of policyholders continue to place their trust in LIC, valuing the safety and long-term stability it offers over the volatile prospect of immediate stock market gains. This distinction is evident when comparing LIC's equity performance, where its share price hovers in the ₹800-900 range, with the distinct path of returns policyholders can expect.

Regulatory Mandates Drive Investment Strategy

Abhishek Kumar, a Sebi RIA and Founder of Sahaj Money, highlights that LIC operates under strict investment guidelines set by the Insurance Regulatory and Development Authority of India (IRDA). For traditional policies, a minimum of 50% of policyholder funds must be invested in secure government-backed assets and other approved securities. From the remaining balance, approximately 15% to 20% is allocated to shares of established Indian companies, positioning LIC as a dominant institutional investor in the domestic equity market.

The rest of the funds are strategically deployed across state government securities, corporate bonds, and infrastructure projects, ensuring a diversified asset allocation designed to mitigate risk. This conservative approach underscores LIC's commitment to safeguarding capital and fulfilling its long-term obligations, including claims and bonus payouts.

Returns: Protection Over Speculation

Returns from LIC policies are structured through various payout mechanisms rather than direct market-linked gains. Policyholders receive payouts via multiple income streams during the policy term, at maturity, or in the event of death. These typically include the basic sum assured, annual bonuses that accrue over time, and potentially a final or guaranteed addition. Pension plans convert accumulated funds into regular annuity income.

While tax benefits can enhance overall outcomes, the inherent cost structure of life insurance, which covers mortality charges and agent commissions, generally results in lower returns compared to direct investments over similar periods. Bonuses are declared annually, contingent on LIC's surplus – the profit remaining after all claims and expenses. Five percent of this surplus goes to the central government, while the remaining 95% is distributed among policyholders, with higher investment returns typically translating into larger bonuses.

Focus on Income Protection

For prospective buyers, Kumar emphasizes that the primary expectation from a life insurance policy should be protection against income loss and safeguarding family financial security, rather than wealth creation. This core focus on protection explains LIC's enduring appeal among policyholders, irrespective of its stock market performance.