LIC or better known as Life Insurance Corporation of India is the largest insurance provider in the country. LIC is such big an institution which aids the government every time it is unable to find sufficient buyers for the securities which it offers to the public.
However, the question arises, whether LIC is good enough in generating returns?
In the year 2014-2015, the LIC made 7 percent return on its investments. The annual average return over a ten-year government bond was 8.3 percent. The return on investment of LIC was lower by 130 basis points as compared to the average annual return on a ten-year government bond.
The sum assured and return on LIC policies are dependent on the age of the policyholder, annualized bonus rates and time of maturity; but normally the returns range from 5.5 percent to 7.5 percent annually, and it is not even comparable with the country’s existing inflation rate. From the investment perspective, EPF (8.75 percent), NSC (The existing rate is 8.5 percent for 5 years, and 8.8 percent for 10 years respectively) offers higher returns than LIC. If you are keen on taking a bit of additional risk and prepared in staying invested for long period of time then mutual funds can provide a better yield of around 12-15 percent per annum.
The data above shows how miserable a job LIC has done when it comes to handling public fund. LIC has been behind bank Fixed Deposit by 150 basis point and even 200 basis points in some years. Keeping your savings in FDs would have provided better returns. From the above table, you can also make out that a number of public spends in LIC is growing.
The Bottom Line
Until and unless you have a specific need, do not mix insurance along with investment. It is good to have them separate. In case you have made this mistake, make sure that you do not continue with it. You must give a thought before you put your money into something, have your own goal and select products which would match to your objectives and help you succeed in achieving your goals. LIC does have certain benefits but does not invest your hard earned money into it because your father asked you to do, or the neighbor or a friend requested you to buy an insurance policy from him, you can call this a favor, not an investment. Think again before you invest.
