A villain of the masses?
When you visit the official website of LIC of India, you will find the objectives of LIC (https://licindia.in/objectives-of-lic). There are a total of eight objectives listed there, but for the purposes of this article we are concerned with only two of them. This article seeks to establish that the Life Insurance Corporation of India alone is responsible for the lack of insurance awareness in India. They alone are responsible for people not buying insurance – ninety out of every hundred people do not have insurance in India.
The objectives of LIC crucial to this post are as follows:
- 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 mobilization of people’s savings by making insurance-linked savings adequately attractive.
LIC wishes to spread the life insurance widely and in the rural areas to the socially and economically backward people. But, prior to the year 2000 and even later, all the policies LIC has offered are endowment policies. Endowment policies are those which have the “savings” element – like money-back policies, Joint life policies. The LIC people has also coined a famous Hindi phrase, “zindagi ke saath bhi, zindagi ke baad bhi”.
Allow us to explain the difference between endowment and term life insurance in layman’s terms.
An endowment policy is one that not only gives you money in case of death but also when the policy matures. The payout of a claim is guaranteed in such policies hence, the premiums are very expensive. On the other hand, term life insurance policies are those which pay you money only in case of death. If the insured person survives the policy, nothing is payable. Understandably, the premiums here are cheap.
Those economically and socially backward people living in rural areas often live from hand to mouth; they don’t have money to buy endowment policies. They simply cannot afford them.
Rather than offering term life policies to the Indian masses, especially to the people who are in the rural areas and socially and economically backward classes or section of people who need money in case of unfortunate death, the LIC of India began offering endowment policies to those who have no money to afford such high premiums.
Who are these people who are said to belong to socially and economically backward classes? They are poor farmers, daily wage earners, laborers, carpenters, etc. For instance, when you ask these people to pay Rs. 10,000/- yearly premium, will they be in a position to pay say, for a sum insured of 2 lakh rupees? But for the same sum insured, the premium approximately will be Rs. 2,000/- to 2,500/- if they were offered Term life insurance policies.
Was LIC more interested in filling its coffers rather than looking at the ability of the insured to pay the premiums?
An average-sized village in India has about 500 to 1,000 houses and a population of around of 1500 people. In my native village (of which I made a detailed study) 50% of the house-holds have a life insurance policy and they are all lapsed. The insureds are unwilling to pay premiums because they cannot afford to. How could they? Spreading insurance to rural areas and to the socially and economically backward classes’ people is possible only if insurance is reasonably priced, and endowment policies are prohibitively expensive.
Sometime during last year (2025) LIC decided on a fantastic plan. They wanted to sell one crore policies in a single day. Over 4 Lakh LIC agents Sell 5.8 Lakh Insurance Policies In 24 Hours, Create Guinness World Record. The government owned insurer Life Insurance Corporation of India (LIC) earned a Guinness World Records title for selling the most life insurance policies in 24 hours.
What was the objective of this? Besides the temporary headlines in newspapers and social media, there is no objective. If you think that these activities help spread insurance awareness i.e., spreading life insurance widely, you are mistaken. Out of those 5,80,000 policies, it is very likely that over 95% are lapsed. A policy becomes lapsed when the premiums are not paid.
LIC has the greatest habit of projecting insurance as a savings tool.
Life insurance across the globe is commonly known and perceived as term life insurance. A tool of protection. For the savings-minded person, the one who worries about the rate of return and tax-savings, there are many and better investment options available than investing in an endowment life insurance policy. Yet the objective of LIC is to project insurance as savings linked and make it adequately attractive. Thus, they are hell-bent on selling savings policies or endowment policies, the products that bring in huge revenues!
If LIC had focused on selling term life insurance policies, then almost all Indians or at least 75% would have acquired term life insurance policies during the last seven decades! These people could have lived with dignity. Whenever there is acalamity in a family, it would look up at the government for financial help. At the mercy of the government. LIC has thus murdered the dignity of the individual by not providing innovative and affordable term life insurance plans in spite of the fact that it is virtually a monopoly in the Indian life insurance market. The socially and economically backward people would want cheap, simple term life insurance policies.
A farmer, for example, would like to invest Rs. 10,000 buying fertilizer for his paddy field than pay life insurance premiums. He would rather take the buffalo to the veterinary doctor than pay life insurance premiums. We make fun of the situation of the above farmer; we might sarcastically laugh saying “The farmer values his buffalo more than his life. Look! He is insuring a buffalo, but not his life.What a stupid farmer he is!”
The concept of human life value (HLV) cannot be applied in India as the HLV takes into consideration the earning capacity and the farmer (and thus millions of Indians) has no real earning capacity! Whatever little earning he has, provided his crop is successful, is gone towards the seeds, fields and buffaloes. How would he be in a position to pay for an endowment policy?
All insurance companies that offer term life insurance policies do not offer them to such farmers, to the socially and economically backward people. They may argue saying that we never prohibited the people from the rural areas and socially and economically backward communities from buying term life insurance policies. All they do is to insist for Income Tax (IT) returns. But it is a known fact that more than 90% of the population do not pay income taxes, and this being compulsory to buy term life insurance is a crazy underwriting requirement!
Bima Sugam or more life insurance players are not the solution. The solution is to first ask, are we offering the right, affordable products to the socially and economically backward people? Are they easily accessible with minimum paperwork? In a society where 90% of the people do not have any life insurance cover, LIC alone can be held responsible. If the objective of LIC is to help socially and economically backward people spreading the message of insurance, then they should start immediately offering cheap term life insurance policies designed for these segments.
Dr. K. Raja Gopal Reddy
PhD, FIII, FCII (UK), FLMI (US)
Chartered Insurance Practitioner
Founder, Topspot Insurance Broking (insurancepe)
