Life Insurance Business in India was nationalized with effect from January 19, 1956. On the date, the Indian business of 16 non-Indian insurers operating in India and 75 Provident Societies were taken over by Government of India. Life Insurance Corporation of India, Act was passed by the Parliament on June 18, 1956 and came into effect from July 1, 1956. Life Insurance Corporation of India commenced its functioning as a corporate body from September 1, 1956. Its working is governed by the LIC Act. The LIC is a corporate having perpetual succession and a common seal with a power to acquire hold and dispose of property and can by its name sue and be sued.
Important Provisions of Life Insurance Corporation Act, 1956
- Constitution
- Capital
- Functions of the Corporation
- Transfer of Services
- Set-up of the Corporation
- Committee of the Corporation
- Authorities
- Finance, Accounts and Audit
- Miscellaneous
Life Insurance Corporation of India (LIC)
The LIC of India was set up under the LIC Act, 1956 under which the life insurance was nationalised. As a result, business of 243 insurance companies was taken over by LIC on 1-9- 1956.
It is basically an investment institution, in as much as the funds of policy holders are invested and dispersed over different classes of securities, industries and regions, to safeguard their maximum interest on long term basis. LIC is required to invest not less than 75% of its funds in Central and State Government securities, the government guaranteed marketable securities and in the socially-oriented sectors. At present, it is the largest institutional investor. It provides long term finance to industries. Besides, it extends resource support to other term lending institutions by way of subscription to their shares and bonds and also by way of term loans.
LIC which has entered into its 57th year has emerged as the world’s largest insurance co. in terms of number of policies covered. The LIC’s total coverage of policies including individual, group and social schemes has crossed the 11 crore.
Objectives of LIC of India
The LIC was established with the following objectives:
- Spread life insurance widely and in particular to the rural areas, to the socially and economically backward claries with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost
- Maximisation of mobilisation of people’s savings for nation building activities.
- Provide complete security and promote efficient service to the policy-holders at economic premium rates.
- Conduct business with utmost economy and with the full realisation that the money belong to the policy holders.
- 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 interest of the insured public by providing efficient service with courtesy.
Role and Functions of LIC
- It collects the savings of the people through life policies and invests the fund in a variety of investments.
- It invests the funds in profitable investments so as to get good return. Hence the policy holders get benefits in the form of lower rates of premium and increased bonus. In short, LIC is answerable to the policy holders.
- It subscribes to the shares of companies and corporations. It is a major shareholder in a large number of blue chip companies.
- It provides direct loans to industries at a lower rate of interest. It is giving loans to industrial enterprises to the extent of 12% of its total commitment.
- It provides refinancing activities through SFCs in different states and other industrial loangiving institutions.
- It has provided indirect support to industry through subscriptions to shares and bonds of financial institutions such as IDBI, IFCI, ICICI, SFCs etc. at the time when they required initial capital. It also directly subscribed to the shares of Agricultural Refinance Corporation and SBI.
- It gives loans to those projects which are important for national economic welfare. The socially oriented projects such as electrification, sewage and water channelising are given priority by the LIC.
- It nominates directors on the boards of companies in which it makes its investments.
- It gives housing loans at reasonable rates of interest.
- It acts as a link between the saving and the investing process. It generates the savings of the small savers, middle income group and the rich through several schemes.
Formerly LIC has played a major role in the Indian capital market. To stabilise the capital market it has underwritten capital issues. But recently it has moved to other avenues of financing. Now it has become very selective in its underwriting pattern.