LIC and other Insurance company Loot Policy Buyers ? please read full articles

A person buys a LIC policy or other Insurance co policy  with insurance of Rs.200000/  (Rs.two lakhs ) from a LIC agents for say 20 years . He has to pay on an average Rs.10000 per annum as annual premium for 20 years .

Suppose if he deposits the same Rs.10000 per years in a Bank every year for 20 years and earn 8% as annual interest. His first year premium of Rs.10000/ will be fixed for 20 years in a bank , he will get Rs.48754 after 20 years from the bank. 

Similarly Rs.10000 deposited next year will remain in bank as FD for 19 years , next Rs.10000 for 18 years and so on. Following Table reflects how he gets a total return of Rs.508891.17 from bank on the date policy matures. His total investment in 20 years comes to Rs 2 lakh.

 (interest compounded quarterly  @ 8% per annum- added at the end of each quarter)

It is to be noted that rate of interest on bank FD varies from 7 to 11 % p.a.. For convenience purpose , I have calculated all returns on FD made by agent and the policy buyer @ minimum rate of 8%

Table 1 How much Policy Buyers Earns

Year      Year Interest   Total Interest       Balance

1            824.32                       824.32                  10,824.32

2            892.27                    1,716.59                  11,716.59

3            965.82                    2,682.42                  12,682.42

4         1,045.44                    3,727.86                  13,727.86

5         1,131.62                    4,859.47                  14,859.47

6         1,224.90                    6,084.37                  16,084.37

7         1,325.87                    7,410.24                  17,410.24

8         1,435.16                    8,845.41                 18,845.41

9         1,553.47                  10,398.87                 20,398.87

10         1,681.52                  12,080.40                   22,080.40

11         1,820.13                  13,900.53                   23,900.53

12         1,970.17                  15,870.70                   25,870.70

13         2,132.58                  18,003.28                   28,003.28

14         2,308.37                  20,311.65                   30,311.65

15         2,498.66                  22,810.31                   32,810.31

16         2,704.62                  25,514.93                   35,514.93

17         2,927.57                  28,442.51                   38,442.51

18         3,168.90                  31,611.40                   41,611.40

19         3,430.12                  35,041.52                   45,041.52

20         3,712.87                  38,754.39                   48,754.39

Total  Amount Received on Maturity from Bank      Rs. 508891.17        

How Much Agent of Insurance earns after mobilising a policy of annual premium of Rs.10000/

An Agent gets commission @35% in first year on regular policy , 10% in second year and 6% on residual years. As such if a person ( who buys a LIC policy ) pays Rs.10000 as annual premium for 20 years to buy an insurance policy of Rs.2.00 lac , the agent will get Rs.3500/ as commission in first year and keep it in bank for 20 years as Fixed Deposit  and he will get Rs.17064/ on date of maturity of policy . Similarly he will get commission @ 10% in second year and thus make FD of Rs.1000 for 19 years in a bank and get Rs.4504.15  .

From third year  onwards, the agent earns a commission @6% every year for 18 years . In this way he will make this Rs.600 as FD each year in a bank for 18 years, 17 years , 16 years and so on. 

Following is the table which reflects how he gets payment on the date when policy gets matured 

(interest compounded quarterly  at the rate of 8% p.a.- added at the end of each quarter)

Table 2 How Much An Agent Earns

Year Year Interest Total Interest Balance

1 49.46          49.46                    649.46

2 53.54        103.00                    703.00

3 57.95        160.95                    760.95

4 62.73         223.67                    823.67

5 67.90         291.57                    891.57

6 73.49         365.06                    965.06

7 79.55         444.61                  1,044.61

8 86.11         530.72                   1,130.72

9 93.21         623.93                   1,223.93

10 100.89         724.82                   1,324.82

11 109.21         834.03                   1,434.03

12 118.21         952.24                   1,552.24

13 127.95       1,080.20                   1,680.20

14 138.50       1,218.70                   1,818.70

15 149.92       1,368.62                   1,968.62

16 162.28       1,530.90                   2,130.90

17 175.65       1,706.55                   2,306.55

18 190.13       1,896.68                   2,496.68

19                            3504.15                       4504.15

20                           13564                         17064.00

Total an Agents gets from Bank            Rs.46473.86

If agent commission is calculated at 6% for entire 20 years, his return will be as follows at same rate of bank rate of interest and for same amount of annual premium. Here it is assumed that the agents gets higher commission of 35% in the first year to compensate his labour made in the first year and @10% in second year. Thereafter payment of premium becomes normal and policy holder pays annual premium online. 

But commission @ 6% is absolutely and clearly without making extra pain and hence unjustified.

(interest compounded quarterly - added at the end of each quarter)

Year   Year Interest Total Interest          Balance

1 49.46                49.46                     649.46

2 53.54              103.00                     703.00

3 57.95              160.95                     760.95

4 62.73              223.67                     823.67

5 67.90              291.57                     891.57

6 73.49              365.06                     965.06

7 79.55              444.61                  1,044.61

8 86.11              530.72                  1,130.72

9 93.21              623.93                  1,223.93

10 100.89              724.82                  1,324.82

11 109.21              834.03                  1,434.03

12 118.21              952.24                  1,552.24

13 127.95           1,080.20                  1,680.20

14 138.50           1,218.70                  1,818.70

15 149.92           1,368.62                  1,968.62

16 162.28           1,530.90                  2,130.90

17 175.65           1,706.55                  2,306.55

18 190.13           1,896.68                  2,496.68

19 205.81           2,102.49                  2,702.49

20 222.77           2,325.26                  2,925.26

LIC and other insurance company has been following rules and policies framed five decades ago when every thing was manual and every agents had to personally visit policy holder frequently to collect and deposit periodical premiums. Now when the technology has advanced to such a great extent, when there are several other digital tools to pay premiums and now when LIC has opened office in all areas in adequate number, there is no justification in payment of such a high commission to agents for entire period of policy , that too at the cost of insured who invest his hard earned money for better gain.

Management of LIC and Government of India along with IRDA , regulating body for all insurers overlook this reign of injustice just to avoid disturbance in their mental peace. They think that agents will create revolt all over the country  and LIC will lose business. They wilfully ignore all public complaints pertaining to claims and that to full and final payment at the time of maturity.

Table 1 shows that if a person  deposits Rs.10000 annual premium to a bank he will get a return of more than 5 lakhs after 20 years even at a minimum rate of interest of 8% from a bank whereas LIC pays much less than it. Obviously rate of return on his investment in a regular policy bought from LIC , the policy holders gets annual return far far less than a rate of 8%

In brief you may conclude that rate of return for policy buyer is much less than 8% whereas an agents earns more commission by not investing any amount. He at most spend an hour or two in mobilising a policy and continue to earn for 20 years without making any extra pain.

If some intelligent persons raise questions on less bonus paid to insured or high commission paid to agents, LIC agents will make a stereo type excuse and say that the person is getting benefit of insurance and tax exemption in addition to return on his investment.

Here I would like to refer Pradhan Mantri Jeevan Jyoti Bima Yojana (Life Insurance), Pradhan Mantri Suraksha Bima Yojana (Accidental Death & Disability Insurance) . By using these schemes, the same person gets adequate insurance by paying a sum of Rs.365 or even Rs. 12/ per year. To make it crystal clear , I would like to say that if the person pays Rs.12 / per year he will get an insurance of Rs.2 lakh under the said schems. 

And if for some reason or the other the person is not interested to opt for aforesaid schemes , he may opt for Term Insurance plan of Rs.2.00 lac or three lakhs by paying less than hundred rupees per year from any insurance organisation and deposit entire premium in a bank to get maximum return.

How Much LIC Earns

Now if we come to LIC, they earn profit every year but they earn much less than what they are supposed to earn. They spend lavishly on commission , on advertisement and office expenses. They incur huge losses in investing in weak companies to oblige some VIP or the other. They keep great chunk of their fund idle and thus lose interest thereon. In this way they earn a meagre amount of profit , profit for name sake only.

They get floating fund at much cheaper rate from those lakhs and crores of policy holders who buy policy from LIC .Unfortunately the most sufferer are those who buys insurance policy from LIC whereas on the contrary employees of LIC and Agents of LIC earn too much. 

Actual profit will be arrived at only when we calculate actual rate of return on total corpus they have received from policy buyers.

If they have an corpus of Rs.100,00,000(one crore ) and they earn Rs.1000 per year , it is not sign of successful business . Normally if a business earns a net profit of 1% per month ( slightly more than bank rate  ) , it means 12% per year , then the business will be called a successful venture . LIC should earn at least this much keeping in view various social obligations. 

WE assume that LIC cannot opt for 3 to 5  percent monthly return as other private business man can aspire for.

It means LIC must earn at least Rs.12,00,000 ( Rs. twelve lac per year ) per year on a corpus of Rs.10000000 / ( one crore ). 

If LIC simply keep entire floating fund in government bonds and securities , it may earn at least a return of 6%  ( it means Rs.6.00 lac on a fund of Rs.1 crore ) per annum.

Now if one  looks into total fund LIC has and total profit it earns in a year , it will become crystal clear to all that LIC do not earn as much as it should earn.  One should even find out how much LIC earns  less and what are the leakages.

In brief I submit below some interesting dats on financials of LIC pertaining to the year ended 31.03.2015 and 31.03.2016

LIC had total source of fund as under as on  31.03.2015                           31.03.2016

Shareholders fund                                      Rs.562.54 crore                        Rs.582.94 crore 
Policy Holders Fund                         Rs.1991515.97 crores               Rs.2170224.86 crores

Total source of Fund                         Rs.1992078.51 crores                  Rs.2170807.80 crore

Annual Return @ 1% p.a.                      Rs.20000 crore approx             Rs.21700 crore 
Annual Return @ 6% p.a.                    Rs.120000 crore approx            Rs.130200 crore 

Annual return @12% p.a.                    Rs.240000 crore                         Rs.260400 crore

Now I will not make any comment on how much LIC earns in reality and how much it causes loss to people of India. 

I will simply say that Annual profit as shown in annual report of LIC as at 31.03.2016 shows a profit of Rs2500 crore only ( this may be after payment of dividend and bonus to policy  holders ).


Now I invite intelligent auditors , inspectors and officials of LIC and GOI to analyse the annual report of LIC to assess and ascertain whether there is leakage of income anywhere , whether there is mismanagement at the level of LIC or whether there is exploitation of various government behind such meagre profit.

You will find a lot of eye-catching headlines in newspaper in appreciation of LIC and its managers . But once you peep into real picture , you will find stinking smell of inefficiency , corruption and mismanagement.

I will enlighten on it elaborately in my next blog. Let people of India and top officials sitting in LIC, IRDA and Ministry decide what is correct , what is right and what is wrong.

Truth OF LIC 

A client of LIC  has deposited money in LIC for 20 to 30  years and now for getting maturity payment , same client have to depend on mercy of LIC staff who they dictate age old rules from the top of the tower. At the time of getting a business, customers are called God but at the time of return, they are considered as beggar. This culture has to be changed. 

When LIC has to get business, their highly paid agents complete all formalities and take signature of the client on dotted lines . But when the time of payment comes, agent vanishes form picture and reluctant staff will dictate so may rules, require so many forms to be filled up and complete several formalities. 

Agents and staff of LIC behave with policy holders at the time of payment or settlement of claims as if policy holders are criminals and they have to follow the lines dictated by them as if they are Chief Justice of their court.

It is hard nut to crack for a policy holder to get full and final payment from LIC because LIC is manned by most agents or officers elevated from agent stream. They do not understand what their client say , they understand the language dictated by their gang of agents sitting in all offices.