What is the role of "LIC" in the devolepment of indian economy?
Answer:
Currently LIC has no other great role than making life insurance business successful in India. This is the only role an Insurance company needs to and can play in a civilized open economy. Once the insurance business is undertaken, investments have to take place aoutomatically. This will help economic growth. But this is no important role. All what economic textbooks in India say about LIC or any other organisation promoted by Govt. longtime back is absolutely trash, wrong, misleading and propoganda.
Now read this:
Life insurance is considered by many financial experts to be the foundation of a total financial plan. That’s because it’s uniquely designed to perform three vital roles in the life of an individual, family or business, namely asset accumulation, estate planning, and estate distribution.
Asset Accumulation
During our productive earning years, the ability to generate an income is typically our greatest asset. When income is saved and invested rather than consumed, the potential result is asset accumulation, which takes a lead role in helping to assure that current and future economic needs will be met.
It’s also a time when premature death may not only undo asset accumulation but also create a critical need for funds, now and in the future. Let’s look at the needs created when an income earner dies.
Final expenses. The need for immediate cash at death is universal. Final expenses typically include the cost of a last illness—which could span days, weeks or longer—along with funeral and burial expenses. Death can also create a tax liability requiring immediate funds to take care of it.
Outstanding debt. Debt includes charge card balances, auto and school loans, home equity loans and other installment accounts that had formerly been met by an ongoing
income that is now lost.
Housing expenses. Survivors need money for mortgage or rent payments. Ideally, funds should be earmarked to pay off a mortgage or make rental payments for a number of years.
Family income. The need to find replacement income usually is by far the largest and most important consideration. Even when there is more than one breadwinner, the loss of just one income can be devastating.
Education fund. For a young family, an especially critical need is money to pay for a dependent child’s education—something a parent’s continuing income probably had been counted upon to provide.
1Social Security “blackout” period. Generally, a surviving spouse with young children receives Social Security benefits until the youngest child reaches age 16. Then the spouse’s benefit stops until age 60 when widow’s or widower’s benefits become payable. Funds may be needed to fill in this drop in income for a surviving spouse.
Special needs. Providing for children with special needs presents its own challenges. While life insurance may be a cost-effective way to help provide money for supplemental needs, careful planning is required. It is best to work closely with a qualified attorney to make sure good intentions do not have unintended consequences.
Estate Planning
When we reach the end of our working years and are in or near retirement, there’s still a need to help protect the assets we have built up over the years and to prevent needless estate shrinkage.
A need for cash. Once an estate has reached a respectable size—thanks to increasing income, savings, successful investing and similar wealth-building activities—there can still be a need for cash at the estate owner’s death. This is especially true when the property consists of non-liquid assets such as real estate, a business, or other property that can’t quickly be converted to cash.
Estate taxes can’t be ignored. Depending on the size of the estate, federal estate and income taxes, state taxes and other levies can dramatically shrink assets, particularly money in a qualified retirement plan. And they’re typically payable at the time of death or shortly thereafter—in cash.
A need for income. Immediate cash needs aside, a surviving spouse may need additional income if Social Security or pension benefits are lost or reduced at a spouse’s death, for
example. And depending on what kind of retirement planning job was done, there may be a need to supplement retirement earnings whether or not the estate owner dies.
Estate Distribution
When estate assets are no longer needed to provide for the individuals who accumulated them, they take on a new role. This is the point where decisions must be made about the
orderly distribution of the assets to the people and institutions on the receiving end.
Family members. An important consideration is how to give family members equitable and fair treatment in the distribution of estate assets. Proper planning can go a long way in avoiding conflicts and assuring family harmony. An example is the case where a son or
daughter may be in line to take over ownership and control of a family business. If the business assets are given to that person, other family members may be shortchanged
unless there are other assets available to provide equitable estate distribution.
Charitable giving. An estate owner who has been providing funds and other support to
one or more favorite charities may want to assure continued support well into the future. Earmarking estate assets for charitable giving is one way of accomplishing this, provided plans
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are made well in advance, and there are adequate estate assets to do the job after other obligations have been met.\
Read further: Role 1: Life insurance as "Investment"
Insurance is an attractive option for investment. While most people recognize the risk hedging and tax saving potential of insurance, many are not aware of its advantages as an investment option as well. Insurance products yield more compared to regular investment options, and this is besides the added incentives (read bonuses) offered by insurers.
You cannot compare an insurance product with other investment schemes for the simple reason that it offers financial protection from risks, something that is missing in non-insurance products.
In fact, the premium you pay for an insurance policy is an investment against risk. Thus, before comparing with other schemes, you must accept that a part of the total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings.
In life insurance, unlike non-life products, you get maturity benefits on survival at the end of the term. In other words, if you take a life insurance policy for 20 years and survive the term, the amount invested as premium in the policy will come back to you with added returns. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured.
Now, let us compare insurance as an investment options. If you invest Rs 10,000 in PPF, your money grows to Rs 10,950 at 9.5 per cent interest over a year. But in this case, the access to your funds will be limited. One can withdraw 50 per cent of the initial deposit only after 4 years.
The same amount of Rs 10,000 can give you an insurance cover of up to approximately Rs 5-12 lakh (depending upon the plan, age and medical condition of the life insured, etc) and this amount can become immediately available to the nominee of the policyholder on death.
Thus insurance is a unique investment avenue that delivers sound returns in addition to protection.
Role 2: Life insurance as "Risk cover"
First and foremost, insurance is about risk cover and protection - financial protection, to be more precise - to help outlast life's unpredictable losses. Designed to safeguard against losses suffered on account of any unforeseen event, insurance provides you with that unique sense of security that no other form of investment provides. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise.
To provide such protection, insurance firms collect contributions from many people who face the same risk. A loss claim is paid out of the total premium collected by the insurance companies, who act as trustees to the monies.
Insurance also provides a safeguard in the case of accidents or a drop in income after retirement. An accident or disability can be devastating, and an insurance policy can lend timely support to the family in such times. It also comes as a great help when you retire, in case no untoward incident happens during the term of the policy.
With the entry of private sector players in insurance, you have a wide range of products and services to choose from. Further, many of these can be further customized to fit individual/group specific needs. Considering the amount you have to pay now, it's worth buying some extra sleep.
Role 3: Life insurance as "Tax planning"
Insurance serves as an excellent tax saving mechanism too. The Government of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets. Under Section 88 of Income Tax Act 1961, an individual is entitled to a rebate of 20 per cent on the annual premium payable on his/her life and life of his/her children or adult children. The rebate is deductible from tax payable by the individual or a Hindu Undivided Family. This rebate is can be availed upto a maximum of Rs 12,000 on payment of yearly premium of Rs 60,000. By paying Rs 60,000 a year, you can buy anything upwards of Rs 10 lakh in sum assured. (depending upon the age of the insured and term of the policy) This means that you get a Rs 12,000 tax benefit. The rebate is deductible from the tax payable by an individual or a Hindu Undivided Family.
To the extent LIC makes money by helping people do what has been written above, it plays a role. And, that's it.
You will have to tell us what a LIC is. Is this shorthand for a license?
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