Life Insurance Corporation of India (LIC) manages one of the largest pools of household savings in the country. With assets under management of over Rs 57 lakh crore, LIC is not just an insurance company but also one of India’s biggest long-term investors.
The insurer plays a key role in both the insurance sector and the financial markets. Even though LIC’s stock has struggled to deliver strong returns since listing, millions of policyholders continue to invest in LIC policies for safety and long-term stability rather than stock market gains.
LIC’s share price, which once crossed Rs 1,000, has settled in the Rs 800–900 range, showing that market returns and policyholder returns follow very different paths.
As of January 14, it ended at Rs 825 at market closing, and has not delivered profits and has gone down 0.14% in the past 5 years.
LATEST FINANCIAL PERFORMANCE
LIC’s Q3 FY26 results are awaited at the time of writing the article.
In the July–September quarter of FY26, Life Insurance Corporation of India reported a standalone net profit of Rs 10,053.39 crore, marking a 32% rise from the same quarter last year.
Net premium income grew 5.5% year on year to Rs 1.26 lakh crore, while the solvency ratio improved to 2.13, indicating a stronger financial buffer.
However, profits declined 8% compared to the April–June quarter, showing how life insurance earnings can fluctuate between quarters.
WHERE DOES LIC INVEST POLICYHOLDERS’ MONEY
Abhishek Kumar, Sebi RIA and Founder of Sahaj Money, said LIC follows strict investment rules set by the regulator.
“For traditional policies IRDA mandates LIC to invest at least 50% of policyholder funds in safe, government-backed assets and other approved securities. From the balance amount around 15% to 20% is invested in shares of established Indian companies making LIC the largest institutional investor in India’s equity market.”
He added that the remaining funds are invested in state government securities, corporate bonds, and infrastructure projects, ensuring a spread across asset classes.
HOW SAFE ARE LIC’S INVESTMENTS
Safety remains the core objective of LIC’s investment strategy. Kumar explained that policyholders’ money is treated as a trust.
“IRDA prioritises safety above as the insurers such as LIC is holding money in trust for policyholders. The bulk of funds (over 75%) are invested in government and state securities backed by sovereign guarantee from the Government of India.”
LIC is also required to maintain a diversified portfolio to reduce risk. This conservative approach is meant to protect capital and ensure the insurer can meet long-term obligations such as claims, bonuses, and pension payouts.
HOW POLICYHOLDERS ACTUALLY EARN MONEY FROM LIC
Returns from LIC policies come through structured payouts rather than market-linked gains.
“Depending on terms of the policy a policyholder receives returns through multiple income streams during the tenure, at policy maturity or death,” Kumar said.
He explained that the basic sum assured forms the core payout, with annual bonuses added over time.
Some policies also offer a final bonus or guaranteed additions. Pension plans convert the accumulated amount into regular annuity income, while death benefits include the sum assured and accrued bonuses.
WHY LIC RETURNS ARE LOWER THAN MARKET INVESTMENTS
LIC policies are often compared with mutual funds, but Kumar said the comparison is not direct.
“It’s primarily because the charges levied by insurer’s to pay for mortality charges and agent commission from the policy premium. This in turn lowers the returns for policyholders,” he said.
While tax benefits improve outcomes, the cost structure of life insurance means returns are usually lower than direct investments made over the same period.
HOW LIC DECIDES BONUSES FOR POLICYHOLDERS
Bonuses depend on how much surplus LIC generates in a year.
“As Insurer declare bonuses annually based on the the profit or excess funds it is left after paying out all expected claims and expenses for that year,” Kumar said.
He added that 5% of the surplus goes to the central government, while the remaining 95% is distributed among policyholders. Higher investment returns generally lead to higher bonuses.
WHAT SHOULD BUYERS EXPECT FROM LIC POLICIES TODAY
For new buyers, expectations need to be clear. “The primary expectation should be protecting loss of income and not wealth creation. Life insurance should be used provide a death benefit that safeguard policyholders families financial security,” Kumar said.
This focus on protection explains why LIC continues to attract policyholders despite modest stock market performance.
