My financial advisor showed me that the returns on my LIC endowment plan are much lower than a simple mutual fund SIP. If that’s the case, why do so many people, including my parents, still have immense trust in LIC?
The immense and enduring trust in the Life Insurance Corporation of India (LIC) is not built on its potential for high returns, but on its unparalleled safety, which is backed by a sovereign guarantee from the Government of India. For a large number of Indians, this absolute security of their hard-earned money is far more important than the possibility of higher, but riskier, market-linked returns.
The Ultimate Safety Net: The Sovereign Guarantee
I was having this same discussion with my father, who has been an LIC policyholder his entire life. He said he doesn’t mind if the return is 5% or 6%. The most important factor for him is knowing that his money is 100% safe. I explained this to my friend by showing him that under Section 37 of the LIC Act, all sums assured and bonuses are guaranteed by the Central Government of India. This means the government itself guarantees the payment, making it the safest possible long-term saving instrument in the country.
Generations of Trust and Physical Presence
My family’s LIC agent has been the same person for over 30 years; he served my father and now advises me. My father pointed out that this human connection and multi-generational trust is a huge reason for his loyalty. LIC’s unparalleled physical presence, with a branch and an agent in nearly every town and village, creates a level of comfort, familiarity, and accountability that a faceless online application cannot replicate for many people.
Simplicity and the Goal of Forced Savings
My aunt, who is not very comfortable with financial jargon, has a few LIC plans. For her, the stock market and mutual funds seem complicated and risky. She understands the simplicity of her LIC policy: “Pay a fixed premium every year, and get a guaranteed amount at the end.” A colleague of mine also admitted that the annual call from his LIC agent is what forces him to save for the long term, a discipline he might not maintain on his own.
1 Like