Buying an LIC Policy? Where Your Money Is Invested and What Returns You Actually Get

Buying a policy from Life Insurance Corporation of India is often seen as a symbol of financial safety rather than high returns. With assets under management exceeding ₹57 lakh crore, LIC is not just India’s largest life insurer but also one of the country’s biggest long-term institutional investors.

Despite LIC’s stock price showing limited growth since its listing, millions of Indians continue to buy LIC policies, drawn by stability, guaranteed payouts and long-term financial protection rather than market-linked wealth creation. This distinction explains why LIC’s market performance and policyholder returns often move on very different tracks.

As of mid-January, LIC shares were trading in the ₹800–900 range, well below their post-listing peak. However, policyholders are largely insulated from stock market volatility because LIC policies are structured around protection, bonuses and assured benefits.

Where LIC Invests Policyholders’ Money

LIC follows strict investment norms laid down by the insurance regulator. For traditional life insurance policies, regulations require a large portion of policyholder funds to be invested in safe and stable assets.

More than half of LIC’s policyholder funds are invested in government securities and other sovereign-backed instruments. Around 15–20% is allocated to equities of well-established Indian companies, making LIC the single largest institutional investor in the domestic stock market. The remaining funds are spread across state government bonds, high-quality corporate debt and long-term infrastructure projects.

This diversified structure ensures that risks are spread across asset classes while prioritising capital protection.

How Safe Are LIC Investments

Safety remains the cornerstone of LIC’s investment strategy. Over 75% of its investments are backed directly or indirectly by sovereign guarantees from the Government of India. This conservative approach ensures LIC can meet long-term obligations such as claim settlements, maturity payouts, pensions and bonuses, even during economic downturns.

The insurer is also required to maintain a strong solvency ratio, which measures its ability to meet future liabilities. LIC’s solvency levels indicate a comfortable financial buffer, reinforcing confidence among policyholders.

How Policyholders Earn Returns

LIC policyholders earn money through structured benefits rather than daily market movements. Returns typically include the basic sum assured, annual reversionary bonuses declared by LIC, and in some cases, a final bonus at maturity.

In pension and annuity plans, accumulated funds are converted into regular income streams. In the event of the policyholder’s death, nominees receive the sum assured along with accrued bonuses, providing financial security to families.

Why LIC Returns Are Lower Than Market Investments

LIC policies are often compared with mutual funds, but the objectives are fundamentally different. Life insurance premiums include mortality costs, administrative expenses and agent commissions. These charges reduce net investment returns compared to direct market investments.

While tax benefits improve overall value, LIC policies are not designed to maximise returns but to ensure certainty, protection and disciplined savings.

What Buyers Should Expect Today

For new buyers, expectations must be realistic. LIC policies are best suited for income protection, family security and long-term financial stability. Wealth creation should be addressed separately through market-linked instruments, while LIC continues to serve as a reliable foundation for financial protection.