Many of my posts have been saying why one should not buy LiC policies, let me tell you the exact / specific reasons why, and I have these views for the past umpteen years, even pre 2001, when you had NO CHOICE:

1) LiC policies like classic endowment are opaque (this is actually true for all classic end policies , not just LiC). Here the returns one gets will be a sub optimal investment return. From this you reduce LiC’s costs of doing business and you will surely be left with a sub optimal, NEGATIVE real returns over long periods of time.

2) LiC’s top management has only ONE BOSS to please – the ruling party (not the government, note). This is scary. When I see fund managers beating the Sensex and the Nifty, I realise that it is by being underweight on the PSU stocks. LiC does not have this choice.

3) LiC has some excellent fund managers, but they are pushed into a sword fight with BOTH hands tied.

4) On 12th April, Shilpy Sinha has done a lead story in ET about how LiC had to invest Rs. 22,000 crore – most of it as a bail out – in PSU shares. This is awful – clearly proving Rajaji’s words: “Raja bane vyapari, praja bane bhikari’.

5) The government is the biggest BORROWER in the country (Gilts account for more than70% of the debt raised). Thus the government will not give a fair rate. LiC has been mandated to invest a huge amount in G-Secs. Given this combination, a classic endowment policy is a captive buyer, and the government OBVIOUSLY knows this.

6) Corporate governance is not applicable to PSUs and surely not to LiC.

7) The government guarantee for a LiC policy is a huge unfair advantage, but it does exist. The fact that it is unfair means even the spineless IRDA may just force LiC to drop it. This takes away the other ‘excuse’ people had for ‘investing’ in LiC.

8) The government will want to meet is ‘development’ objectives of setting up finance and guarantee companies for doing ‘development’ work in North East, as well as some other areas. Who bears the brunt?

9) When the government decides to ‘support’ Kingfisher (air travel is a very imp part of the infrastructure) it asks SBI to ‘convert’ a portion of the equity into debt. When Kingfisher does not find a buyer for its shares at Rs. 35 a share, who will be forced to pick up the stake? What about Air India’s IPO?

10) Corporate governance my foot. Coal India is forced to sell coal at HALF the international prices. NTPC is told that it cannot price electricity beyond a particular price……and shareholders like LiC even have a seat on the boards.

Sad but true list……and it could be increasing…..

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  1. LIC so far has been governed well.LIC has surplus cash. why you only targetting lic? How you are so sure about managements under performance? Many private co. and big corporates governance is very poor than lic. Can you write about them also?
    LIC has taken many steps towards reforms . have a detailed look.
    Little bit here and there is everyone. any blog writer can search and write. Only negative seeing glasses should be changed. Dont be biased . when examining look at other cos. also and comment.

  2. Minor correction, “asks SBI to ‘convert’ a portion of the equity into debt”

    I think you meant ‘debt into equity’ ?

    Regards

  3. Amazing eye opening article. These facts were scattered over different places. Just finding it in one place now. Run ! Run ! Run ! Have to get rid of endowment policies by getting over “Sunk cost fallacy”.

  4. The organisational analysis is an eye-opener. Even from the policy holder point of view, it does not inspire confidence. After arrest of LIC HFL head, its reputation has taken a beating. I only have 2 policies taken 12 years back and recently one of the agent was after me to take a policy applicable for NRIs. Irrespective of the returns, all I wanted is claim settlement that he had assited for NRIs. I know certain cases that on one pretext or other, it refused to settle and this agent has no time to give service for claims.

    I thought let me try my hand with private insurer i.e. reputed one HDFC Life 2 years ago. I have opted for a policy 5 times premium as that of LIC one. Knowingly I agreed for a hefty commission product. Did I get a better service in tune with the higher premium or commission than LIC. The answer is ‘no’. The same is with my friends who had opted for policies of private insurers.

    If I have to buy policy next time for any of our family members, it would be LIC. I prefer to be disatisfied through out rather than promise of great delivery and back stab.

  5. “Coal India is forced to sell coal at HALF the international prices.”???

    Was it not getting coal blocks directly through govt at very minimal rates without any auction process & neither it is not selling coal at loss.

    The same applicable to NTPC too

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