The ‘abnormal rate’ of interest being collected by the Life Insurance Corporation of India (LIC) on loans being given to policyholders has drawn flak from the Life Insurance Agents’ Federation of India.
In a letter to Union Finance Minister Nirmala Sitharaman, the Federation secretary general N. Gajapathi Rao sought that interest rate on loans given to policyholders and that charged on late payment of premium, should be reduced. He expressed regret that the LIC interest rates are the highest when compared to the banking sector and recognised financial lenders.
He said it was unfortunate that the State-controlled Corporation is doing interest-business, ignoring the objectives of LIC and bringing a black mark on the Union government.
While the LIC is declaring around 4% bonus to policyholders on policies, it is collecting a whopping 9.5% interest on all loans. All the banks are giving 5.5% interest on deposits and giving loans on FD s at 1% more, i.e., at 6.5%, while LIC was squeezing interest from its policyholders. Interestingly, LIC’ s sister concern LIC HFL is extending loans @ 6.5%.
He demanded that the LIC also collect interest rate at 1% more than the bonus declared as per policy. The policyholders have the privilege of paying premium amount within 30 days after the due date. If the premium is paid after the grace period, late payment fee would be collected. The rate of interest on delayed payments is also being collected at 9.5%, which shows the harshness of LIC on policyholders. He sought that a nominal interest of 4% should be collected on these types of transactions.
Mr. Gajapathi Rao noted that a policy lapses, when the premium is not revived within six months from the due date. However, the policyholders can revive the same by paying the arrear premium along with late fee on certain conditions. No risk whatsoever would be covered during the lapsed period. LIC is collecting 9.5% interest on these arrears also. He wondered why the policyholder is being taxed for returning to LIC-fold and sought that a nominal rate of 4% interest can be levied on these type of transactions.
LIC is paying only 6.5% rate of interest on delayed payment of claims but is collecting 9.5% interest for delayed payment by policyholders in the case of revival of lapsed policies. He said that the Actuarial Department, which advises LIC on bonus and interest rates, does not have any interface with the public and not consider the opinion of agents, who act as a bridge between the public and the corporation.
