A

SUMMER TRAINING PROJECT ON

“LIC MARKET POLICY AND

GENERATION OF INCOME THROUGH
CONTROL ON ACCOUNTING
LEAKAGES”

(With special reference to LIC Divisional Office,Ajmer)

SUBMITTED TO SUBMITTED BY

Col. C.D Sharma VARSHA SHARMA

Dean MBA-II (2008-
2009)MAIET Mansarovar
 Acknowledgement

It is my privilege to acknowledge the contribution made

by various people, who have helped me in completing
this project report successfully. I would like to give special
thanks to R.P. Mittal (Manager- Personal & Industrial
Relation Department, D.O.,Ajmer), who gave me this
opportunity to join this Organization as a trainee for
understanding the working mechanism of LIC. His
valuable suggestions deserve the credit and enabling me
to carry out this project.

I would also like to express my gratitude to (Manager –

Finance & Accounts Department D.O.,Ajmer). His
constant co-operation and ideas helped me in making this
project.

In last, I am indebted to all the employees of LIC D.O.,

Ajmer for their kind co-operation and support.

VARSHA SHARMA
MBA-II (2008-2009)
 PREFACE

A good decisional research project results in helps in

making the best decision that can be made at the least
cost of making it.
Finance is a subject which forms an integral part in any
business concern. It deals with the management and
control of cash in the best possible way. Effective
management of cash deals with minimizing the costs of
the organization and thus generates higher income or
surplus for the organization.
Accounts and Finance are very vital for any profit making
organization to judge the actual financial position of the
concern. It is very essential to achieve a desired level of
income to achieve growth.
The topic of my project report is “Generation of Income
through Control on Accounting Leakages” with reference
to Divisional Office, Ajmer. I had prepared a questionnaire
to support my research project and gather relevant
information.
I have tried my level best to bring the best results; there
may be a few shortcomings where I expect to be forgiven
by the readers.

VARSHA SHARMA
 INTRODUCTION
ABOUT LIFE INSURANCE

What is life insurance?

Life insurance is a contract for the payment of a sum of
money to the person assured (or falling him/her, to the
person entitled to receive the same) on the happening of
the event insured against. Usually the contract provides
for the payment of an amount on the date of maturity or
at specified dates at periodic intervals or at unfortunate
death, if it occurs earlier. Among other things, the
contract also provides for the payment of premium
periodically to the corporation by the assured. Life
insurance is universally acknowledged to be an
institution, which eliminates ‘risk’ substituting certainty
for uncertainty, and comes to the timely aid of family in
the unfortunate death of the breadwinner. By the large,
Life Insurance is civilization’s partial solution to the
problem caused by death.

Why it is superior to other forms of savings?

• Protection: Savings through Life Insurance
guarantee full protection against risk of death of the
saver. In the Life Insurance , on death, the full
assured is payable ( with bonuses wherever
 applicable) whereas in other savings schemes, only
the amount saved ( with interest ) is payable.
• Aid to thrift: Life Insurance encourages ‘thrift’.
Long-term saving can be made in a relatively
‘painless’ manner because of the ‘easy installment’
facility built into the scheme ( method of paying
premium monthly, quarterly, half-yearly or yearly).
• Liquidity: Loans can be raised on the security of a
policy, which has acquired loan value. Besides, a Life
insurance policy is also generally accepted as
security for even a commercial loan.
• Tax: Tax relief in Income Tax and wealth tax is
available for amount paid by way of premium for life
insurance subject to income tax rates in force.
Assesses can avail themselves of provisions in the
law for tax relief. In such cases the assured in effect
pays a lower premium for his insurance than he
would have to pay otherwise.
• Money when you need it : a suitable insurance
plan or combination of different plans can be taken
out to meet specific needs that are likely to arise in
future, such as children’s education, start-in-life or
marriage provision or even periodical needs for cash
over a stretch of time. Alternatively, policy moneys
can be so arranged to be made available at the time
of ones retirement from service to be used for any
specific purpose , such as for the purchase of a
house or for other investments. Subject to certain
conditions, loans are granted to policyholders for
house building or for purchase of flats.

Who can buy life insurance?

Any person who has attained majority and is eligible to
enter into a valid contract can take out a life insurance
policy for himself and on those in whom he insurable
interest. Policies can be taken out , subject to certain
conditions, on the life of one’s spouse or children. While
underwriting proposals, factors such as the state of
health of the life to be assured , the proponent’s income
and other relevant factors.

Some Outstanding Advantages of Life

Insurance

1. It is superior to an ordinary saving plan: This

is so because unlike other saving plans, it affords full
protection against risk of death. In case of death, the
full sum assured is made available. Under other saving
schemes the total accumulated savings alone will be
available. The latter will be considerably less than the
sum assured, if death occurs during early years.

2. Insurance encourages and forces thrift: A

saving deposit can be easily withdrawn. Many may not
be able to resist the temptation of using balance for
some less worthy purpose. On the other hand, the
payment of life insurance premiums becomes a habit
and comes to be viewed with some seriousness as the
payment of interest on mortgage. Thus Insurance, in
effect brings about compulsory savings.

3. Easy Settlement and Protection against

Creditors: The life assured can name a persons or
persons (nominee/s) to whom the policy money would
be payable in the event of his death. The proceeds of
the Life Insurance Policy can be protected against the
claims of the creditors of the life assured by affecting a
 valid assignment of the policy. A married woman’s
property Act constitutes a trust in favor of the wife and
children and no separate assignment is necessary. The
beneficiaries are fully protected from creditors except
to the extent of any interest in the policy retained by
the assured.

4. Administrating the legacy for beneficiaries:

It often happens that a provision which a husband or
father has made through insurance is quickly lost
through speculative or unwise investment or by
unnecessary expenditure on luxuries. These
contingencies can be protected in case of insurance.
The policyholder can arrange that in the event of his
death the beneficiary can receive, instead of a single
sum-
a. Payment of the net claim amount by equal
investment over a specified period of years,or
b. Payment of the claim amount by smaller monthly
installments over a selected period followed by the
lump sum at the end thereof.

5. Ready Marketability and Suitability for

Quick Borrowing: After an initial period , if the
policyholder finds himself unable to continue payment
of premiums he can surrender the policy for a cash
sum. Alternatively, he can tide over a temporary
difficulty by taking loan on the sole security of the
policy without delay. Further, a life insurance policy is
sometimes acceptable as security for a commercial
loan.

6. Tax Relief : For computing income tax the Indian

Income Tax Act allows deduction from income tax
payable, a certain percentage of a portion of the
 taxable income of individuals or Hindu undivided
families which is diverted to payment of insurance
premiums. When this tax relief is taken in to account it
will be found that the assured is in effect paying a
lower premium for his insurance.

The Insurance Sector – An Overview

Insurance organization are those intermediaries which

collect premiums from the savers(the insurers) and
disburse the same among different borrowers. They are
different from other intermediaries in that they provide
protection (to the savers) in the eventually occurrence of
a pre-specified event, they are contractual saving
agencies which receive a periodical inflow of premiums.
Their liabilities are quite long-term in nature(even 30/40
years in case of life insurance ). Hence, liquidity is not of
great importance to them. Moreover, since their principal
objective is to offer protection against risk, they do not
offer(nor do the savers expect) high returns.
Therefore, the insurance companies, in turn, are not
pushed to seek liquidity and attractive returns from their
own investments. As a result, they mostly park their
funds in solid instruments like government bonds, which
are virtually riskless an offer an active in the following
fields-life, health and general, though they have now
begun operations(in India) in pension schemes and
mutual funds sector as well. However, life insurance still
commands the major part of all the insurance business in
India.

CURRENT SCENARIO

Since 1991,the Indian company has been running under

the mantra of “Liberalisation”. Insurance has always been
a politically sensitive subject in India. Within less than 10
years of independence, the Indian government
nationalized the private Life Insurance Companies in
1956 to bring this vital sector under Govt. control to raise
much needed development funds. Since then, the state
owned insurance companies have grown into giant
monolith, lumbering and often inefficient but the only
choice.
They have been criticized for their huge
bureaucracies, but still have millions of policyholders, as
there is no alternative. It was on October 23, 2000 that
privatization re-entered the insurance sector after 44
years of nationalization . Since then, the Indian Insurance
industry has gone through a sea change. This is an
attempt to make the sector more dynamic.

Insurance industry in India is experiencing a fierce

competition as the foreign, private and public sector
players are competing with one another with one another
to expand their respective market share. While the
newcomers agree in unison that they have yet to emerge
out of LIC’s shadows , they are trying to differentiate their
products from other companies, by adopting channel-
centric and product centric models. Only future will reveal
as to who is going to be fittest to survive.
Today, more than ever, successful organizations
are recognizing the importance of building brand image.
Brands have inherent meanings and characteristics; they
accumulate customer goodwill and discontent. Focus and
strategy are essential to the development of brand in any
sector. Through performance, service quality action a
company should demonstrate that the promise of the
company is authentic. If the contact with the customer is
not synchronic with the brand promises, the company
would lose the opportunity to influence the decisions
people make.

IRDA
The insurance regulatory and development authority (IRDA) was
established in 1999 to regulate and ensure the orderly growth of the
insurance industry. IRDA had registered the following 13 companies as
life insurers:

 HDFC standard life insurance co.ltd

 ICICI prudential life insurance co.ltd

 Max new York life insurance co. ltd

 Om kotak Mahindra Life Insurance Co. Ltd

 Birla sun Life Insurance Co. Ltd

  Tata AIG Life Insurance Co. Ltd

 SBI Life Insurance Co. Ltd

 ING Vysya Life Insurance Co. Ltd

 Allianz Bajaj Life Insurance Co. Ltd

 Metlife India Life Insurance Co. Ltd

 AMP Sanmar Life Insurance Co.Ltd

 Dabur CGU Life Insurance Co.Ltd

 Aviva Life Insurance Co.Ltd

These 13 insurers are limited companies registered under

the companies act. Unlike LIC which is a corporation set
up under the LIC act 1956 by center government.
 Company’s Profile
The Corporation was established by an act of Parliament
which received the assent of the President on June 18,
1956. The Act came into force on 1st july 1956 and the
corporation began to function w.e.f 1st September 1956.
Till recently the corporation was having the exclusive
privilege of carrying on life insurance business in India.
The corporation is an autonomous body and has
necessarily to run on sound business principles. The
corporation has been fully carrying out the role assigned
to it and justifying the confidence of the public by offering
adequate security at reasonable cost, dependable
service, economic management and favourable returns to
the nation at large.
It will be appropriate to quote here the words of then
Finance Minister, Shri C.D Deshmukh, from his broadcast
to the nation on the eve of the promulgation of the Life
Insurance (Emergency Provision) Ordinance 1956. He
said:

“ The nationalization of life insurance will be another milestone on the

road the country has chosen in order to reach its goal of a socialistic
pattern of society. In the implementation of the second five year plan, it
is bound to give material assistance. Into the lives of millions in the
rural areas, it will introduce a new sense of awareness of building for
the future in the spirit of calm confidence which insurance alone can
give. It is a measure conceived in a genuine spirit of service to the
people. It will be for the people to respond, confound the doubters and
make it a resounding success.”
 MISSION
“Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes with
competitive returns, and by rendering resources for economic
development.”

VISION
“A trans-nationality competitive financial conglomerate of
significance to societies and Pride of India”

The nationalization of life insurance was aimed at

widening the channels of public savings and was an
important step towards mobilization of these savings
more effectively than before , to finance the national
plans. Nationalized Insurance, in brief, was designed to
bring to the door of even the humblest citizen, wherever
he may be, the benefits of this social service.
To ensure complete security of the funds collected by
way of premiums and utilize profitably such funds for
nation building activities.

Objectives of LIC
 Spread life insurance much more widely and
in particular to the rural areas and to the socially
and economically backward classes with a view to
 provide them adequate financial cover against
death at a reasonable cost.

 Maximize mobilization of people’s saving by

making insurance linked saving adequately
attractive.

 Investment of fund the fund to be deployed to

the best advantage of the investors as well as the
community as a whole keeping in view nation
priorities and obligation of attractive returns.

 Conduct business with utmost economy and

with the full realization that the money belong to the
policy holder.

 ACT as trustees of the insured public in their

individual and collective capacities.

 Meet the various life insurance need of the

community that word arise in the changing social
and economic environment.

 Involve all the people working in the

corporation to the bestof their capability to provide
efficient service counesy to public
LIC transacts business throughout India with a
four tier structure
• The Central Office at Mumbai,
• 7 Zonal Office, one each at Mumbai, Kolkota, Delhi,
Kanpur, Hyderabad, Chennai and Bhopal.
• 100 Divisional Offices and
• About 2048 Branch Offices

NUMBER OF OFFICES IN INDIA

ZONE DIVISIONAL OFFICES
BRANCH OFFICES
Northen 15
320
North central 11
245
Central 7
140
Eastern 18
231
South central 16
314
Southern 12
261
East central 7
131
Western 21
403
Total 108
2048
 SRUCTURE OF LIC

 Marketing Department should have five

sections/unit:
 Sales Section has responsibility to decide on
various issues relating to agency and development
officers according to the provisions of the regulations
relating to them.
 Branches Support Unit which will provide
administrative support to the sections under the
Marketing Manager. This unit will be responsible for
analysis of budget proposals and monthly review of
data. They will analyze the performance data, raise
special issues concerning the performance of
branches and generally help various sections in the
Marketing Department to process work and perform
liaison work with other departments and take up
routine functions as assigned to them. This Unit will
process data for Sales Manager, take up reference at
the request of other Managers in the Marketing
Department. Co-ordination of other branches/other
divisions agency commission bills will also be
attended by them as also medical examiners matters
of branches that have common area.
 P.H.S. and Claims Section will handle matters
referred to Divisional Office by branches in respect to
all PHS functions for individuals, SSS policies as well
as processing of all early death claims. They will
undertake the training of branch staff and carry out
supervisory inspection. They will also wok in liaison
work with selected PSs.
  Development Training Section will arrange and
conduct training of field personnel such as CAB
Department, development officers and agents.

 New Business Department will be

responsible as specialists to decide on the proposals
referred to the divisional office in respect to all
individual, SSS and GSD proposals, check Declined Life
Index Cards and undertake supervisory inspection take
vis-à-vis branches. They also have responsibility to
their capabilities and of their needs.

 Personal Department will consists of three

sections:
 Management Development Section with
responsibility for management forecasts,
management development and career planning of
staff. It will have responsibility to ensure that
branches implement the policies laid down in letter
and spirit. They will have to carry out periodic
personnel audit to ensure that the corporate plans
and policies are implemented satisfactorily.
 Industrial Relation Section with responsibility to
develop relations with trade unions and to carry out
negotiations in matters that relate to the division as
whole.
 Training Section will have responsibility for
organizing programme for supervisors and middle
management personnel with division. This section
will also be responsible to organize functional
programmes according to the needs of various
department in the divisional office.

 Planning and Review Department would
have two sections:
  Operations Section which will have the
responsibility for locatin data suitable for the purpose
of planning, reviewing budget proposals and monthly
performance returns identifying trends, etc. It would
also have responsibility for training the branch
personnel and divisional management in the
planning process.
 Special Studies Division will have responsibility for
undertaking studies that the divisional management
may consider necessary from time to time.

 Accounts Department will have two sections:

 Branch Accounts Section will have responsibility
for supervision of branch accounts, expenses and
training of staff. They will analyse the trial balances
from branches and recommend suitable action to
divisional management.
 General Accounts Section includes three subunits:
 Cash and Banking Section
 Provident Fund Section; and
 Final Accounts Section.

 Office Management Department would

consist of two divisions:
 Purchase Section will have responsibility for
purchase, inventory and material utilization.
 Services Section will consist of security, dispatch,
duplicating and office services, transportation, etc.

 Legal and Mortgage Department will have

the responsibility for all legal and mortgage loan work
in the division.
 Data Processing Department will have two
sections:
 Systems Section will be responsible to oversee the
systems and programmes of data processing
machine in branches and division.
 Operations Section will be responsible for providing
machine support to branches that do not have an in-
house system as also to the divisional office.

INSURANCE PLANS
LIC offers a basket of schemes to meet the various needs of an
individual and his family.

INSURANCE PLANS

BASIC LIFE INSURANCE PLANS

TERM ASSURANCE PLAN

SPECIFIC PLANS FOR

CHILDREN

PENSION PLANS

UNIT LINKED PLANS

MICRO INSURANCE PLAN

PLANS FOR HANDICAPPED

DEPENDENTS

OTHER PLANS

Basic Life Insurance Plan

 1. Whole Life Assurance: A low cost with profits
insurance plan where the sum assured is payable on
the death of the life assured along with bonuses,
whenever it occurs .The claim can also be had after
the life assured attains 80 years of age-subject to
certain conditions .

2. LIC’s Jeevan Tarang: It is a with-profits whole life

money back plan which provides for annual survival
benefit at a rate of 5.5% of the sum assured
after the chosen accumulation period.

3. Endowment Assurance: Under this plan , the sum

assured is payable along with accrued bonuses on
maturity or on earlier death of the life assured.

4. Jeevan Anand: This is a unique with-profits plan

which combines the features of Endowment and
Whole life plans.

Term Assurance Plan

1. Anmol Jeevan-1: It is a pure term assurance plan

where one can choose any term from 5 to 25 years .
It provides for payment of the sum assured on the
death of the life assured during the term of the
policy.

2. Amulya Jeevan : It is a term assurance plan with a

minimum sum assured of Rs. 25 lakhs.
 Specific Plans for Children
1. Various children’s plans are available, viz. Children’s
Deferred Endowment Assurance , Komal Jeevan ,
Jeevan Kishore , Jeevan Chhaya , Child
Future Plan , Child Career Plan, with facility of
premium waiver benefit.

Pension Plans
1. Jeevan Akshay –IV: An Immediate Annuity Plan with
a number of options.

2. New Jeevan Suraksha-I & New Jeevan Dhara –I:

Deferred Annuities. The annuitant has five options of
annuity payments to choose from. Premiums paid
under New Jeevan Suraksha –I up to Rs. 1,00,000/-
are exempted from income tax under section 80
CCC.

3. Jeevan Nidhi : It is with-profits deferred pension

plan which provides death cover during the
deferment period.

Unit Linked Plans:

 1. Market Plus 1: A Unit-linked pension plan with
option of risk cover and commutation of 1/3 pension.
Pension can start at minimum age of 40 years.

2. Fortune Plus: Unit Linked Endowment Plan with 4

Fund types, 5 to 20 years policy term , and 5 years
premium paying term.

3. Profit Plus: Unit Linked Endowment Plan with 4

Fund types, 5 to 20 year policy term, and single
premium & 3 to 5 year premium paying term.

Micro Insurance Plan

1. Jeevan Madhur: A micro insurance cum savings
plan with profits where premiums can be paid
weekly, fortnightly, monthly, quarterly, half-yearly or
yearly or yearly intervals over the term of the policy.
Sum assured varies from Rs.5,000 to Rs. 30,000/-

Plans For Handicapped

Dependents
Following plans are designed for the benefit of
handicapped dependents. Benefits are payable partly in
lump sum and partly in the form of annuity.

1. Jeevan Adhar: It is a limited payment Whole Life

Policy with guaranteed additions at the rate of
 Rs.100/- per thousand sum assured p.a. upto 65
years of age of the life assured or on earlier death.

2. Jeevan Vishwas: It is an Endowment type plan with

guaranteed additions at rate of Rs.80/- per thousand
sum assured.

Other Plans

1. Fixed Term (Marriage) Endowment/Educational

Annuity: An ideal plan for making provision for
education / start-in-life or marriage of children .
Claim/Annuity is payab payable after expiry of policy
term.

2. Jeevan Anurag: It is with-profits plan suitable for

making provisions for educational and other needs of
children.

3. Money Back Plan: Besides providing life cover

during the term (20 to 25 years) of the policy survival
benefits linked to the sum assured during the term of
the policy will be available.

4. Jeevan Surabhi: A money back plan where

premiums are payable for a limited period , with
periodical increase in insurance cover by 50% of the
basic sum assured after every five years.

5. Jeevan Saathi: A with-profits Joint Life Endowment

Plan for husband and wife.
 6. Jeevan Shree-I : A limited payment Endowment
Assurance Plan with guaranteed additions for the
first five years and bonus additions thereafter

7. Jeevan Mitra: An Endowment Assurance Plan

providing for twice or thrice the sum assured payable
on the death of the life assured during the policy
term.

8. Jeevan Pramukh Plan: It is a niche market with

profit plan .

9. Jeevan Bharati: Money back plan exclusively for

ladies with additional benefits such as female critical
illness benefit and congenital disability benefit.

10. Jeevan Saral: A plan that provides the life assured

insurance cover with flexibility of partial withdrawal.

11. New Bima Gold: A regular premium money back

plan with return of total premiums in installments at
prespecified intervals with loyalty additions, if any, at
maturity & extended free risk cover.

12. LIC’s Jeevan Amrit: Plan where premium payment

is limited to 3,4 or 5 years and premium payable
during first year is higher than the premiums payable
in subsequent years.

Riders Available: LIC also offers rider benefits on its

Endowment and Money Back type plans such as Accident
Benefit rider, Term Assurance rider Critical Illness rider.
 HELP US TO SERVE YOU BETTER
Care to be taken while completing Proposal
Papers:
A contract of life insurance is a contract of utmost good
faith technically known as uberrima fides. The principle of
disclosing all material facts is embodied in this important
concept which applies to all forms of life insurance. It
becomes the duty of the proposer to inform the insurer of
everything likely to effect the judgment of the insurer,
however unimportant it may seem to him/her(the
proposer). Hence, the proposer should ensure that all
questions in the proposal form are correctly answered.
Any misrepresentation, non-disclosure of facts/
information which is material to acceptance of risk, or
fraudulent information in any document leading to the
acceptance of the risk will render the insurance contact
null and void. Hence it is quite important that the
policyholder and his dependents provide the correct and
full information to secure the precious benefits of the
insurance policy for his near and dear ones.

Importance of Age Admission:

The rate of premium payable on life insurance policy
varies with age. Granting of some plans and
consideration of proposals under non medical schemes
etc. depends on age. Hence prior age admission is a
must. Hence it is advisable to furnish standard proof of
age.

Modes of Payment of Premium and Days of

Grace :
Premiums, other than single premium, may be paid by
the policyholder to LIC in yearly, half-yearly, quarterly or
monthly installments. Policyholder are required to pay the
premiums to the Corporation on due dates. A grace
period of one month but not less than thirty days is
allowed for payment of yearly, half-yearly and quaterly
premiums, and fifteen days for payment of monthly
premiums.

Revival of Lapsed Policy:

When the premium is not paid within the days of grace
the policy lapses. It can, however, be revived within five
years from the date of lapse during the life time of the
assured but before the date of maturity, if applicable. The
Corporation offers three convenient schemes of revival
viz. Ordinary Revival Scheme, the Special Revival Scheme
and the Installment Revival Scheme for the convenience
of the policyholders.

Nomination/ Assignment Policy:

When the policy money becomes due for payment on the
death of the policyholder, it can be paid only to the
person who is legally entitled to give a valid discharge to
the Corporation. For quick settlement of claims, it is in
the interest of the policyholders to effect a nomination in
respect of their policy. Similarly, if the policy is assigned,
the assignee receives the claim amount as per rules. It
should be noted that an assignment of a policy
automatically cancels the existing nomination. Hence,
when such a policy is reassigned in favour of the
policyholder, it is necessary to make a fresh nomination
to delay in payment of the claim.
Change of Address and Transfer of Policy
Records:
As and when a policyholder desires a change of his
address in the Corporation’s records, intimation of such
change should be given to the Branch Office servicing his
policy. Policy Records can be transferred from the Branch
Office which services the policy to any other Branch
Office convenient to the policyholder. The correct address
and phone numbers facilitate better service and quicker
settlement of claims.

Care of Document and Loss of Policy:

The policy document(policy bond) is an evidence of the
contract between the insurer and the insured. It has to be
submitted to the Corporation at the time of loans/ claims
etc. loss of the Policy Document should be immediately
intimated to the Branch Office of the Corporation where it
is serviced.
Loan:
At present loans are granted on unencumbered policies
which are in force for the full sum assured and up to 85%
of the Surrender Value on policies which are paid up for a
reduced sum assured. The minimum amount for which a
loan can now be granted under a policy is Rs. 1,000/-. The
rate of interest charged at present varies from 9% to 12%
per annum payable half yearly depending upon the type
of plan. The term and conditions printed on the Policy
Bond reveal whether a particular policy is eligible for a
loan.

Claim by Maturity/ Installment Payment:

The Corporation strives to settle maturity claims on or
before the due date. Survival Benefit Payments up to Rs.
60,000/- under Money Back type Plans, barring a few
exceptions, are released without calling for original policy
documents and Discharge Voucher.

Death Claim:
In the event of the death of the life assured, the
claimant(the nominee, assignee, or the next of kin)
should immediately intimate the fact of such death to the
Branch Office where the policy is serviced, along with the
following particulars to help the Corporation to consider
the claim promptly.
a) policy number/s b) name of the life assured c) date
of death preferably with proof of death and d)claimant
relationship with the assured.
The claim is usually payable to the nominee/ assignee or
the legal successor as the case may be. However, if the
deceased policyholder has not nominated / assigned the
policy or if he/ she has not made the will regarding the
policy money, the claim is payable to the holder of a
Succession Certificate or some such evidence of title from
a court of law.
Satellite Offices
With a vision of providing easy access to its policyhoders,
LIC has launched 159 satellite offices. These satellite
offices, which are attached to the respective parent
branches, are basically an extension of the large parent
branches, for services to policy holders. Processing of
new proposals and collection of renewal premium are the
main functions of these offices.
 Sources of leakages:

1) SURRENDER OF POLICIES
WHAT IS THE SURRENDER VALUE?
The SV is a benefit to a policy holder when he terminates his insurance
contract with the insurer. It is termination of the policy contract during
its currency i.e. before the expiry of the term; the corporation offers to
pay the cash value available in cancellation of the policy contract. This
is known as the SV.
An insurer collects premium from his policyholder on the condition that
he will pay the policy money when the assured dies or the policy
matures. The insurer charges a level premium for the entire period of the
policy in such a way that in long run the office receives enough to pay
all the claims.
The fund collected from premiums is held for the benefit of all
policyholder & when one of them desires to discontinue his policy &
terminate his contract, it is fair that he should be entitled to a share of
this fund. The SV of policy represent such share.
GUARANTEED SURRENDER VALUE(GSV):
By virtue of sub section 113 of the insurance Act,1938 a policy of the
life insurance under which premium have been paid for at least 3
consecutive years will be eligible for SV, to which will be added the
cash value of the bonus.
The formula by means of which GSV is allowed in each case in
mentioned in the privileges on the back of the respective policy forms
/bond of the corporation.
SPECIAL SURRENDER VALUE (SSV):
Although as stated in the preceding section, where policy are eligible for
SV ,the SV’s in accordance with the formula mentioned on the back of
policy are guaranteed , in actual practice the corporation allows more
liberal SV’s which generally are much in excess of the GSV the method
calculation has been explained in the booklet on SV’s.
REASONS BEHIND THE SURRENDER OF POLICIES :
 1. When the policyholder requires money.
2. When the policy lapses.

MEASURES TAKEN TO CHECK SURRENDER OF POLICIES

To check the number of policies surrendered the divisional offices sends
letter to the branch office asking to take corrective measures to reduce
the number of policies surrendered & be cautions. The branch office
through its field force/agents explains the policyholder about the loss
which they will suffer when they surrender the policy.

2) LAPSATION OF POLICIES:
If premium under a policy is not paid within the days
of grace, the policy lapses subject to such privileges
as are applicable to it in terms of the policy contract.
DAY OF GRACE:
One month but not less than 30 days for payment of
yearly, half-yearly & quarterly premiums and 15 day
for monthly premiums. The grace period should be
reckoned from the day following the due date of
premium. If the last day of grace period as reckoned
above fall an a Sunday / public holiday, the grace
period should be reckoned

3) EARLY CLAIMS
CLAIMS
The operative clause of a life insurance policy states that the insurer will
pay to the policy holder or nominee or such other person as may have a
right to it, certain sums of money on the happening of specified event
when such event happen, the insurer has to fulfill the promise of making
the payments. A demand on the insurer to fulfill its promise, as per the
term & conditions of the policy is called a ‘claim’.
1)A claim on policy is the demand for performance of
the promise made by the insurer at the time of
making the contract.
Claims may arise because of the following reason:
1)survival up to the end of the policy term, which is the
date of maturity
2)survival up to a specified period during the term
3)death of life assured during the term
The following particulars are required to help the corporation to
consider the claim promply
policy number
Name of the life assured
Date of death
Claimant relationship with the assured

Early claims as a source of leakage

It is assumed that a person, who is accepted by the underwriter a good
for life insurance,is not likely to die within 2 years. Therefore ,when an
early claim occurs there is need to make sure that there was no attempt
to defraud .enquires are made to confirm, that there was no suppression
of information at time of proposal.
Therefore in case of early claims additional requirement are called for as
follows :
1)statement from the last medical attendant giving
details of last illness previous history & treatment.
2)Statement from hospital in case the deceased life
assured had received hospital treatment.
3)If death is due to accident/ unnatural causes,
certified copies of post mortem report police inquest
report etc.
4)Details of crematiom burial place time witness etc.
5)Statement from the employer about the leave, if any
taken by life assured on the ground of sickness.

All the enquiries add to cost &early claims means

payment to the policy holder without receiving
adequate premium. During the first 3 years of policy
contract the amount collected by the corporation is
spend as the expenses . after the third year the
corporation starts generating income from the
premium received in the fourth yaer. Therefore in
case of early claims the there is benefit to the policy
holder but loss to LIC.

REASON BEHIND EARLY CLAIMS:

1)Increasing rate of accidents resulting in high
death rate.
2)Hiding of any material proof while taking the
policy.
3)Poor criteria for seletion of life &non
standardize proof.
 4) EXPENSES OF THE
MANAGEMENT
It is essential that appropriate allowance be made for expenses while
calculating office premium as the premium are receivable over a long
term of year, it is important to estimate and forecast the future expenses
as accurately as possible, on the basis of the past experience. It is equally
important to maintain stringent economy and to watch closely that the
expenses do not exceed the provision or loading made in that respect in
the office premiums.
The premiums charged to the policyholder are usually level in amount
throughout the duration of the policies. on the hand,the expenses
incurred are not level in their incidence as when a policy is effected
there are heavy initial expenses in respect of:
 Large quantum of first year’s commission.

 Medical fees.

 Policy stamps.

 Development and underwriting expenses.

While at the time of renewal, the expenses are

much lighter and
Consist of:
1)Smaller commission on renewal premiums.
2)Expenses in connection with servicing of business.
This incidence of expenses has a bearing on the surrender value allowed
to the policyholder. The tabular rate or premium of the corporation are
calculated on quarterly basis for rs 1000 sum assured. Where the
frequency of the payment of premium is less or the sum assured under a
policy is large, the expenses incurred are comparatively low and
accordingly , some rebates are allowed on the tabular premium.
In any insurance company management expenses from an important part
of a revenue account first being policy expenditure. Expenses of
management means all charges wherever incurred whether directly or
indirectly and includes:
1)Commission including gratuity and term assurance to
agents.

2)Salaries including gratuity and corporation’s

contribution to provident fund.

3)Travelling expenses.

4)Auditor’s remuneration.

5)Fees to members of the corporation.

6)Medical fees.

7)Law charges.

8)Advertisement

9)Printing and stationery public relation & publicity

expenses.

10) Postage and telegram, money order charges

and receipt stamps.
 11) Policy stamps

12) Bank charges

13) Rent

14) Depreciation.

15) Repair to furniture.

16) Electricity charges

SOURCE OF INCOME :
PREMIUM:
An obvious result of charging a level of premium over a period of year
is that the premium is larger than necessary to cover the cost assurance
during the early years of a policy. The balance is therefore accumulated
to from a fund which could be drawn upon to meet a part of the heavy
cost of assurance during later years when the premium actually received
would be insufficient to cover that cost. Thus the uniform premium
method & long term nature of life assurance contract give rise to fund
which are not utilized immediately to pay claims. They are however ,
placed to the credit of policyholders as the life assurance fund to meet
future obligation & invested by the insurer so to yield the maximum rate
of interest consistent with optimum security. Therefore the investment
element viz. the yield obtained by investing the fund & the rate of
interest assumed in premium calculation, occupies as important place in
the financial aspects of a life assurance contract. Thus the insurer gets
huge fund in his profession to be utilized for getting maximum yield.
Collective investment of these large amount under the expert advise
rendered by finance & investment experts enables the insurers to secure
a much better yield considering the degree of security provided, than
would be possible for an individual to do. The individual policyholder is
saved from the trouble, inconvenience & risk of loss of capital involved
if he himself was to undertake investment of small funds. At the same
time he gets the benefits of the better yield earned by the insurer in the
form of a higher interest rate assumed in premium calculation or larger
bounses at the time of periodical valuations.
The premium rate will according to the rates of interest assumed in the
premium calculation; the higher the rate of interest assumed, the smaller
will the premium rates work out to & vice versa.
 PURPOSE OF THE STUDY

The study was conducted with a view to investigate the following areas:
 To know the various sources resulting in accounting
leakages in the organization .

 To study about these leakages &the reason resulting

in these leakages.

 To study about the impact of these leakages

&measures to control them to improve the
organization’s income surplus.

 To check the awareness of loan against policy

scheme & use it as a measure to control surrender of
policies.

 To study about which category of policyholder

surrender the policies the most.

 The study aims to reveal the opinion of the

respondent regarding these leakages & also to value
 their impressions &suggestion in away to contribute
to the organization surplus.

Research Methodology
Research Design
Exploratory Research: To formulate or explore the sources
resulting in accounting leakages and controlling them to
contribute to the organisation’s income.
Research Area
The research area is limited to LIC, Divisional Office of Ajmer city.

Tools for Data Collection

The selected respondents constitute the sample and the survey
conducted is Sample Survey.
Data is collected from two sources:
1. Primary Data- It is original and fresh in nature as it is
collected for the first time through structured Questionnaire
filled by 50 respondents (employees of LIC) in order to know
their impressions regarding the study topic. It is a form of
person to person interview.
2. Secondary Data: It is collected from statements prepared by
various departments of the organization.

Sample Design
In the study the Probability Sampling is used. Under this
technique every item of the universe has an equal chance of
inclusion in the sample. The sample selected is a true
representative of the total population i.e. it contains all the
characteristics of the population.

Sample Profile
Sample Size-50

1) GENDER WISE CLASSIFICATION OF THE

SAMPLE
No. of
Gender Persons
MALE 34
FEMALE 16
2) AGE WISE CLASSIFICATION OF THE SAMPLE
No. of
AGE Persons
30-45 38
45-60 12
3) CLASSIFICATION OF THE SAMPLE ON THE BASIS OF YEARS
OF SERVICE
No.
Year of Service of Persons
10-25 38
25-40 12
4) MAJOR SOURCE OF LEAKAGE

Type No.
SURRENDER 8
LAPSE 32
EARLY CLAIMS 10
MANAGEMENT EXPENSES 0
ANY OTHER (SPECIFY) 0
5) WHAT ACCORDING TO YOU IS THE IMPACT OF LEAKAGES ON THE ORGANIZATION
On no. o
IMPACT persons
Decrease in the organisation income
Public Image of the organization
Reduction in the employee benefit
Reduction in the bonus or profits to the customer
6) what is the main reason behind lapasation
of policies
financial crisis faced by policyholders 22
Incorrect selling to achieve the target 28
 lapsed policies are generally of policyholders belonging to which
7 category
Govt. salaried 4
3
Pvt. Salaried 6
1
Businessmen 0
professional 0

8 Revival of policies is generally in which period

during the lapse notice period 4
during the default notice period 6
4
during the final lapse notice period 0
Revenue Budget Review For The Period Ending 31/03/2008

S.NO. PARTICULAR BUDGET ACTUA %

S SANCTIONED(2002 L ADVERSE
) EXPEN- VARIANC
-SES E
1. Staff medical
rec. & other
benefits

2. T.E. cl 2
3. T.E. to Others
4. Carriage &
Freight
5. Postage, Tele.
Etc.
6. Legal &
Professional
Charges

7. Advertisement
& Publicity
Charges
 8. Interest and
Bank Charges
9. Other
Miscellaneous
Expenses.

List of all Management Expenses whose Variance is Adverse & Above 5%

Source: F & A Deptt.

Revenue Budget Review For The Period Ending 31/03/2004

S.NO. PARTICULARS BUDGET ACTUAL %

SANCTIONED EXPENSES ADVERSE
(2000) VARIANCE

1. Carriage &
Freight

2. Motor Car
Expenses

3. Postage , Tele.
etc

4. Telephone

5. Medical Fees

6. Receipt Stamps
7. Electricity
Charges

8. Other
Miscellaneous
Expenses

Source: F & A Deptt.

Revenue Budget Review For The Period Ending 31/03/2005

S.No. Particulars Budget Actual % Adverse

Sanctioned Expenses Expenses
(000)

1. T.E. To
Others

2. Carriage And
Freight

3. Motor Car
Expenses

4. Rents, Rates
& Taxes

5. Legal & Prof.

Charges

6. Interest &
Bank Charges
7. Receipt
Stamps

8. Electricity
Charges

9. Other
Miscellaneous
Expenses

Source: F & A Deptt.

Data For No. Of Policies Surrendered During The Period

2000-2005

Year Total Policies Increase/ Decrease

Surrendered
APR.2000-MAR.2001 10,136 -
APR.2001-MAR.2002 45,293 +35,157
APR.2002-MAR.2003 12,614 -32,679
APR.2003-MAR.2004 15,152 +2,538
APR.2004-MAR.2005 14,549 -603

Source: OIC/PS Deptt.

Chart Showing No. of Policies Surrendered During The Period 2000-2005

 50000 45,293

40000

30000
Policies
Surrendered
20000 15,152 14,549
12,614
10,136
10000

0
001 002 003 004 005
2 2 2 2 2
00- 01- 02- 03- 04-
20 20 20 20 20

Data For No. Of Policies Issued & Lapsed During The Period
2000-2005

Year No. of Policies No. of Policies Ratio of Policies

Issued Lapsed Lapsed to
Policies Issued
APR.2000- 1,44,352 24,316 16.84
MAR.2001
APR.2001- 1,25,128 25,492 20
MAR.2002
APR.2002- 1,74,309 30,957 17.76
MAR.2003
APR.2003- 1,80,754 36,112 19
MAR.2004
APR.2004- 2,05,414 39,950 18
MAR.2005
Major Findings Conclusions And Recommendations
Major Findings Drawn From Questionnaire

 Major Sources of Leakage.

 Lapse (64%)

 Impact of leakages on Organization.

 Decrease in Income (68%)

 Major reason behind lapse.

 Incorrect selling (56%)

 Generally Lapsed Policies are revived.

 Within six months by paying interest on premium (52%)

 Generally lapse policies belong to-

 Private salaried (72%)

 Generally policies are revived –

 During the final lapse notice period (80%)

 Percentage of lapse policies not revived-

 10-15% (48%)

 Generally policies are surrendered within the duration of –

 Below 5 years (44%)

 Major reason behind surrender of policies-

 Because of policyholder’s immediate need for money to meet his personal
need (64%)

 Generally policies are surrendered by-

 Private salaried (60%)

 76% of the respondents feel that the policyholder’s are aware of loan against
policy scheme

 Expenses which contribute as a major source of leakage-

  Other miscellaneous expenses (72%)

The recommendations are drawn as a result of suggestions given by the

respondents in the question no. 13 of the questionnaire. These suggestions are
listed below for different accounting leakages separately.

SUGGESTIONS OF THE RESPONDENTS

WHICH THEY FELT APPROPRIATE TO
CHECK SURRENDERS
• Surrender can be checked with the effort of branch
manager, development officer agents etc.

• Providing effective counseling & imparting adequate

knowledge to the policyholder about the loss which
they incur from surrender before they actually
surrender. Counseling means effective advice given
to the policyholder explaining them about the pros
&cons of surrender.

• Emphasis is laid by many respondents to create

awareness about loan against policy scheme &
sanction more no of loan on policies.

• To check number of surrender it is essential that the

agents fully explain the features of the particular
policy to the person concerned & sell the policies
keeping in the mind the requirement of the buyer
because today the marketing philosophy is
“customer is the king”.

• Policies with short duration &little amount of sum

assured must be initiated.

• The policies must be sold keeping in the mind the

financial position of the policyholder so as to check
the surrender of those policies where the
policyholder are unable to pay the amount of
renewal premium to continue the policy.

• Amendment of forfeiture regulations.

 SUGGESTIONS TO CHECK POLICY
LAPSES

 Emphasis is laid on discouraging incorrect selling

undertaken by the agents to achieve their desired
targets or over achieve.

 Some kind of relaxation/ rebate must be providing to

the policy holder which would encourage revival of
the lapsed policies.

 Imparting awareness about the pros & cons of lapse.

 Agents must be threatened to pay some penalty out

the commission already received in case the agent is
found defaulter i.e. when he tries to cheat the
customer or the organization in any case by giving
misguiding information or facts to the organization
about the policyholder or vice- versa.

 Regular follow-ups reminds & motivates the

policyholders to deposit the premium on time.

 The organization must continue with effective revival

campaigns regularly.

 Better services must be provided to the policyholders

with the help of customer care centre.
 SUGGESTIONS TO CHECK EARLY
CLAIMS

• Improvement in insurance plans i.e. fixing a

minimum no. of premiums installment to be paid
before taking the benefits of early claims.

• Early claims may result as due to non discloser of

fact by the policyholder. therefore it is required to
check all the material facts before issuing the
policy .

• Good selection of lives be emphasized.

• Undertaking strict investigation in case of early
claims so that the organization’s interest is
protected.

• Field personnel must be adequately trained in the

process of selection of lives & some penalty clause
should be made for field personnel in case of
improper selection of lives.

• Proper checking & filling of proposal forms.

• Proper & complete medical check up & other

formalities must be completed before issuing the
policy along with proper scrutiny.

• Check on underwriting.

• Some of the respondents hold a view that early

claims cannot be controlled.

SUGGESTIONS TO CHECK ADVERSE

MANAGEMENT EXPENSES
• Adverse expenses must be reduced & controlled.

• Some respondents feel that if any increase in

these expenses favour the growth of the
organization then they should be incurred.
Favoured if incurred to provide better services to
the policyholder to generate more business for
the organization.

• These can be checked through revenue budget

review & proper budgetary control.

• Control on the expenses of the development

officers if adverse.

• Preventing wastage of stationery, electricity

bills, phone bills etc.

• Payment of miscellaneous bill after proper

scrutiny.

• Development of feeling or sense of

belongingness among the employee.

• Control on unproductive wages & wastage of

organization’s resources.

• Proper utilization of space by renting the vacant

area.
 SUMMARY
The report reveals the efforts made to explore the sources of
accounting leakages at LICI with special reference to LIC D.O.,
Ajmer. Beyond that research study was conducted through a set
of structured questions which were filled by a sample of 50
respondents( employees of the organization). This study is an
effort made to know about the impressions of the respondents
regarding the various aspects of the project topic. It laid an
emphasis on the analysis of contribution of various sources to the
accounting leakages and the performance of the organization.
Thus the study is also an attempt to generate suggestions from
the respondents to control these leakages so to contribute to the
income of the organization. These can be implemented with the
joint efforts of Divisional Office along with its team of 20
branches.
The report consists of data collected from various departments to
make analysis of the present scenario. These leakages indicate
those heads or expenses which can sometimes be visualized or
some time not. One can estimate them approximately and check
them. We can estimate rough figures based on past experience
and create a reserve to meet out these unforeseen expenses. This
will help to plan the future action and minimize the adverse
effects. The respondents were free to give their suggestions
which they feel would prove helpful to control the adverse income
outflows the organization.
Thus, the conclusion drawn from the study is that these leakages
are controllable if due concern is given and efforts are made by
LIC as a team with the sense of belongingness and responsibility
among all its members. This action would surely prove beneficial
for the organization growth as “unity is strength”.
 ANNEXURES
 AGENT’S MANUAL,SURRENDER AND REVIVAL
MANUAL

 LIC DIARY

 INSURANCES INSTITUTE BOOKS

 INTERNET

 WEBSITE OF LIC- www.licindia.com

 ABBREVIATIONS
LICI-LIFE INSURANCE CORPORATION OF INDIA

BO-BRANCH OFFICE

DO-DIVISIONAL OFFICE

CRM-CUSTOMER RELATIONSHIP MANAGEMENT

P&IR-PERSONNEL & INDUSTRIAL RELATION

OIC-ORGANISATION IMPROVEMENT

PS-POLICY SERVICING

OS-OFFICE SERVICES

SSS-SALARY SAVING SCHEME

F&A-FINANCE & ACCOUNTS

SB-SURVIVAL BENEFIT

NB-NEW BUSINESS

DEPTT-DEPARTMENT
IT-INFORMATION TECHNOLOGY