The plan, which has been cleared by the LIC board and is awaiting IRDA (Insurance Regulatory and Development Authority) approval, is likely to hit the market by the end of this month.

"These are the days of convergence in the financial sector and customers are increasingly looking beyond stand-alone products," says a senior LIC official overseeing the product in its final stages. Whether it is a sign of maturity in the insurance market or the prospect of competition in the wake of the opening up of the sector, a unit-linked insurance plan being devised by LIC could well turn out to be just what's needed to give the organisation a much-needed market-savvy image.

LIC's new product is quite like UTI's Unit-Linked Insurance Plan (ULIP)-though LIC officials insist they are working towards making their product more attractive than ULIP-where the insurance component is provided for by none other than LIC. The idea behind the new product is to invest the pool of policy holders' assets in all kinds of financial instruments-equity, bonds, government securities-and be able to offer a lucrative return to the policy holders, in addition to the regular risk cover.

And that's where the fundamental difference lies: The policy holders' benefits would be directly linked to the performance of the invested assets, unlike a conventional policy in which the benefits are fixed or determined by LIC through the bonus mechanism. "All this while, policy-holders had little idea about what ratio of their money went towards risk cover and how much towards savings. The new scheme will remove that ambiguity," say LIC officials.

But before investing the savings portion of the premium, LIC will keep aside a portion to meet mortality costs (premature payments in case of deaths), administrative expenses and other margins such as commissions.

UTI also pays a premium to LIC and then invests the balance in units, which earn an income that is reinvested every year. At the end of the plan tenure, the cash equivalent to the units and maturity bonus is paid to a customer.

In the case of LIC, the bulk of the investors' premium-the ratio is still to be finalised-will be invested in units only to be encashed at the time of exit.

One major way in which LIC is different from UTI is in that it will offer three investment options much along the pattern on which mutual funds operate. So there will be a Risk Fund investing in equities, a Secured Fund that will concentrate on the debt market and a Balanced Fund that will put its money in both.

Though indicative returns from each of these are still being worked out, the returns from the Secured Fund could well be a minimum guaranteed 8 per cent that is compounded annually, disclose officials. That does speak for LIC's hard-sell approach, considering the days of minimum assured returns over a long tenure are thought to be over.

So how does the scheme operate at the level of the policy-holder? He will be investing a fixed contribution every year for the entire plan period of 10 years. This will then be invested in units that will earn an income, depending on the way the corpus is deployed.

The market value of the units are to be periodically appraised and the bid/offer price accordingly adjusted. However, the allocation of the units is entirely notional in that they won't be tradeable. These are to be redeemed only on maturity at the prevailing values, which would incorporate all the reinvested income along with a certain maturity bonus.

The LIC trademark insurance to the policy is in the form of full payment to the policy holder even if death occurs one year after the scheme starts. In case of death within the first year of the policy run, 50 per cent of the sum assured will be paid.

LIC is tying up with various banks for the distribution of the new product. "With the new plan, we are responding to the market need for more integrated financial products. Bima Nivesh initiated the process and the unit linked insurance plan certainly won't be the end of it," say the insurance men.