American International Group Inc may securitize some U.S. life insurance policies and have the interest rate on a government loan lowered, as talks continue to help the insurer deal with its financial problems, a source familiar with the matter said on Friday.

The possibilities for relief to AIG, once the world's largest insurer by market value, include eliminating the London Interbank Offered Rate floor on the interest rate it pays on the government's $60 billion credit line. The company currently pays 3 percentage points above Libor.

Discussions also include the possibility of easing the dividend on the government's preferred investment, although talks appeared to be tending away from eliminating it altogether, the source said.

A wide variety of options are still under discussion, the source said, adding that the situation was still in a flux as negotiators try to meet a Monday deadline for AIG to post its results.

(Reporting by Paritosh Bansal)

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