The board of American International Group Inc was set to vote Sunday on a revised rescue package for the giant insurer that is expected to include an additional $30 billion commitment from the U.S. government, according to a source and media reports.

The agreement is likely to include more lenient terms on an existing government investment in AIG preferred shares and a lower interest rate on a $60 billion government credit line, a source familiar with the matter told Reuters on Saturday.

The equity commitment would give AIG the ability to issue preferred stock to the government later, the source said.

The London Interbank Offered Rate (Libor) floor on the interest rate AIG pays on the government's credit line is expected to be removed under the new terms, which would save the insurer about $1 billion a year, the source said.

AIG currently pays 3 percentage points above three-month Libor.

AIG will also give the U.S. Federal Reserve ownership stakes in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said.

The debt-to-equity swap would help AIG repay much of the roughly $40 billion it has drawn from its government credit line, The Wall Street Journal reported on Sunday.

AIG had been trying to sell Alico and a part of AIA in a bid to raise money to pay back the government.

AIG may also securitize some U.S. life insurance policies and give them to the government to further reduce its debt, the source said.

The company may securitize $5 billion to $10 billion under that plan, according to the Journal, which said AIG's board was meeting to consider the revised terms and was expected to approve them.

An AIG spokeswoman could not immediately be reached for comment.

(Editing by Ted Kerr)