Why was Lich created?
I think this is the real subtext of your question: why does Lich exist?
I think to understand Lich, you've got to put it in context: it's a flavor-first design from Alpha. Lich is, first and foremost, supposed to feel like lichdom in fantasy stories, particularly Dungeons & Dragons: undeath, power and immortality at a grave price.
One thing the card does well is establish a big theme for black: trading away your life for power in near-suicidal ways.
However, one of Alpha's biggest shortcomings is that it's all over the map about what cards are worth as a resource. On the one side, you've got cards like Ancestral Recall. On the other, you've got Lich.
So, Lich is an early attempt to do something pretty tricky in Magic, and it is, by most standards, a misfire (part of what hurts it now is errata which forces "cards" to "nontoken permanents," thereby cutting off many strategies for artificially inflating your permanent count). You can see attempts to refine this design in various cards like Nefarious Lich and Necropotence.
What can you do with Lich?
Nearly any card this weird is fodder for at least a few combos.
Lich turns life gain into cards. This is very pretty powerful because it's easier to gain 1 life than to draw a card, but any deck built around this as an enabler is going to be rather fragile.
Lich sets your life total to zero. You can try to abuse this with various cards, such as Mirror Universe.
Lich makes life loss that isn't damage meaningless to you. (Look at Ad Nauseam for instance). Note that you can't pay life, either, though.
Lich will kill its controller when it goes to the graveyard. You could try to set up some Donate-style combos with this, but it's pretty bad because you need other cards to ensure you don't die at zero life.
Is it good in a competitive environment?
But most Magic cards aren't.