CS Professional · Banking and Insurance - Laws and Practice

Life Insurance: formula sheet

Full chapter guide

Key formulas

Establishment rule: LIC is established from the date the Central Government appoints by notification in the Official Gazette; Section 3(1). The date is fixed by notification, not by the Act itself.
Name of the body: Life Insurance Corporation of India; Section 3(1) says the Corporation is 'called' this.
Incorporation features: Body corporate + perpetual succession + common seal; Section 3(2). Learn all three together.
Powers of the Corporation: Acquire, hold and dispose of property; sue and be sued by its name; Section 3(2). These powers are subject to the provisions of the Act.
Section 30, LIC Act, 1956: Exclusive privilege of life insurance business in India vests in the Corporation from the appointed day; Subject to what the Act expressly provides otherwise. Existing registrations under the Insurance Act cease to authorise life insurance business.
Appointed day: Appointed day = date on which the Corporation is established under section 3; This is the definition in section 2(1) of the LIC Act.
Section 30A, LIC Act, 1956: Exclusive privilege ceases on and from commencement of the IRDA Act, 1999; Inserted by Act 41 of 1999, w.e.f. 19-4-2000. The Corporation then carries on life insurance business under the Insurance Act, 1938.
2025 amendment to Section 30A: Insurance Act, 1938 applies to the Corporation by virtue of section 43 of the LIC Act; Words inserted by Act 40 of 2025, w.e.f. 5-2-2026.
Core power: LIC may reduce the amounts of insurance under life contracts of a transferor insurer; The text speaks of reducing amounts of insurance. Do not describe it as a power to increase or cancel.
Cut-off date for contracts: Contract entered into before 19 January 1956; Contracts made on or after this date are outside Section 14.
Factor to consider: Financial condition of the insurer on the appointed day; The insurer is one whose controlled business was transferred to and vested in LIC.
Proviso (safeguard): Reduction only by a scheme prepared by LIC and approved by the Central Government; No approved scheme means no valid reduction.
Manner and conditions: Such manner and subject to such conditions as the Corporation thinks fit; Discretion is wide but works within the approved scheme.
Scope of Section 28A: Profits from any business other than life insurance business, for a financial year; Applies only when profits accrue in that financial year. Life insurance surplus falls under Section 28.
Order of application: Profits → provision for reserves and other necessary or expedient matters → balance allocated to or reserved for members; Provision for reserves comes first. Only the balance goes to members.
Amendment: Earlier: paid to the Central Government. Now: allocated to or reserved for the members (Act 13 of 2021, s. 141, w.e.f. 30-6-2021); Contrast the old and new position if the question asks about the change.
Use of the allocated amount: Section 28(2): utilised for purposes the Board approves, including dividend, fully paid-up bonus shares, and crediting reserves; Section 28A profits and the members' share of surplus under Section 28 are used in the same way.

Quick revision

Section 3: LIC is established from a date notified by the Central Government in the Official Gazette.
LIC is a body corporate with perpetual succession and a common seal, and it can sue and be sued in its name.
Section 3 also lets LIC acquire, hold and dispose of property, subject to the Act.
Section 30: from the appointed day LIC had the exclusive privilege of life insurance business in India.
Under section 30, an insurer's registration certificate under the Insurance Act ceased to authorise life insurance business from the appointed day.
Section 30A: the exclusive privilege ceased on commencement of the IRDA Act, 1999.
After that, LIC carries on life insurance business in accordance with the Insurance Act, 1938.
Section 14: LIC may reduce amounts under contracts entered into before 19 January 1956 by insurers whose controlled business was transferred to it.
Section 14 reduction needs a scheme prepared by LIC and approved by the Central Government, and regard is had to the insurer's financial condition on the appointed day.
Section 28A: profits from non-life business, after provision for reserves and other needs, are allocated to or reserved for the members.
Section 28A used to say the balance was paid to the Central Government. This was replaced in 2021.
Section 61 of the Insurance Act: the Tribunal, not LIC, may reduce contracts where an insurer is in liquidation or insolvent.

Common mistakes

Saying LIC was incorporated under the Companies Act. Fix: Say LIC is a statutory corporation created by the LIC Act, 1956.
Saying the Act itself fixes the date LIC starts. Fix: Write that the date is appointed by Central Government notification in the Official Gazette.
Saying LIC still has a monopoly in life insurance. Fix: Always pair the two sections. Section 30 created the privilege, Section 30A ended it.
Applying the exclusive privilege to all insurance business. Fix: Section 30 speaks of life insurance business only. General insurance is outside it.
Saying LIC can modify any policy at any time. Fix: Limit it to pre-19 January 1956 contracts of transferor insurers and to reduction of amounts.
Forgetting the Central Government's approval. Fix: Always write that a scheme prepared by LIC and approved by the Central Government is a must.
Saying the balance of profits is still paid to the Central Government. Fix: Write that since 30-6-2021 the balance is allocated to or reserved for the members. Mention the old rule only as a contrast.
Applying Section 28A to life insurance surplus. Fix: Check the source first. Section 28A is only for business other than life insurance.

Exam tips

Write the Act name and 'Section 3' in the first line. Examiners look for the provision first.
Split your answer into sub-section (1) and sub-section (2). It keeps the answer neat.
In case-based questions, use the order provision, facts, conclusion.
Use the exact terms: body corporate, perpetual succession, common seal.
Do not add section numbers or figures you are not sure of.
Cite Section 30 and Section 30A together. Examiners reward the full before-and-after picture.
In case questions, check the date first. It decides which section governs.
Write the two-part effect of Section 30: reservation for LIC and cessation of existing registrations.