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CS Professional · Banking and Insurance - Laws and Practice

Life Insurance Chapter: LIC Act Study Guide

This chapter covers how the Life Insurance Corporation Act, 1956 set up LIC, gave it an exclusive privilege that later ended, let it reduce old policy amounts, and directs profits from non-life business. Learn each rule with its conditions, then apply it to facts: provision, analysis, conclusion.

What this chapter covers

This chapter sits in the Insurance Laws half of Paper 7.4, Banking and Insurance - Laws and Practice. It is built around the Life Insurance Corporation Act, 1956, read together with the Insurance Act, 1938. You study how LIC was established, what exclusive right it held, how it could change old contracts, and what happens to profits from non-life business.

The topics tell one story. LIC was created as a body corporate under section 3. Section 30 gave it the exclusive privilege of life insurance business from the appointed day. Section 14 let it reduce amounts under older contracts of transferred insurers, under a scheme approved by the Central Government. Section 28A then deals with profits from business other than life insurance.

The chapter links to the rest of the paper through the Insurance Act, 1938. Section 30A says the exclusive privilege ceased on the commencement of the IRDA Act, 1999, and LIC now carries on life insurance business in line with the Insurance Act, 1938. Sections 56 and 61 of that Act deal with life funds and reducing contracts when an insurer is insolvent. You can use them to contrast with section 14 of the LIC Act. Always read the current text, because amendments (for example by Act 40 of 2025) changed some provisions.

Insurance Laws carry 50 marks of the 100 in this paper, and this chapter is short, section-based and predictable. That makes it good value for time. The paper is written and case-based, so examiners can give a fact pattern, such as an old insurer's policy or LIC's non-life profit, and ask you to quote the provision, apply it and conclude. If you know the exact conditions, you can score steadily here. Students who learn only the headings lose marks on conditions, such as the need for an approved scheme.

Life Insurance: topics in the order to study them

  1. 1Establishment and Incorporation of LICStart with section 3, since it tells you what LIC is: a body corporate with perpetual succession, a common seal and the power to sue and be sued.
  2. 2Exclusive Privilege of Life Insurance BusinessNext comes section 30, then section 30A, which ended the privilege. Learn both together to see the change over time.
  3. 3Power to Modify Contracts of Life InsuranceSection 14 builds on the transfer of insurers' business to LIC. Study it after the privilege, then compare it with sections 56 and 61 of the Insurance Act, 1938.
  4. 4Utilisation of Profits from Non-Life Insurance BusinessSection 28A is last. Read it with section 28 on surplus from life business so you do not mix the two.

How to prepare Life Insurance

This chapter is statute-driven, so your preparation should be built on the text of the sections and on practising short, structured answers.

  1. Read sections 3, 14, 28, 28A, 30 and 30A of the LIC Act in the official text, one at a time, and mark the conditions in each.
  2. Write a one-line summary of each section in your own words, then check it against the text.
  3. Make a timeline: appointed day, exclusive privilege under section 30, and the end of the privilege under section 30A. Note that section 30A was amended by Act 40 of 2025.
  4. Compare section 14 of the LIC Act with sections 56 and 61 of the Insurance Act, 1938: who acts, when, and what approval is needed.
  5. Practise three or four short fact-based questions. Use the format: provision, analysis of facts, conclusion.
  6. Keep a cover sheet of key words, such as body corporate, scheme approved by the Central Government and appointed day, and revise it weekly.

Common mistakes in Life Insurance

  • Writing that LIC still has the exclusive privilege of life insurance business.

    Fix: Always pair the two sections. State that the privilege began under section 30 and ceased under section 30A.

  • Saying LIC can reduce any policy amount at will under section 14.

    Fix: State all conditions: contracts made before 19 January 1956, a transferred insurer, regard to its financial condition, and a scheme approved by the Central Government.

  • Confusing section 14 of the LIC Act with section 61 of the Insurance Act, 1938.

    Fix: Remember who acts. Under section 14 it is LIC, under an approved scheme. Under section 61 it is the Tribunal, on an application, where an insurer is in liquidation or insolvent.

  • Stating that non-life profits go to the Central Government under section 28A.

    Fix: Use the current text: the balance, after provision for reserves, is allocated to or reserved for the members. Mention the earlier position only as a contrast.

  • Mixing up section 28 (surplus from life insurance business) and section 28A (profits from other business).

    Fix: Tie section 28 to surplus from investigation and policyholders, and section 28A to profits from business other than life insurance.

  • Giving a theory answer to a case-based question.

    Fix: Quote the provision, apply it to the dates and parties in the facts, and end with a clear conclusion.

Last-day revision: Life Insurance

  • 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.

Life Insurance practice questions

Life Insurance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Life Insurance: frequently asked questions

What is the most important section in the Life Insurance chapter?

Sections 30 and 30A work as a pair and are easy to test, since one gave the exclusive privilege and the other ended it. Section 14 is also important because it has several conditions. Learn all of them with their exact wording.

Does LIC still have an exclusive privilege to do life insurance business?

No. Section 30A says the exclusive privilege ceased on and from the commencement of the Insurance Regulatory and Development Authority Act, 1999. LIC now carries on life insurance business in accordance with the Insurance Act, 1938.

When can LIC reduce the amount of insurance under a policy?

Under section 14, LIC may reduce amounts under contracts made before 19 January 1956 by an insurer whose controlled business was transferred to LIC. It must have regard to the insurer's financial condition on the appointed day. It can act only under a scheme approved by the Central Government.

How is section 14 of the LIC Act different from section 61 of the Insurance Act, 1938?

Section 14 gives the power to LIC, under an approved scheme, for contracts of transferred insurers. Section 61 gives the Tribunal the power to reduce contracts where an insurer is in liquidation or insolvent. An application can be made by the liquidator, the company, a policyholder or the Authority.

Where do profits from non-life business go under the LIC Act?

Under section 28A, after provision for reserves and other necessary matters, the balance is allocated to or reserved for the members. Older wording said it was paid to the Central Government, so check that you are using the current text.