Banking and Insurance - Laws and Practice · Life Insurance

Utilisation of Profits from Non-Life Insurance Business under Section 28A of the LIC Act

Updated 11 October 2026 · Fact-checked

Section 28A of the LIC Act, 1956 deals with profits from any business of the Corporation other than life insurance. After making provision for reserves and other necessary or expedient matters, the balance is allocated to or reserved for the members. Since 2021 it no longer goes to the Central Government. Section 28(2) then governs its use.

Understand Utilisation of Profits from Non-Life Insurance Business

The Life Insurance Corporation carries on life insurance business. It may also carry on other business. Section 28A covers profits from that other business. It does not cover life insurance surplus, which is dealt with by Section 28.

The rule has two steps. First, the Corporation makes provision for reserves and for other matters where provision is necessary or expedient. Second, the balance of the profits is allocated to or reserved for the members.

The wording changed in 2021. Earlier, the balance was paid to the Central Government. Act 13 of 2021, section 141, substituted the words with "allocated to or reserved for the members", effective 30-6-2021. This change is a likely exam point.

Section 28A links to Section 28(2). That sub-section says the profits allocated to or reserved for members under Section 28A, along with the remaining surplus allocated to members under Section 28, are utilised for purposes the Board approves. These include declaring or paying dividend, issuing fully paid-up bonus shares to members, and crediting reserves the Board may create for any purpose.

In short: the profit arises from non-life business, reserves are provided first, the balance goes to members, and the Board approves how it is used.

Key rules to remember

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.

How to solve Utilisation of Profits from Non-Life Insurance Business questions

Use this order for any question on Section 28A. It keeps your answer in the provision, analysis, conclusion format.

1Identify the source of the profit. Ask whether it comes from life insurance business or from some other business of the Corporation.
2If it is life insurance surplus, move to Section 28. If it is from any other business, apply Section 28A.
3State the rule: after provision for reserves and other necessary or expedient matters, the balance is allocated to or reserved for the members.
4Apply it to the facts. Deduct the provisions first, then identify the balance.
5Add the link to Section 28(2): the Board approves the use, such as dividend, bonus shares or crediting reserves.
6If the question mentions the Central Government, note that the old rule of payment to it was replaced in 2021.
7Conclude clearly: who gets the balance and who approves its use.

Quickest way: Three-line Section 28A answer

When to use it: Use this for short-note questions or when time is tight.

Line 1: Section 28A covers profits from any business other than life insurance business.
Line 2: After provision for reserves and other necessary or expedient matters, the balance is allocated to or reserved for the members. Earlier it was paid to the Central Government (changed in 2021).
Line 3: Under Section 28(2), the Board approves the use, including dividend, bonus shares and reserves.

Common mistakes in Utilisation of Profits from Non-Life Insurance Business

Saying the balance of profits is still paid to the Central Government.
Older notes and textbooks carry the pre-2021 wording.
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.
Sections 28 and 28A sit next to each other and look alike.
Fix: Check the source first. Section 28A is only for business other than life insurance.
Giving the entire profit to members.
Students skip the opening words of the section.
Fix: State that provision for reserves and other necessary or expedient matters is made first. Members get the balance.
Treating the use of the money as a free choice of management.
Students forget Section 28(2).
Fix: Say the Board approves the purposes, such as dividend, bonus shares and crediting reserves.
Applying a fixed percentage such as 90% to Section 28A profits.
The 90% policyholder share in Section 28 is confused with this section.
Fix: Section 28A has no percentage split. The 90% rule belongs to life insurance surplus under Section 28.

Worked examples

Example 1

LIC earns a profit from a business other than life insurance in a financial year. Advise how the profit is to be dealt with under the LIC Act, 1956.

Show the solution

Provision: Section 28A applies because the profit arises from business other than life insurance business.
Analysis: The Corporation first makes provision for reserves and other matters for which provision is necessary or expedient.
The balance of the profit is then allocated to or reserved for the members.
Under Section 28(2), the Board approves how the amount is used, for example dividend, fully paid-up bonus shares, or crediting reserves.

Answer: After provision for reserves and other necessary or expedient matters, the balance is allocated to or reserved for the members. The Board approves its use under Section 28(2).

Example 2

A student writes that under Section 28A the balance profit from non-life business is paid to the Central Government. Is this correct?

Show the solution

Provision: Section 28A originally provided for payment of the balance to the Central Government.
Analysis: Act 13 of 2021, section 141, substituted those words with "allocated to or reserved for the members", effective 30-6-2021.
Therefore the statement reflects the old law only.
Under the present text the balance goes to the members, subject to the Board's approval of use under Section 28(2).

Answer: No. Since 30-6-2021 the balance is allocated to or reserved for the members, not paid to the Central Government.

Exam tips

Open your answer by naming the source of profit. It shows the examiner you chose the right section.
Always mention the 2021 amendment. It is the most testable change in this section.
Link Section 28A with Section 28(2) to show how the money is finally used.
In a case-based question, show the order: provisions first, then the balance to members.
Do not quote percentages or figures that are not in the text.

Practice questions from Life Insurance

Utilisation of Profits from Non-Life Insurance Business: frequently asked questions

What does Section 28A of the LIC Act, 1956 say?

It says that if profits accrue in a financial year from any business other than life insurance, the balance after provision for reserves and other necessary or expedient matters is allocated to or reserved for the members.

Who received the balance profits before 2021?

The balance was paid to the Central Government. Act 13 of 2021 replaced this with allocation to or reserve for the members, effective 30-6-2021.

How are the profits allocated to members used?

Under Section 28(2), they are used for purposes the Board approves. These include declaring or paying dividend, issuing fully paid-up bonus shares and crediting reserves.

Is Section 28A about life insurance surplus?

No. Life insurance surplus is dealt with in Section 28. Section 28A applies only to profits from business other than life insurance.