The Life Insurance Act was established to nationalize, regulate and control all life insurance businesses or providers in India. The Life Insurance Corporation of India Act was passed in 1956 on June 18 by the Indian Parliament and came into force from July 1 of the same year. LIC, Life Insurance Corporation of India was set up according to the LIC Act and it began to function as a corporate from September 1 1956, and it is governed by the LIC Act. LIC took over 243 insurance companies that existed then in 1956 all under one roof. LIC is required to invest 75% of its total funds in State or Central Government sectors to guarantee returns to customers. At present, LIC is the largest insurance provider in India.
There are many sections listed in the LIC Act. We will see two interesting and important sections in that; section 28 and sections 37.
Section 28 of the LIC Act
This section gives the guidelines as to how to utilize any surplus from the life insurance transactions. It is said that LIC has to allocate or to reserve 95% of the surplus amount for its policyholders and the balance 5% for Government of India.
Hence, according to this section, policyholders are guaranteed yearly bonus with their with-profit plans. LIC is the only insurance provider with such a constitutional/ government backing and the policyholders’ money is completely safe for the next 35 years. This is not the case with other private providers.
Section 37 of the LIC Act
This section in simple terms provides a double guarantee for the money of the policyholders; one by Central Government of India and next by LIC. The sum assured and all/ any bonuses declared by the corporation are guaranteed in Cash by Central Government of India to all LIC policyholders.
This double guarantee is the biggest strength and USP for LIC policies that you will not get with any other insurance policy from private companies.