Difference between Surplus and Profit

Most of us can’t differentiate among profit and surplus though there are some certain difference between surplus and profit, which are described in detail below:

Difference between surplus and profit

As the surplus is a cash sum, being the excess of the funds over the net liabilities brought out by the valuation, the surplus is not the same the same thing as profits.

After having sent some of the surplus to these various funds, what the insurer is left with may be called profit.

Thus, to estimate profit, surplus is calculated. The difference between the two arises on account of provisions for various funds.

After setting aside certain portion of surplus to various funds, the profit is to be distributed. The supreme consideration for this distribution is legal requirements.

For example: Section 28 of the LIC Act, 1956 requires that not less than 95 per cent of the surplus of the corporation shall be allocated to or reserved for the policy-holders of the corporation.

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