GST on Life and Health Insurance Slashed to Zero: GST Reforms Give a Big Boost for Financial Security

Life Insurance

With the GST reforms getting implemented from 22nd September of this year, life insurance will come down for buyers. This is applicable for all life insurance products, including:

• A term insurance plan is a pure protection plan to provide life cover
• An endowment plan, to combine the financial protection with savings for long-term
• Annuity and Pension plans, for retirement planning
• Unit Linked Insurance Plans (ULIPs) to combine financial protection with wealth creation

Earlier, premiums for all the above life insurance products were subject to an 18% GST (Goods and Services Tax), which contributed to an increase in cost for policy buyers. For example, if you had purchased INR 1 Cr term insurance cover for a base premium of INR 20,000. Your premium to be paid post GST application would be INR. 23,600. Now that the GST is being abolished, you would save INR 3,600 on the same coverage, as you are required to pay the base premium without any GST.

Health Insurance

The GST reform is similar for the health insurance policies, too. Zero GST on health insurance premiums brings down the burden of additional cost, as the policies were subject to 18% GST till now. Especially in today’s times of rising medical inflation, uncertainties, and lifestyle diseases, this GST reform brings a big relief to all middle-class people willing to protect their health. The zero GST, new reform applies to all the health insurance products, including:

• Individual health policies that provide a standalone cover to each person
• Family floater health insurance that provides an umbrella cover, covering all family members in a single plan.
• Senior citizen health insurance plans, designed to provide tailored coverage, get the big relief as affordability is one of the major concerns in these policies.
• Critical illness health insurance plans that provide specialised (fixed benefit) coverage against life-threatening illnesses like cancer, heart disease, etc.
• Top-up and Super top-up plans to enhance the coverage under the standard health insurance policy.

Note:

• Employer-provided group life and health insurance policies will remain under 18% GST, and employers cannot claim input tax credit on them.
• The GST on motor insurance plans remains at 18%. But since there is a change in the overall price of the vehicle and its IDV (Insured Declared Value), there could be a compensatory effect on the insurance as well.

Impact of GST Reforms on the Insurance Industry and Insurance Buyers

The reduction from 18% to 0% GST on life and health insurance plans can have a wide range of benefits and a positive impact on both the buyers and the industry. Key impact includes:

• Premium reduction with zero GST can help buyers save 18% on the premium. This will reduce the financial burden on Indian households to access the essential financial products.
• Encourages first-time life and health insurance buyers, making the policy affordable for middle-class families.
• Increases insurance penetration in India, pushing insurance adoption both in urban and rural India.
• Encourages preventive healthcare and financial preparedness for medical emergencies.
• Makes retirement planning better by contributing to the reduction of the premium burden.

Conclusion

To sum up, the GST reform in 2025 to scrap the 18% GST on life and health insurance policies and bring it down to zero is a game-changer for the insurance landscape and the overall financial ecosystem in India. Premium reduction with zero GST implementation contributes to more affordable policies, higher insurance penetration, and a huge boost to avail better financial protection at a lower cost.