GST on Term Insurance Premiums

What is GST on Term Insurance Premiums?

GST, or Goods and Services Tax, is an indirect tax levied on the supply of goods and services in India. Since its introduction in 2017, GST has been applicable to various financial services, including life and health insurance. In the case of term insurance, insurers charged GST on term insurance premium paid by policyholders, which increased the total cost of maintaining coverage.

For example, if your annual term insurance premium is ₹10,000, you previously paid ₹1,800 extra as GST, taking your total cost to ₹11,800. With GST on term insurance premiums now reduced to 0%, you only pay the base premium of ₹10,000. Over the policy term of a 20-year policy, this could mean a direct saving of ₹36,000, making long-term protection considerably more affordable for policyholders.

Why Was GST Removed from Term Insurance Premiums?

The government’s decision to remove GST on term insurance premiums was driven by several important reasons:

• It aims to make individual life insurance more affordable for families across different income groups by lowering the overall cost of premiums.

• The reform is intended to encourage wider adoption of insurance in India, where penetration levels are still significantly below global averages.

• It aligns with the broader national objective of financial inclusion and ensuring long-term social security for households.

• By eliminating GST rate on insurance premium, the government seeks to reduce the financial burden on policyholders, particularly at a time when household expenses are steadily rising.

• The move is also expected to boost trust and awareness around term insurance, motivating more individuals to safeguard their family’s future through adequate coverage.

What is the Impact of GST Removal on Policyholders?

The removal of GST from term insurance premiums brings multiple advantages for individuals and families:

• Lower Premium Costs: Policyholders can now save up to 18% on their premium payments, making individual life insurance lighter on the pocket.

• Greater Affordability: With reduced costs, families across income groups can opt for higher cover amounts without worrying about extra tax expenses.

• Encouragement for First-Time Buyers: Lower premiums make it easier for individuals purchasing insurance for the first time to secure adequate financial protection.

• Long-Term Savings: For long-duration policies, the cumulative savings over the years become significant, adding more value to the investment.

• Improved Financial Planning: The money saved from GST removal can be directed towards other essential goals such as children’s education, healthcare, or long-term investments.

What Does This Mean for the Life Insurance Industry?

While policyholders benefit directly, insurers face some challenges due to the loss of input tax credit. However, industry experts believe the reform will expand the market by attracting more customers, which will balance out the initial impact. In the long run, the removal of GST on term insurance premium is expected to increase insurance penetration in India, making the sector more robust and customer-centric.

Wrapping it Up!

The removal of GST on term insurance premiums is a welcome step that makes financial protection more accessible and affordable. Families now pay only the actual premium without additional tax, helping them secure higher coverage at the same cost. This reform not only reduces the burden on existing policyholders but also encourages more people to adopt term insurance as a vital tool for safeguarding their family’s future.