GST Impact on Life Insurance Premium

What is GST (Goods and Services Tax)?

GST is an indirect tax that replaced older taxes like Service Tax and Value-added tax (VAT), creating a uniform tax for the country. It is a single stage, destination-based system where tax is added at each point of value creation. Built on the idea of one nation, one tax, GST is calculated on the supply of goods and services and has simplified compliance for businesses across India. GST has two parts, namely Central GST (CGST) and State GST (SGST). It is seen as a major post-independence tax reform, that aims to reduce overlaps and simplifying taxation in India.

What is GST on Life Insurance Premiums?

Goods and Services Tax (GST) was launched in India on July 1, 2017, bringing many indirect taxes such as service tax and VAT under one system. Life insurance premiums were earlier taxed at 18%. However, the GST Council has now announced that GST on life and health insurance premiums will be reduced to NIL from September 22, 2025. This means policyholders will not have to pay GST on their insurance premiums after this date.

Effect of GST on life insurance policy premiums

Earlier, GST on life insurance premiums was 18%. So, due to the GST on term insurance or any other policy type the policyholders had to pay a significant amount of additional cost while paying the premiums. However, now, GST on all life and health insurance products has been removed. These exemptions reduce the financial burden for policyholders. Insurance becomes cheaper and more accessible for a greater section of the population.

Key benefits of GST reduction on life insurance premiums

The recent exemption on life insurance premium GST rate brings several key benefits to policyholders. Here are the main advantages:
 

• Increased savings on life insurance premiums The removal of 18% GST rate for life insurance premiums significantly reduces the overall cost, allowing policyholders to save more.
• Improved accessibility of life insurance Lower premium amounts make life insurance policies more financially accessible to a broader segment of the population, including those who previously found them expensive.
• Encouragement for first-time policyholders The reduced cost structure may encourage individuals who have never purchased life insurance to consider investing in a policy for the first time.
• Enhanced coverage within the same budget With premiums now relatively lower, individuals may opt for policies with higher coverage or additional benefits without exceeding their existing budgets.
• Promoting nationwide life insurance access This reform supports the national objective of increasing life insurance penetration and ensuring that every citizen has access to basic financial protection.
• Wider reach in rural and underserved areas Reduced policy costs enable insurers to offer budget-friendly plans in rural and remote regions, extending financial security to individuals that were previously underserved.

Who should consider buying life insurance after GST reduction?

The removal of GST on life insurance premiums has made policies more reasonable for all. Here are the key groups who should consider buying life insurance now:
 

1. First-time buyers
   Individuals who delayed buying insurance due to high premium costs may now purchase a policy at a lower price, making it easier to get started.
2. Young professionals
   Early in their careers, young adults may now get lower premiums and secure long-term coverage at a reduced cost.
3. Middle-class families
   With reduced financial burden, families with dependants may now better protect their loved ones in case of any unfortunate event.
4. Self-employed and small business owners
   Those without employer-provided insurance may now avail personal life cover at a more budget-friendly rate.
5. Rural and low-income individuals
   The lower premium cost makes life insurance more accessible to people in rural or economically weaker sections, helping improve overall insurance coverage.
6. Senior citizens without cover
   Older individuals who missed buying insurance earlier may now consider basic life cover without the added GST cost. 
   
   

Key factors to consider before buying life insurance with new GST rates

With life insurance premiums becoming more accessible due to the removal of GST, it is the right time to consider buying a policy. However, choosing the right plan requires careful evaluation of a few important factors:
 

1. Understand your insurance needs
   Assess your family’s financial needs, existing liabilities, and future goals (like education or retirement) to decide how much life cover you require.
2. Compare plans and premiums
   With no GST added, premiums have become more cost effective. Still, compare different policies for their features, coverage, and pricing before making a decision.
3. Choose the right policy type
   Decide whether you need term insurance, endowment plans, ULIPs, or whole life policies based on your financial goals and risk appetite.
4. Look at claim settlement ratio
   Choose an insurer with a high claim settlement ratio to ensure your family gets the claim amount without hassle.
5. Check policy duration
   Make sure the policy term covers the years your dependaents will rely on your income or support.
6. Consider adding riders
   Use the savings from GST removal to add optional riders such as critical illness, accidental death, or waiver of premium for added protection.
7. Buy from trusted insurers
   Always purchase from licensed agents, official websites, or authoriszed insurers.
   Taking these factors into account will help you make a smart and informed choice when buying life insurance.

Conclusion

The removal of GST on life insurance premiums from September 22, 2025, offers a major financial relief to individuals across India looking to get an insurance. With premiums becoming more reasonable, life insurance is now more accessible to a wider population. This change promotes financial protection while also supporting increased insurance penetration, especially in rural and underserved areas, encouraging more individuals to secure their future with suitable coverage.
Visit www.tataaia.com to check our life insurance plans.