Insurance premiums shape how Indian families protect themselves from unexpected medical bills or loss of income. At present, health and life insurance premiums carry an 18% GST. The government is considering exempting these policies from GST under its new GST 2.0 reform plan. On the surface, it looks like direct relief: policyholders may see premiums fall by about 15%. Yet industry experts warn the real story is more complicated.
Finance expert Bell summed up the dilemma on Profit: “Families may save, but insurers could face higher costs if input tax credits vanish. That loss may find its way back into premiums later.”
So, will this reform bring real savings or just short-term cheer?
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How GST Exemption Could Affect Your Insurance Premium
- Immediate relief: If GST drops to zero, families renewing health or term policies after the implementation date may see premiums fall 12–15%.
- Hidden risk: Insurance companies will lose input tax credits on services they use, such as IT, marketing, and administration. Some may increase base premiums later to recover costs.
- Renewals vs new policies: The benefit will likely apply prospectively. That means new policies and renewals post-implementation date enjoy the tax cut, not older contracts.
Former CBIC chairman Shaha noted, “Every exemption distorts the flow of credit in GST. Consumers may cheer now, but the fine print decides the long-term impact.”
Why Policyholders Are Watching Closely
For many households, especially senior citizens, GST has made health insurance unaffordable. A 60-year-old paying ₹50,000 a year for health cover currently pays an extra ₹9,000 in tax. Removing GST directly reduces this burden.
Insurance Brokers Association, stressed: “Senior citizens who skipped health cover due to cost may now reconsider. Penetration will rise once affordability improves.”
Case in point: A Pune-based family renewing a ₹20 lakh floater policy shared that the GST component alone cost them more than a month’s EMI on their home loan. For them, the prospect of a cut feels like a breath of fresh air.
Will Insurers Pass on the Full Savings?
Insurance is priced using strict rules. IRDAI limits insurers to spending 30% of premiums on management. The rest goes toward claims and investments. So, while GST removal cuts immediate costs for policyholders, insurers still need to adjust for the loss of credits.
- Standalone health insurers may feel the pinch, as they rely entirely on health premiums. Experts predict a 4–5% rebound in premiums within a year.
- General insurers with diverse portfolios (motor, marine, home) may absorb the cost more easily.
That means consumers may see a dip now but should prepare for adjustments in the next financial year.
Global Perspective
Most countries tax insurance at modest rates instead of exempting it entirely.
- EU nations levy between 5% and 20%.
- South Africa and Mexico follow a similar range.
India’s proposed zero GST is bold and rare. Economists warn that while exemptions feel attractive, they disrupt the input tax chain and may reduce efficiency in the long run.
What It Means for Your Financial Planning
So, should you delay buying a policy until GST changes? Experts advise against it. Emergencies can’t wait. As points out: “Even if a cut is coming in November, staying uninsured for three months can be riskier than the tax saving.”
Practical steps for policyholders:
- Keep your existing cover active.
- Avoid locking into a 3-year plan until clarity emerges.
- Expect lower renewal insurance premiums after the cut takes effect.
Will Insurance Penetration Improve?
India’s insurance penetration is among the lowest in Asia. Removing GST could widen access, especially for senior citizens and low-income families. Yet experts say tax reform alone won’t solve the gap. Stronger awareness campaigns, simpler claim processes, and incentives in income tax filings could push penetration further.
As explained: “If insurance premium payments counted as additional tax deductions, more families would buy life and health cover. GST relief is one step, but broader reforms are needed.”
Read More: NPS Vatsalya Tax Benefits Announced: Unlock ₹50,000 Deduction for Your Child’s Future
Final Word
Insurance premiums are about more than numbers; they reflect how families balance risk and security. A GST cut could lighten the load immediately, but the longer story depends on how insurers absorb the change. Consumers should welcome lower costs while staying alert to adjustments down the road.
As Shaha put it bluntly, “The devil lies in the details.” For now, eyes are on the GST Council, where this reform may decide whether insurance truly becomes affordable protection for millions or a short-lived relief.
