“New GST Rules on Life and Health Insurance: How Policyholders Benefit from Lower Costs

A Major GST Changes in Insurance Taxes

The government has announced a significant change that will impact millions of policyholders: from September 22, 2025, GST will no longer be charged on individual life and health insurance premiums.

This move is expected to make life and health insurance more affordable and accessible, allowing households across India to save on their insurance costs. But the impact is different for new policy buyers and existing policyholders, so it’s important to understand what this means in practical terms.

How GST Worked on Premiums Before

Until September 21, 2025, individual life and health insurance premiums included an 18% GST.

For example:

• If your annual premium was ₹50,000, the GST added ₹9,000, making your total ₹59,000.

• If your annual premium was ₹1,00,000, the GST added ₹18,000, making your total ₹1,18,000.

After September 22, 2025, the GST is removed. This means your premium now stays closer to the base amount, providing immediate savings for everyone.

Impact on New Policies

If you are buying a new individual life or health insurance policy after the GST exemption, the benefits are straightforward:

Lower Premiums

Without the 18% GST, your premiums are lower right from the start. Using the examples above:

• ₹50,000 annual premium → now ₹50,000 instead of ₹59,000

• ₹1,00,000 annual premium → now ₹1,00,000 instead of ₹1,18,000

This makes insurance more affordable and easier for families to invest in.

Easier to Compare Policies

With GST removed, the price you see is the price you pay. This makes it easier to compare different insurance plans and choose one that fits your budget.

Encourages More People to Buy Insurance

Lower premiums are likely to attract more families, especially those who found insurance too expensive before. The GST exemption could be the nudge that encourages more people to take the first step toward financial protection.

Impact on Existing Policies

For those who already have insurance, the effect depends on how you pay your premiums.

Policies with Regular Installments

If you pay your premium in monthly, quarterly, or yearly installments, future payments after September 22, 2025, will no longer include GST. This means you save money on every upcoming payment.

Example:

• ₹50,000 annual premium paid quarterly → previously ₹14,750 per quarter (including GST) → now ₹12,500 per quarter

• ₹1,00,000 annual premium paid monthly → previously ₹9,833 per month (including GST) → now ₹8,333 per month

Single Premium Policies

If you paid the full premium before the exemption, you won’t get a refund for GST already paid. But future top-ups or additional coverage purchased after September 22, 2025, will benefit from the GST exemption.

Policy Renewals

Policies renewing after September 22, 2025, will have lower renewal premiums, just like new policies. This ensures ongoing cost savings for long-term policyholders.

Why the Savings May Not Be Exactly 18%

While it may seem like you save the full 18% GST, the actual reduction may vary due to Input Tax Credit (ITC).

Before the exemption, insurance companies could claim GST credit on their expenses, like technology, commissions, and office costs. After the GST exemption, insurers cannot claim ITC on these costs, which slightly increases their operational expenses.

So, the actual savings for policyholders is:

GST removed – extra cost for insurer = net savings

Even with this adjustment, premiums will still be lower than before, giving clear financial relief to consumers.

How Policyholders Can Benefit

Here’s how you can make the most of this change:

1. New Buyers: Buy policies now to enjoy lower premiums.

2. Existing Installment Policies: Check how your insurer applies the GST exemption to future payments.

3. Single Premium Policies: Consider top-ups or additional coverage after the exemption date.

4. Renewals: Align your policy renewal with the GST exemption for maximum savings.

These steps can help households save money and make insurance more affordable.

Long-Term Impact on the Insurance Market

The GST exemption on individual life & health insurance is likely to bring several changes:

• More People Buying Insurance: Lower premiums will attract more families.

• Simpler Pricing: Without GST, insurance costs are easier to understand.

• Operational Adjustments for Insurers: Companies may need to manage the loss of ITC, potentially leading to efficiency improvements.

Overall, the reform makes insurance more accessible, understandable, and affordable for all consumers.

Final Thoughts

The GST exemption on individual life and health insurance is a big win for consumers:

• New policyholders save immediately on premiums and enjoy simple pricing.

• Existing policyholders save on future installments and renewals.

• True savings may vary slightly due to insurer costs, but premiums will always be lower than before.

This is more than a tax change—it’s a step toward making financial protection affordable for millions of Indian households. Families now have a real opportunity to invest in life and health insurance without paying extra tax, securing their financial future in a cost-effective way.