In a decision celebrated as a major relief for countless policyholders, the government has declared the elimination of Goods and Services Tax (GST) on life and health insurance premiums. For years, individuals and families seeking essential coverage faced inflated bills due to GST, which varied from 12% on health insurance to 18% on life insurance products. This adjustment not only makes insurance more budget-friendly but may also motivate more Indians to secure coverage—a move that aligns with the nation’s larger objectives of financial stability and universal health coverage.
Why This Matters
Insurance transcends being merely a financial product—it serves as a safety net. Health insurance shields families from the escalating costs of medical care, while life insurance provides financial security in the event of an unexpected loss. However, the uptake of both life and health insurance in India has historically been low.
As per IRDAI statistics, only around 30% of Indians possess health insurance, and life insurance penetration is approximately 3% of GDP, significantly below global standards. For many, the additional GST on premiums served as a barrier, rendering policies less affordable. The removal of GST directly tackles this issue.
The Savings Explained
The pressing question for policyholders is—what will your actual savings be?
Let’s analyze a few examples:
Health Insurance Premium (₹25,000 annually):
Previously: ₹25,000 + 12% GST = ₹28,000
Now: ₹25,000 (no GST)
Savings: ₹3,000 per year
Family Floater Health Plan (₹40,000 annually):
Previously: ₹40,000 + 12% GST = ₹44,800
Now: ₹40,000
Savings: ₹4,800 per year
Term Life Insurance Premium (₹15,000 annually):
Previously: ₹15,000 + 18% GST = ₹17,700
Now: ₹15,000
Savings: ₹2,700 per year
ULIP (Unit Linked Insurance Plan) Premium (₹1,00,000 annually):
Previously: ₹1,00,000 + 18% GST = ₹1,18,000
Now: ₹1,00,000
Savings: ₹18,000 per year
Across households, these figures accumulate rapidly. Families holding multiple policies—such as health insurance for both parents and children, in addition to life insurance—could potentially save between ₹10,000 and ₹25,000 each year, all thanks to this reform.
Wider Benefits Beyond Just Savings
- Encouraging More People to Buy Insurance
With lower premiums, first-time buyers might find insurance more attainable. This could have a significant effect in semi-urban and rural regions, where affordability remains a major obstacle.
- Boosting Health Security
India allocates less than 3% of its GDP to healthcare, resulting in individuals being heavily reliant on out-of-pocket expenses. Increased health insurance coverage means fewer families will be driven into poverty due to medical costs.
- Reviving the Insurance Sector
The insurance market could experience an influx of new clients, enabling insurers to broaden their customer base while decreasing the number of uninsured households. Enhanced participation also contributes to a healthier risk pool, which may lead to further reductions in premiums over time.
- Support for the Middle Class
The middle class, frequently pressured by escalating costs of education, housing, and healthcare, stands to benefit the most. This demographic has always regarded insurance as essential yet financially burdensome. Now, premiums appear more manageable.
What Policyholders Should Do Next
If you currently possess a policy, your upcoming premium payment should reflect the lower cost. However, beyond celebrating the savings, consider these smart actions:
Revisit Your Coverage: With cheaper premiums, you might want to enhance your coverage with a higher sum insured or include riders like critical illness or accidental cover.
Consider Family Floaters: If you have been postponing comprehensive family health coverage, now is the ideal moment to purchase one.
Look at Long-Term Plans: For life insurance, securing a higher cover early could be more appealing without the GST burden increasing costs.
Don’t Delay Renewals: Renew promptly to take advantage of the reduced rates and prevent lapses.
A step towards Inclusion
The removal of GST on insurance premiums is more than just a tax tweak—it is a socially progressive reform. By reducing the financial burden, the government has effectively incentivized protection and savings, paving the way for greater financial inclusion.
For households, this means one thing: more value for every rupee spent on safeguarding health and life. In a country where unexpected medical bills remain a leading cause of debt, and where families often struggle after the loss of a breadwinner, this move strengthens the social fab
For years, insurance buyers have asked why essential products like health and life cover were taxed at rates similar to luxury items. The government’s decision to scrap GST on insurance answers that question and marks a decisive step toward making protection affordable and accessible.
Yes, your wallet feels lighter on premiums. But more importantly, the reform could ensure that millions more Indians are better prepared for life’s uncertainties.