Insurance Premiums Drop 18% from September 22
Starting from September 22, a significant change will occur in the Indian insurance landscape as health and term insurance premiums will be reduced by 18%. This reduction comes after the government's decision to eliminate GST on these insurance products, making them more affordable for individuals. For example, a health insurance policy that once cost Rs 30,000 will now only have that base price, allowing policyholders to save Rs 5,400.
This move primarily targets individual insurance covers, meaning that group insurance plans, such as those provided by employers, will still incur the 18% GST. This distinction emphasizes the government's intent to relieve financial burdens on households while encouraging individuals to purchase personal insurance policies.
According to industry experts, this change is a landmark step towards advancing insurance inclusion in India, addressing the needs of underserved populations. With the removal of GST on all individual life insurance policies—be it term plans, ULIPs, or endowments—and on individual health plans like family floaters, the government aims to deepen insurance penetration across the nation.
The insurance sector has shown promising growth, with health insurers collecting Rs 1.18 lakh crore in FY2025, reflecting an 8.98% increase. Life insurers collected Rs 3.97 lakh crore during the same period. However, while the removal of GST is beneficial for consumers, it poses challenges for insurers due to the input tax credit (ITC) situation.
Insurers are concerned about bearing a 2.5-3% burden due to the inability to claim ITC on the higher GST paid on various input services. Industry executives have pointed out that a complete exemption from GST, while beneficial for consumers, could lead to increased costs for insurers in the long run, as they may have to raise premiums to recover losses.
Experts suggest that a calibrated reduction in GST, rather than a complete exemption, would be more practical. A 5% GST rate could strike a balance between affordability for consumers and the operational viability for insurers. Clarity on how input tax credits will be treated is crucial for ensuring that the full benefits of this policy reach the end consumer.
