Team, SKM
The announcement of zero GST on life insurance premiums has created quite a buzz. It sounds like a sweeping relief for policyholders, but the actual impact depends on the type of policy you have. While the change is positive, the savings are not equal across all products. In fact, the biggest advantage goes to term insurance.
Why Premiums on Most Life Insurance Plans Won’t Fall Much
Most life insurance policies in India are ULIPs (Unit Linked Insurance Plans) or endowment plans, which combine protection with savings or investment. These premiums are split into two portions:
- Risk Cover (Insurance Service): The part that provides life protection.
- Savings or Investment Portion: The part that builds wealth through savings or investments.
Here’s the details of many misses:
- Earlier: GST at 18% applied only on the risk cover portion, which is usually a small fraction of the overall premium.
- Now: With GST removed, that part becomes tax-free. But since GST was charged only on the smaller risk cover portion, the overall saving for the customer is quite limited.
For example, let’s assume you pay ₹50,000 annually for your insurance policy.
ULIP (Unit Linked Insurance Plan)
- Out of ₹50,000, only around ₹5,000 goes toward risk cover.
- Earlier: GST @18% on this part = ₹900 extra.
- Now: With GST removed, you save ₹900 annually.
Helpful, but not a big impact compared to the total premium.
Term Insurance: Where the Real Impact is
Term insurance works differently. Unlike ULIPs or endowment plans, it is pure protection – there is no savings or investment portion. This means the entire premium goes towards risk cover.
- Earlier: Every rupee of a term plan attracted 18% GST.
- Now: With GST scrapped, the whole premium becomes GST-free.
This leads to a direct reduction in costs. For example, Term Insurance
- Here, the entire ₹50,000 goes toward risk cover.
- Earlier: GST @18% applied to the full amount = ₹9,000 extra.
- Now: With GST removed, you save ₹9,000 annually.
Why This Matters
This reform makes the difference crystal clear. Using the same ₹50,000 annual premium:
- In ULIP, the saving is just ₹900.
- In a Term Insurance plan, the saving jumps to ₹9,000.
That’s a direct 18% saving, which is 10 times higher than ULIP.
For families, this means term insurance is not only cheaper but also more attractive. Households can now afford higher coverage without stretching their budgets, making financial protection easier to achieve.
Final Word
The buzz is all about “Life insurance is GST-free now.” Sounds big, right? But here’s the catch – the real winner is term insurance.
For most life insurance products, the savings are tiny because GST was only charged on a small piece of the premium. But with term plans, the impact is huge costs drop directly, making pure protection far more affordable for families.
And maybe that’s the real victory: shifting focus back to what insurance truly stands for- protecting families.