GST Removed from Life & Health Insurance: How Much Will Policyholders Actually Save?

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by

Himanshu
in ,

From Sept 22, 2025, no GST on life & health insurance premiums. Know how much you save, impact on policyholders, and renewal tips.

The recent announcement of the removal of Goods and Services Tax (GST) on life and health insurance premiums has created a wave of positivity among policyholders. From September 22, 2025, individuals will no longer pay the 18% GST that was previously levied on their insurance premiums. This move is part of the government’s broader tax reform aimed at simplifying the GST structure and encouraging more people to opt for insurance.

But the key question remains—how much will you actually gain from this decision? Let’s break it down in detail.

Why Is GST Removal Important?

Insurance is a financial safety net, but the additional GST had made it costlier for the average Indian. For example, on a ₹10,000 insurance premium, policyholders were paying ₹1,800 extra as tax. With the GST removed, that burden disappears, making insurance more affordable and accessible.

The objective is twofold:

  1. Boost Insurance Penetration – More people will be motivated to buy policies.
  2. Ease of Financial Planning – Policyholders will save more, directly reducing household expenses.

How Much Will You Save?

To understand the benefit, here’s a comparison:

Base Premium (₹)With 18% GST (Old System)Without GST (New System)Savings (₹)Savings (%)
5,0005,9005,00090018%
10,00011,80010,0001,80018%
15,00017,70015,0002,70018%
20,00023,60020,0003,60018%
25,00029,50025,0004,50018%

👉 On average, policyholders will save 18% on premiums compared to the earlier system.

Will Insurers Increase Premiums?

While the removal of GST is excellent news for consumers, insurers will no longer be able to claim Input Tax Credit (ITC) on their business expenses. This could push some companies to adjust their base premium slightly to cover costs.

  • Scenario 1: Full Benefit Passed On
    Customers enjoy the entire 18% savings.
  • Scenario 2: Partial Adjustment
    Base premium may rise marginally, reducing the net benefit to 15–16% savings.

However, most experts believe that insurers will absorb the cost and pass maximum benefit to policyholders, given the competitive insurance market.

Impact on Different Types of Policies

  1. Health Insurance
    • Families with high annual premiums stand to save thousands of rupees.
    • Senior citizens, who already pay higher premiums, will especially benefit.
  2. Life Insurance (Term Plans & Endowment)
    • Term insurance becomes more affordable, making financial protection easier for young earners.
    • Endowment and money-back plans will see lower annual outflows.
  3. Unit-Linked Insurance Plans (ULIPs)
    • Investment-linked premiums will also become cheaper, improving returns for investors.

Should You Renew or Wait?

  • If Your Renewal Falls Before September 22, 2025:
    Do not delay renewal just to save GST. Missing renewal can cause loss of benefits like no-claim bonuses or continuity advantages.
  • If Renewal or New Policy Is After September 22, 2025:
    You can safely wait and enjoy the GST-free premium rates.

Key Takeaways

  • Effective Date: GST removal applicable from 22nd September 2025.
  • Savings: Up to 18% on premiums; may slightly reduce if insurers adjust base cost.
  • Benefit for Families: Big relief for middle-class households paying high medical insurance premiums.
  • Market Impact: Expected to increase insurance penetration and boost financial security across India.

Conclusion

The removal of GST on life and health insurance premiums is a landmark move that directly benefits millions of Indians. Not only will it reduce the cost of securing financial protection, but it will also encourage more people to invest in health and life coverage. Even if insurers make minor adjustments, the overall impact remains highly positive for policyholders.

For anyone planning to buy or renew their insurance policy, this is the perfect time to relook at your coverage and ensure your family’s financial well-being.