Impact of the New Tax Regime on Insurance Sales in India: A Detailed Analysis

Sep 7, 2025

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The Government of India introduced the new tax regime with simplified tax slabs and reduced compliance, but it also removed most of the popular tax-saving deductions such as Section 80C, 80D, and others. While this has made filing easier, it has also changed how individuals view insurance and investment products.

This shift has directly impacted the life and health insurance sector, with declining policy sales and changes in consumer behavior. Let’s explore in detail.

📉 Decline in Insurance Sales After New Tax Regime

One of the biggest factors that earlier encouraged people to buy life insurance, health insurance, and ULIPs was the tax deduction benefit. With this incentive removed in the new regime, sales volumes have dropped significantly.

Decline in Policy Volumes

Period	Change in Sales Volume	Notes
Q1 FY26 vs Q1 FY25	–10.11% overall	LIC fell 14.8%, private insurers only 0.8% dip
FY25 vs FY24 (full year)	–7.4% total decline	Loss of tax-linked policies

🔄 Why Are Insurance Sales Falling?

Factor	Explanation
Loss of Tax Benefits	People no longer see insurance as a compulsory tax-saving tool.
Policy Renewal Drop	Many customers reconsider renewals without tax relief.
Market Sentiment	Insurance stocks dipped as investors worried about inflows.
Consumer Awareness	People prefer direct investments like mutual funds, FD, stocks.

🏦 GST Reforms and Their Effect on Insurance

Recently, the government made a major change in Goods and Services Tax (GST) on insurance.

Policy Type	Old GST Rate	New GST Rate	Impact
Individual Life Insurance	18%	0%	Premiums cheaper
Individual Health Insurance	18%	0%	Policy cost reduced by 12–15%
Group Policies	18%	18% (unchanged)	No impact

✅ Good for Customers: Policies become more affordable.
❌ Challenge for Insurers: Companies lose Input Tax Credit (ITC) benefits and may increase tariffs by 3–5% to manage costs.

📊 Market Sentiment – Insurance Stocks

After the new tax regime became default, major life insurance company shares like SBI Life, HDFC Life, and ICICI Prudential witnessed heavy selling. Investors feared that reduced demand for tax-saving policies would slow premium growth.

🧩 What This Means for You

If you are a policyholder or planning to buy insurance:

Don’t buy only for tax saving. Focus on real protection—life, health, and retirement needs.
Compare premiums post-GST cut. Many policies are cheaper now.
Expect small price adjustments. Insurers may increase tariffs due to ITC reversal.
Diversify investments. Use mutual funds, PPF, NPS for long-term wealth building.

📌 Conclusion

The new tax regime has reduced insurance sales in India, as tax-saving was a key driver earlier. While customers benefit from zero GST on premiums, insurers face higher operational costs.

For buyers → Insurance is still essential, but should be purchased for protection, not tax breaks.
For insurers → Focus will shift from tax benefit marketing to real need-based selling.

👉 Bottom line: Insurance in India is entering a transition phase. The sales numbers may dip in the short term, but genuine demand for protection will continue to sustain the sector.