Life & Health Insurance Made Affordable: What the GST Reform Means for You

From Sept 22, 2025, GST is exempted on individual life and health insurance premiums, making coverage more affordable and transparent for policyholders.

Life & Health Insurance Made Affordable: What the GST Reform Means for You

GST exemption insurance

Insurance has long been a trusted way to secure financial protection, but premiums have always carried an added burden - Goods and Services Tax (GST). From September 22, 2025, this will change. The government has exempted individual life and health insurance premiums from levy of GST, a move expected to make insurance more affordable and transparent for millions of policyholders.

This is welcome news for both existing customers paying renewals and new buyers considering fresh coverage. The cost of premiums is set to reduce, and the overall affordability of protection products improves significantly.

What exactly is the GST update on insurance premiums?

Until now (upto September 21, 2025), individual life and health insurance premiums attracted 18% GST. For instance, a policy with an annual premium of Rs. 50,000 would actually cost Rs. 59,000 after tax (Rs. 50,000 base value of premium + Rs. 9,000 GST).

With the GST reform, GST has been completely waived off on the individual health and life insurance. This means premiums will be lower than earlier, though the reduction may not always equal full 18% of the GST component because of input tax credit (‘ITC’) adjustments. The change applies across categories such as:

Term life insurance
Health insurance policies
ULIPs (Unit Linked Insurance Plans)
Child and retirement insurance plans

How much do policyholders save?

The difference is still significant, though slightly moderated by ITC factors.

Base Premium	Earlier With GST (Approx.)	Expected With Zero GST	Estimated Yearly Savings
Rs. 25,000	~Rs. 29,500	~Rs. 26,500–Rs. 27,000	Rs. 2,500–Rs. 3,000
Rs. 50,000	~Rs. 59,000	~Rs. 53,000–Rs. 54,000	Rs. 5,000–Rs. 6,000
Rs. 1 lakh	~Rs. 1.18 lakh	~Rs. 1,06,000–Rs. 1,08,000	Rs. 10,000–Rs. 12,000

These are indicative savings, and the actual numbers may vary based on insurer adjustments. The key takeaway: premiums will reduce, but not by full 18% GST component.

What really decides your savings and how the benefit gets passed on

Since individual life and health insurance have been exempted under GST, ITC can no longer be claimed by the insurance companies on the expenses incurred to provide such services. Accordingly, the overall reduction may not equal full 18% GST component. Instead, the actual savings you see will depend on your insurer’s cost structures and how much of ITC benefit was previously factored into the insurance premiums.

So, while premiums are certain to come down, the extent of savings may vary - with each insurer likely to pass on the GST benefits to its customers.

Impact on different types of insurance

The effect of exemption of GST won’t be identical across products. Let’s see how different insurance categories may experience savings.

Term life insurance – Premiums reduce, making essential protection more affordable for individuals and families looking for long-term financial security.
Health insurance – Families enjoy lower premiums, improving accessibility to quality healthcare coverage at a more reasonable cost.
ULIPs – Marginal charge reductions boost appeal, helping long-term investors grow wealth while enjoying protection at a more competitive cost.
Child and retirement plans – Reduced premiums ease long-term planning, supporting parents and retirees in meeting their life goals more comfortably.

Key benefits of GST Reform (exemption of GST on individual life and health insurance)

Beyond product-specific impacts, exemption of GST on individual life and health insurance offers broad benefits. Here’s how the GST reform could improve affordability and awareness in the insurance sector.

Lower cost of protection – Even partial savings mean policyholders get essential coverage at reduced costs, increasing affordability across segments.
Simplified pricing – Premiums become easier to understand and calculate without the added complexity of GST, making policies more transparent.
Encouragement for wider adoption – Lower costs may push more households to purchase insurance, strengthening overall financial protection in society.
Tax benefits remain intact – Existing tax deductions under Section 80C and exemptions under 10(10D) continue, ensuring dual financial advantages.

Conclusion

The exemption of GST on life and health insurance is a positive step that reduces premium costs, though not by full 18% GST because of ITC adjustments. Policyholders-both new and existing-will still benefit from lower premiums, simpler pricing, and continued tax advantages.

From September 22, 2025 onwards, insurance becomes more affordable, giving individuals and families one more reason to secure their financial future.

Disclaimer: T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Co. Limited , Star Health & Allied Insurance Co. Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale.