Change in the GST Rate on Individual Health Insurance and all Life Insurance products
The GST Council has made a big change, GST on Individual Health Insurance and GST Council has made a big change, GST on Individual Health Insurance and all Life Insurance products (both Term & Savings) all Life Insurance products (both Term & Savings) has been cut from 18% to NIL (not Zero), effective 22nd September.
Why NIL not Zero?
When GST is Zero rated, companies can still claim Input Tax Credit (ITC) for GST paid on their expenses (advertising, IT, rentals, agent commission, etc). When GST is NIL rated, insurers cannot charge GST to customers and cannot claim ITC. This means while premiums look cheaper for customers, insurers lose a cost benefit they were earlier enjoying.
Impact for Customers
Health & Term Insurance: Premiums will become 18% cheaper if insurers pass on the full benefit. Ex: A term premium of ₹10,000 earlier cost ₹11,800 with GST. Now it will be only ₹10,000.
Life Savings Products: Here GST was never charged on the full premium. only a portion of the premium was taxable:
25% of the 1st year premium was subject to 18% GST → effective GST = 4.5% of premium
12.5% of renewal premium was subject to 18% GST → effective GST = 2.25% of premium
Now, with GST reduced to NIL, customers will save 4.5% in year one and 2.25% from year two onwards. Ex: On ₹1,00,000 premium, first-year saving is ₹4,500 and in subsequent years ₹2,250.
Impact for Insurers
Insurance demand won’t suddenly surge just because prices fell, insurance is a push product, not a pull product. Can be a dry for remaining 18 days.
The bigger challenge is loss of ITC. Current product pricing assumes insurers can claim ITC on costs. Without that, their margins shrink.
In the short run, they may pass on the full GST reduction to customers. In the medium term, they may:
• Increase the base price of premiums to offset ITC loss
Standalone Health Insurers (SAHIs): Likely to face more pressure since they can’t spread costs across products.
Multi line General Insurers: Better positioned, as they can allocate costs to group health, motor, fire, etc.
Life Insurers: Worst impacted, because they lose ITC across all their business lines without any diversification cushion. (Hope is GTL)
Final Takeaway
For customers, this is short term good news with premiums visibly lower. For insurers, it’s a mixed bag, while policies look more attractive to customers, the loss of ITC may force insurers to tweak pricing.
Soin one line: customers gain immediately, but insurers need to rework margins carefully to sustain profitability.
