GST cut on health insurance: Policyholders may use free-look period option

It allows customers to review and cancel the insurance policy within 30 days of its purchase

With the goods and services tax (GST) on individual health and life insurance premiums now fully exempted, insurance experts believe that policyholders are likely to exercise their ‘free look period’ option to postpone purchase of insurance policies to get the advantage of nil GST on premiums.

 

‘Free look period’ in insurance policies allows policyholders to review and cancel the policy within 30 days of its purchase.

 

The new GST rates will be applicable from September 22.

 

“There is a possibility that policyholders are likely to exercise the free look period and come back and buy policies after September 22. People are aware of free look and that happens anyways. GST in protection business is around 18 per cent and it is only 5-6 per cent of the industry. The rest of the segment has only around 4-5 per cent GST and people are not likely to use the free look period for these policies,” said an executive at a life insurance company.

 

The GST Council, earlier this week, exempted GST on all individual life insurance policies — including term life, unit-linked (Ulip), and endowment policies, as well as reinsurance — in a move aimed at making insurance more affordable and expanding coverage across the nation.

 

Similarly, all individual health insurance policies--including family floater and senior citizen plans--and their reinsurance have been exempted to widen insurance penetration.

 

“Customers are likely to use the ‘free look period’ option to avail GST benefits. However, it is not advisable because cancellation of policies during the period is not an easy exercise”, said Narendra Bharindwal, president, Insurance Brokers Association of India (IBAI).

 

Bharindwal explained that policyholders will have to drop a mail and the insurance company will try to reach customers and persuade them to retain it.

 

In case of health insurance policies, if the person affected by any condition approaches the insurance company after September 22, it will be considered as an existing condition. So, using the free look period will be a penny wise, pound foolish step, he said.

 

On the other hand, cofounder and chief executive officer of Quickinsure Anand Shrikhande believes that people can use the free look period, but they are not likely to misuse it. Also, it is not wise to opt for free look period benefits looking for GST benefits in insurance as it is still not certain on how the premiums are likely to look after the rate rationalisation.