GST exemption on life, health policies: Lock in lower term premiums now

Enhance sum insured on base health policy, buy add-on cover

The 56th Goods and Services Tax (GST) Council, chaired by Finance Minister Nirmala Sitharaman, has exempted all individual life and health insurance policies from GST, removing the earlier 18 per cent levy. The exemption will apply from September 22, 2025.

 

The move makes insurance more affordable, especially for first-time buyers. “It lowers the entry barrier for millions who remain uninsured. This is a behavioural nudge that will encourage families to prioritise protection,” says Ankit Agarwal, founder and chief executive officer, InsuranceDekho.

 

However, the benefit for policyholders may not equal the full 18 per cent. “Insurers now face the loss of input tax credit (ITC) on business expenses. While much of the benefit will be passed on, part of it may be retained to offset lost ITC,” says Rohit Boda, group managing director, J.B. Boda Group. He adds that some insurers may raise base premiums on new products slightly, subject to approval from the Insurance Regulatory and Development Authority of India (IRDAI), to offset this loss.

 

Life Insurance

 

Life cover is cheapest when purchased young. “For new customers, this is the right time to start early and lock in lower premiums while enjoying tax benefits,” says Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan.

 

Existing customers should check if their cover is adequate. “If their current life cover is not sufficient to meet their family’s financial goals, they should view this as an opportunity to increase coverage rather than enjoy lower premiums,” says Abhishek Kumar, Securities and Exchange Board of India (SEBI)-registered investment adviser and founder, SahajMoney.com.

 

Health Insurance

 

Experts estimate that policyholders can expect health premiums to fall by 10–12 per cent across individual, family floater, and senior citizen plans. 

“This development will make health insurance accessible to youngsters and provide a lot of relief to pensioners or senior citizens,” says Alok Agarwal, MD & CEO, Zurich Kotak General Insurance.

 

Medical inflation remains steep, at around 14 per cent. “Existing customers should use the reduction in premiums to increase their sum insured. Another smart move would be to add a super top-up or a critical illness plan to your health insurance portfolio, so that you are not caught off guard by a serious health emergency,” says Charu Pahuja, certified financial planner, group director, and chief operating officer, Wise Finserv. She advises against buying multiple overlapping policies or compromising on insurer quality (those with a poor claim settlement record) for minor savings.

 

Key takeaways

 

*  Expect a 10-12% decline in premiums

 

*  Insurers may retain a small portion of the cut to compensate for loss of input tax credit

 

*  Enhance term cover to ensure comprehensive protection for family

 

*  Raise health coverage to keep pace with 14% medical inflation

 

*  Supplement base health policy with a top-up, critical illness plan