GST relief aids insurers; HDFC Life, Star Health among winners, says JM Fin

While the market was anticipating a cut in GST rates for term and health policies, analysts at JM Financial said, the exemption on savings-oriented life products came as a positive surprise.

JM Financial on insurance setcor: Brokerage firm JM Financial said the Goods and Services Tax (GST) Council’s decision to exempt all individual life and health insurance policies from GST with effect from September 22, 2025, is a bigger-than-expected boost for the sector. 

 

While the market was anticipating a cut in GST rates for term and health policies, analysts said, the exemption on savings-oriented life products came as a positive surprise. The brokerage believes this will improve competitiveness against fixed deposits and mutual funds, benefiting insurers with a strong franchise in traditional savings such as Max Financial and HDFC Life . Star Health, meanwhile, emerges as the key beneficiary among standalone health insurers (SAHIs).

 

 

At 9:40 AM, shares of HDFC Life were trading 2.11 per cent higher at ₹793.25, while Star Health gained 2.68 per cent to ₹464.20. Max Financial, which had risen sharply in early trade, pared gains to trade 1.03 per cent lower at ₹1,599.90. In comparison, the BSE Sensex was up 0.77 per cent at 81,191. 

Life insurance: exemption strengthens traditional players

 

According to JM Financial, life insurance products were earlier subject to varying GST rates. Protection plans were taxed at 18 per cent for both new and renewal premiums, single-premium traditional policies at 1.8 per cent, and regular premium policies at 4.5 per cent in the first year and 2.25 per cent on renewals. Exemption from GST will make traditional savings plans more attractive by improving post-tax returns. For instance, a product with a 6 per cent return guarantee can now deliver 10-15 basis points (bps) higher internal rate of return (IRR).

 

Among life insurers, those with a higher share of traditional and protection business are expected to gain the most. LIC, Axis Max Life, and HDFC Life each had over 50 per cent of FY25 annualised premium equivalent (APE) coming from traditional products. Axis Max Life led in retail protection (10 per cent of APE), while LIC lagged with less than 1 per cent. JM Financial noted that these players are better positioned versus ICICI Prudential Life and SBI Life.

 

The brokerage added that unit-linked insurance plans (ULIPs) will see limited benefits as only management fees and charges were taxed at 18 per cent, not the investment component. 

Health insurance: Short-term ITC hit, long-term boost

 

On the health side, GST exemption applies to retail health policies, which were earlier taxed at 18 per cent. Retail health represented 15 per cent of overall industry gross direct premiums (GDPI) in FY25 but was much higher for SAHIs at 75 per cent. 

 

Star Health, with 93 per cent of its GDPI from retail, stands out as the biggest beneficiary.

 

JM Financial cautioned that in the near-term, insurers could face profitability pressure as they lose input tax credit (ITC) benefits. However, GST rate cuts on medicines and medical devices will help reduce claims costs, offsetting some of the impact. 

 

In the medium-term, the brokerage expects better affordability and lower effective costs to sustain the high-teens CAGR that retail health insurance has delivered over the past decade.

 

Sector view: Life insurers preferred

 

JM Financial continued to prefer life insurers over general insurers. Analysts noted that private players had already seen Y-T-D growth exceeding 10 per cent and margin expansion in Q1FY26. The GST exemption further boosts product appeal and allows insurers to strengthen their mix toward high-margin guaranteed return products.

 

At current valuations, JM Financial’s top pick is HDFC Life, trading at 2.2x FY27e embedded value per share (EVPS), with an estimated 18 per cent VNB CAGR between FY25-28.