One of the wisest and most caring things you can do for your family is buy insurance. It gives you peace of mind in knowing that whatever happens to you unexpectedly, your loved ones are safe. But have you ever closely looked at your insurance premium and found a small extra charge labelled as GST?
The additional amount is GST. GST is levied on nearly everything we purchase, from groceries to mobile phones, and even extends to services such as insurance. But what exactly is GST on term insurance? Why do you pay it? And what changes are expected in 2025? Let’s break it down in simple words.
What Are Term Insurance Plans?
First, before GST, let’s understand what term insurance plans are. A term insurance plan is the simplest and most affordable type of life insurance. You pay a small premium every month or year. In return, the insurance company promises to pay your family a large sum of money if something happens to you during the policy term.
For instance, you pay ₹10,000 a year for a cover of ₹1 crore. If you die during the policy period, ₹1 crore is the amount your family will receive as the death benefit. Term insurance gives only protection, without any savings or maturity value. That is why it’s cheaper than the rest of the life insurance policies. It’s chosen because it gives huge protection at a low cost.
What is GST on term insurance?
The GST payable on term insurance is merely a tax you pay to the government on your insurance premium and does not go to the insurance company. Currently, the GST rate in India on insurance services is 18%. That means if your premium is ₹10,000, the GST adds another ₹1,800. So, your total cost becomes ₹11,800.
This is usually not noticed by many people due to the fact that insurance companies already include this in the final premium. But it’s good to know that part of what you pay is tax.
Why is GST charged on term insurance plans?
Some people wonder, if insurance is about protection and not luxury, why should it be taxed at all? The answer lies in how the government classifies insurance. Under the Goods and Services Tax Act, insurance is treated as a service. Just like banking or mobile recharge services, it falls under the same tax category.
Several taxes, like service tax and education cess, existed before GST in 2017. The system of GST gathered them up into a single tax. So, instead of multiple charges, we have just one GST.
GST on Term Insurance Before 2025
Since 2017, the rate of GST on insurance has been 18%. Most types of life insurance are charged, including:
- Term insurance plans
- Unit-linked insurance plans are commonly known as ULIPs.
- Endowment and money-back policies
For instance, in the case of term insurance, this 18% is charged on your premium and not on the death benefit. Thus, if one’s yearly premium costs ₹15,000, GST adds ₹2,700, making it ₹17,700 payable. The good thing is that the money your family receives after your death, the claim amount, is tax-free under Section 10(10D) of the Income Tax Act.
What’s Changing in 2025?
Now, let’s speak about what is expected to change in 2025 regarding GST on term insurance.
The government has been deliberating with the insurance industry on how to make insurance more affordable for all. A few updates are in the talks that may get introduced in the near future.
1. Possible Reduction in GST Rate
One of the key changes expected is a reduction in GST for pure protection plans. Right now, the GST adds 18% to your premium, hence making term insurance slightly expensive to many. The government can bring it down to 12% or 10% to encourage more people to insure. The move would make term insurance cheaper and help more Indian families get financial protection.
2. Online Policy Benefits
In 2025, you will see more benefits when buying your policy online. The insurance company saves on paperwork and agent fees when you buy digitally. So, they might offer small discounts to balance out the GST effect. For instance, if you purchase a policy directly from the company’s website, your premium may be a little lower even after adding GST.
3. Better Premium Breakup
Other improvements that may happen in 2025 are a more prominent premium breakup.
Insurers may start showing the GST part separately in your premium receipts.
So, instead of seeing just one total premium, you may see:
- Base premium amount
- GST added
- Final amount payable
This transparency will help the customers understand how much of their payment is tax and how much goes toward insurance.
How Does GST Affect Your Premium?
The GST percentage directly affects the total premium you pay. Let’s say your base premium is ₹10,000. With an 18% GST, you pay ₹11,800. If GST drops to 12%, your total becomes ₹11,200. That’s a saving of ₹600 every year. The higher your cover or premium, the more you’ll save on a reduced GST rate. Any change in the GST rate can make a visible difference, particularly in long-term policies.
Will GST Affect Your Tax Benefits?
The good news: the GST does not affect your tax benefits in any manner. You can claim tax deduction on your full premium amount, including GST, under Section 80C of the Income Tax Act, with the limit being ₹1.5 lakh per financial year. That means that if you pay ₹11,800 as a premium, including GST, the entire amount is allowable as a deduction while filing your taxes.
Smart Tips to Manage GST Costs on Your Term Insurance
Even if GST slightly increases your total cost, there are smart ways to manage it:
- Buy Your Policy Early: Premiums are much lower when you’re younger, and since GST is a percentage of the premium, your total tax also remains low.
- Choose a Long-Term Policy: Long-term policies lock in your premium rate. Even if the GST changes later, the base premium remains stable.
- Buy Online: Online term insurance plans come with discounts and fewer charges, thus balancing the cost of GST.
- Pay Annually: Save money by opting for annual payments rather than making monthly or quarterly payments. Many insurers offer small discounts for yearly payments.
Following these tips will give you full protection while keeping your costs under control.
Why It’s Important to Understand GST on Term Insurance
Most people look at only the total premium payable. However, knowing how GST on term insurance works gives a clear picture of your real costs.
You will know how much goes to the government as tax and how much is for your insurance cover. You will also be able to calculate the impact of changes to the GST rates on your total payment whenever GST rates change.
Conclusion
Insurance is not merely about money; it’s about care and security. It is a promise to protect your loved ones when they need it most. Although GST adds to the costs, it brings transparency and uniformity to the system. The possible changes in 2025, especially an expected reduction of GST, may make term insurance plans more affordable and accessible for all. If you haven’t yet bought one, now is the perfect time to start looking at your options. Compare plans, check the coverage, and choose an insurer you can trust. Even a small premium today can give your family peace and protection for years. You can’t control taxes or policy changes, but you can control how prepared your family is for the future. That simple step sometimes makes all the difference.
