GST Council Scraps Tax on Life & Health Insurance Premiums: What It Means for Consumers and Insurers

In a significant decision, the 56th GST Council meeting has exempted all individual life and health insurance products from Goods and Services Tax (GST). The exemption takes effect immediately and includes term insurance, ULIPs, endowment plans, family or senior citizen health policies and reinsurance contracts. 

The products were previously subject to 18% GST taxes which added a large amount of annual premiums and prevented middle-class and low-income families from buying insurance policies.

A Relief for Consumers

Bye-bye GST means cheaper premiums for retail customers. A term policy that cost ₹11,800 before (premium slightly ₹10,000 on ₹10,000 premium with 18% GST) will now cost exactly ₹10,000. 

This is likely to spur insurance penetration in India, where coverage is simply dismally low (many people still having no coverage at all). Medical inflation and various risks to personal health are rising yet affordability has kept large segments of the population, especially from the informal sector and low-income families, from ever purchasing insurance.

"This is the greatest help the industry has had for the last ten years," a senior executive at a private leading life insurer said. "Removal of GST allows insurers to offer low-cost protection products and it could be the turning point for India's underinsured."

Impact on Life Insurance

• Tax-Free Appeal: Life insurers can now market their offerings as 100% GST-free, making them more attractive at the point of sale.
  
  

• Term Plans to Benefit Most: Term insurance, typically low-ticket but high-impact, was hit hardest by GST. Demand for these products is expected to rise.
  
  

• Cheaper Reinsurance: With GST exemptions extended to reinsurance, insurers’ own costs will fall, allowing them to design competitive pricing for consumers.
  
  

Impact on Health Insurance

• Lower Premiums: Individual health insurance—including family floater and senior citizen plans—will become more affordable.
  
  

• Medical Inflation Cushion: With healthcare costs rising faster than incomes, the exemption helps households better manage risk.
  
  

• Product Innovation: Lower reinsurance costs may encourage insurers to launch new health plans and negotiate better rates with global reinsurers.
  
  

What’s Not Covered

• Group Insurance Policies: Corporate group health and life insurance plans for employees remain outside the exemption. Businesses will still pay GST unless future circulars change the rules.
  
  

• Other Taxes Stay: Stamp duty and other statutory levies continue to apply.
  
  

Industry and Economic Implications

The decision is consistent with the Centre's broader objective to enhance financial inclusion and social security. With lower costs, insurers are likely to reset their digital campaign and messaging strategy to reflect affordability and accessibility.

"GST-free insurance premiums are more than a financial adjustment to an existing product; they are a behavioral nudge," said a public policy analyst. "It nudges households to see insurance as essential protection, rather than a luxury.”

The move is also expected to spur competition among insurtech startups and direct-to-consumer (D2C) platforms. Price-sensitive buyers may see bundled offerings—life, health, and critical illness policies—become more popular.

The Bigger Picture

India's insurance penetration (premium as a % of GDP) continues to lag behind the global average. The goal of government repeal of GST on individual policies is to help bring the millions of Indians without insurance under the safety net to be less susceptible to medical bankruptcy as well as improve long-term financial sustainability.

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