Impact of GST on the Life Insurance Sector

When you buy a life insurance policy, the insurance provider makes a promise to pay out a certain sum of money after a predetermined period of time or upon the occurrence of a predetermined event. When you purchase term insurance, for instance, the insurance provider guarantees that if you pass away while the policy is in effect, your family will receive a predetermined sum of money.

You are now required to pay recurring premiums under the terms of the life insurance policy to receive the insurance company’s assurance. On these premium payments you make in accordance with the life insurance plan, a GST is further applied.

While you read on, know that a life insurance calculator is a tool you may use online to determine the amount of coverage required based on your needs.

Describing GST

The GST, or Goods and Services Tax, is an indirect tax assessed on the provision of goods and services. It was approved by the legislature in March 2017 and brought into effect on July 1st, 2017. 

In India, the GST has taken the place of a number of other complex indirect taxes, including excise duty, VAT, service tax, and others. These indirect taxes have long been considered excessive, convoluted, and even predatory, adding an unfair burden to the final consumer. All of these taxes were merged and brought under a unified roof with the implementation of the GST, considerably streamlining the indirect taxing procedure.

According to the current tax legislation, one can claim life insurance tax benefits on the premiums and the policy proceeds.

Goods and Services Tax’s Effect on Life Insurance Premiums

Insurance is a type of service that falls in the financial sector. As a result, just like any other commodity or service you use, you must pay GST when purchasing life insurance. 

The premiums for life insurance policies were subject to a service tax of 15% prior to the introduction of the GST. The cost of life insurance is now subject to the new regulations increased GST rate of 18% from 15%. The end user will now have to pay comparatively higher premiums for life insurance as a result of the implementation of GST, which has caused the premium rates of all life insurance products to increase. 

Having said that, the market for life insurance has benefited from the increase in premium rates.

Life Insurance PlanGST Rate Applicable
Term Insurance Plan18%
Endowment Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
Whole Life Insurance Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
Term Return of Premium Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
General Annuity Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
Single Premium Annuity Plan1.8%
Money-Back Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
Unit Linked Pension Accumulation Plan18%
Child Life Plan4.5% for the 1st year.
2.25% from 2nd year onwards.
Non-Linked Pension Accumulation Plan4.5% for the 1st year.
2.25% from 2nd year onwards.

On the website of the insurance firm, you may learn the GST rate that you will be required to pay for the life insurance policy you are purchasing. The benefit of the life insurance policy you intend to purchase will include information on the applicable GST rate. 

Important Fact to Remember

When looking to get life insurance, you should consider the several types that are offered, their advantages and disadvantages, inclusions and exclusions, etc., before settling on a policy that best satisfies your needs and achieves your objectives. You shouldn’t choose a policy only because the premium would cost you less in GST.

The premium payment you make for a life insurance policy is subject to GST (Goods and Service Tax), which is levied by insurance companies.

Remember that a life insurance calculator is an easy-to-use tool to check the amount of premium you would have to pay.
Due to the fact that insurance is a service, you must pay GST for it, just like any other item or service. For life insurance policies, the GST rate ranges from 1.8% to 18%. Based on the kind of life insurance policy you buy, you may have to pay GST on the amount of the premium. You can avail of several life insurance tax benefits that come your way.

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