GST Exemption on Life Insurance Premiums: A Game-Changer for Policyholders

In a major reform, the GST Council has decided to exempt renewal premiums of life and health insurance policies from Goods and Services Tax (GST) starting September 22, 2025. This move is being hailed as a landmark step that will make insurance products more affordable for millions of Indians.

Mahesh Balasubramanian, Managing Director & CEO of Kotak Mahindra Life Insurance, welcomed the decision, stating that this exemption will increase insurance penetration in India and help more individuals secure their financial futures.

Why GST Exemption Matters?

Until now, policyholders had to pay GST—typically 18% on renewal premiums for term insurance and other plans. This often increased the cost burden on families, particularly those from middle-class and lower-income groups.

With this exemption, life and health insurance products will now cost less, directly benefiting policyholders. According to industry experts, this reform could boost new policy purchases and renewals, giving a much-needed push to the insurance sector.

“The GST exemption on individual life insurance is a landmark move. It makes insurance products more affordable, helping us reach more people and increase penetration across the country,” said Balasubramanian.

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Impact on Policyholders

For individuals, the immediate benefit is reduced premium costs. A term plan that earlier cost ₹10,000 annually plus ₹1,800 GST (total ₹11,800) will now cost just ₹10,000. Similarly, health insurance renewals will also become cheaper.

This price reduction could encourage more families to purchase long-term protection plans, thus improving financial security. Experts believe that the move could also increase policy renewal rates, as affordability often plays a key role in lapses.

Industry Response: Stability Over Price Hikes

While the exemption provides relief to customers, what about insurance companies? According to Balasubramanian, an industry-wide premium hike in the near term is unlikely.

“Individual companies may adjust rates based on their portfolio performance, but an across-the-board premium hike is not expected soon,” he explained.

This means the exemption is not just a win for customers but also ensures stability in the insurance market.

Boost for Insurance Penetration

India’s insurance penetration—measured as a percentage of GDP—remains below global standards, despite steady growth. Affordability has been one of the biggest barriers.

By removing GST, the government has taken a proactive step to increase coverage. More households are expected to opt for term plans, endowment policies, and health insurance.

This aligns with the government’s larger goal of “Insurance for All by 2047”, ensuring every Indian family has access to financial protection.

Role of New Initiatives: Tax Regime Shift & Bima Sugam

The GST exemption comes at a time when the insurance industry is undergoing multiple reforms:

• Shift to the New Tax Regime: Policyholders are increasingly evaluating tax benefits under the simplified structure.

• Bima Sugam Launch: The much-anticipated digital insurance marketplace is expected to roll out soon. It will serve as a one-stop platform for purchasing, comparing, and servicing policies.

Together, these reforms are set to redefine the way Indians buy and manage insurance.

What It Means for Different Insurance Products

1. Term Plans: More affordable, likely to see a rise in adoption, especially among young earners.

2. Traditional & Non-Traditional Policies: Renewals become cheaper, boosting long-term policy continuation.

3. Health Insurance: Lower premiums may encourage families to opt for higher coverage, improving healthcare preparedness.

Expert Take: Long-Term Gains for Both Sides

The insurance industry views this as a win-win situation. Policyholders get affordable coverage, while insurers benefit from higher volumes and better persistency.

Balasubramanian emphasised that the reforms will accelerate insurance penetration and help companies expand their customer base without burdening them with additional costs.

Challenges Ahead

While the GST exemption is widely positive, there are still challenges:

• Awareness Gap: Many households in rural and semi-urban areas remain unaware of insurance benefits.

• Distribution Barriers: Insurance agents and digital platforms must scale up to reach underserved regions.

• Sustainability for Insurers: Companies must balance affordable premiums with profitability and risk management.

The Road Ahead for Policyholders

For customers, the message is clear: this is the right time to buy or renew insurance. Lower costs, combined with the digital revolution in insurance services, make it easier than ever to secure protection.

With Bima Sugam expected to launch soon, purchasing insurance will become as easy as booking a train ticket online. The GST exemption only adds to the appeal.

Conclusion

The GST Council’s decision to exempt renewal premiums on life and health insurance from September 22, 2025, marks a turning point for India’s insurance sector. It makes policies more affordable, reduces the financial burden on families, and encourages wider adoption.

Industry leaders like Kotak Life’s Mahesh Balasubramanian believe this will accelerate insurance penetration without leading to sudden premium hikes, ensuring both customers and insurers benefit.

As India moves toward its vision of universal insurance coverage, this reform is a significant milestone. For millions of households, the cost of protection just became lighter—and the future more secure.

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