8 Minute
|
Life Insurance Premiums After GST Exemption: How Much Will You Actually Save?
In September 2025, the government announced a landmark reform: complete GST exemption on individual life insurance premiums. For years, policyholders had been paying an additional GST on their premiums, which made life insurance less affordable and discouraged many from buying adequate cover. Now, with this tax burden gone, insurance has become far more attractive.
This change is not just a technical adjustment in tax law—it's a significant shift that makes protection and financial security more accessible to millions of households. Let’s break down what the GST changes in insurance premiums mean and how much you can actually save.
What Was the GST on Life Insurance Premiums Earlier
Before the exemption, GST was applied to different types of policies in varying ways. Term insurance, ULIPs (Unit Linked Insurance Plans), and endowment policies all carried GST, but the application differed depending on the product.
Here’s a quick overview of the older structure:
| Policy Type | GST Rate Applied | How It Worked |
|---|---|---|
| Term Insurance | 18% on the entire premium | A ₹10,000 premium became ₹11,800 |
| ULIPs | 18% on charges (allocation, admin, fund management) | Reduced overall returns |
| Endowment / Traditional Plans | 4.5% in the first year, 2.25% thereafter | Added cost every year |
This setup meant that GST on individual life insurance premiums inflated costs significantly, especially for long-term policies like term insurance where the entire premium was taxed at 18%.
GST Exemption on Life Insurance Premiums in September 2025
In September 2025, the government granted relief to customers by announcing an exemption to the individual life insurance products. From 22nd September 2025 onward, all life insurance policies whether term, ULIPs, or endowment are completely free from GST.
The objective is clear: make insurance more affordable, reduce barriers to entry, and boost penetration across India. Policymakers recognized that insurance is a necessity and removing GST is a step toward universal financial protection.
How Much Will You Actually Save on Premiums
The savings are straightforward and immediate. Let’s take a simple example.
- Before exemption: If your annual premium was ₹20,000 for a term policy, you were actually paying ₹23,600 (₹20,000 + 18% GST).
- After exemption: The same premium is now a flat ₹20,000.
That’s ₹3,600 saved every year. Over a 20-year policy term, that adds up to ₹72,000 money that stays in your pocket or can be invested elsewhere.
Even for smaller premiums, the difference is meaningful. A ₹10,000 policy now costs exactly that, instead of ₹11,800. These savings make insurance more accessible for first-time buyers and allow existing policyholders to afford higher coverage without stretching their budget.
Impact of GST Exemption on Policyholders
The impact of zero GST on insurance goes beyond just saving a few thousand rupees each year. It changes the overall value of life insurance.
- Lower premium costs, higher affordability: Families and individuals who hesitated earlier due to inflated costs can now comfortably buy life insurance.
- Better returns on investment-linked policies: In ULIPs, No GST means better net returns over the long term.
- Boost to insurance penetration: With premiums now leaner, insurers can reach middle- and lower-income groups, expanding coverage in under-served areas.
In other words, the benefits of GST exemption directly translate into higher adoption, better financial security, and improved long-term outcomes for households.
Conclusion
The individual life insurance GST exemption in 2025 is a game-changer. By removing the GST on premiums, the government has directly reduced the cost of protection for millions of Indians. The move makes policies more affordable, improves returns on investment-linked plans, and encourages wider adoption of insurance.
For policyholders, the message is simple: this is the best time to review your coverage, explore suitable plans, and take advantage of GST savings.
Insurance has always been about securing your family’s future. With the GST changes in individual insurance premiums, it’s now more cost-effective than ever to do so.
8 Minute | 
