Which means, that life and health insurance policies will no longer attract any GST. Here’s how much GST is currently levied on health and life insurance policies:
| Policy | GST Rate (%) |
| Health Insurance | 18 |
| Life Insurance ULIP | 18 |
| Term Life Insurance | 18 |
| Endowment Policies – First Premium | 4.5 |
| Endowment Policies – Regular Premium | 2.25 |
| Single premium signals Policy | 1.8 |
Here’s why this is a double whammy for insurance companies:Insurers incur various costs like reinsurance, commissions, and claims processing. With GST exempted, insurers cannot claim Input Tax Credit, increasing their net cost of operations. This could impact profitability or lead to higher policy costs in the future.
Additionally, Reinsurance, which is also exempt, is only 30–35% of an insurer’s cost base. Most individual policies are not even reinsured. Therefore, with the reinsurance exemption and inverted duty structure still not fixed, policies will get cheaper for a policyholder by close to 15% if all the benefits are being passed on. However, every policy will increase the cost for insurers by 5% to 7%.
According to brokerage firm CLSA, the move makes the product more affordable for the end customer. However, insurers are now left with a GST liability on their expenses.
“To protect their profitability and manage this change, insurers will implement price hikes,” CLSA wrote.CLSA wrote further that health insurers can easily manage with a price hike between 3% to 4%, which is still beneficial for end customers, as they no longer have to pay 18% GST.
Life insurers may also need a price hike between 1% to 3%, where SBI Life, with the lowest Opex ratio, will need the lowest hike to manage this change.
Morgan Stanley believes that fundamentally, this move could provide relief and hence be positive for consumers. However, clarity is awaited on how relief will be provided to insurers on input taxes incurred towards exempt categories.
“In absence of relief to insurers, they might be required to raise premiums, thereby reducing net cost benefit to customers,” Morgan Stanley wrote.
Shares of HDFC Life have gained over 5% in the last one month, while those of SBI Life are down only 1%. Both these stocks though, have gained between 25% and 30% so far in 2025. Shares of ICICI Prudential have underperformed both these stocks, having declined 7.5% so far this year. Niva Bupa’s shares are just above their IPO price of ₹74 apiece.
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Also Read: Insurers warn GST exemption without removing inverted duty structure may raise costs
