How Does GST Impact on Life Insurance?

Understand the GST-related changes in premiums, surrender values, and payouts in life insurance.
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3 min
30-May-2025

GST — the Goods and Services Tax — changed the way we pay for many financial products, including life insurance. If you’ve noticed your premium costs going up, GST could be one of the reasons. While the tax structure may feel technical, understanding how GST applies to your policy can help you make better choices, avoid surprises, and maximise your benefits.

How GST affects your life insurance premiums?

Yes, GST adds to your premium — but the value of coverage remains unmatched.

GST has replaced the older service tax and now applies an 18% tax rate to life insurance premiums. Here’s how it plays out across different policy types:

  • Term life insurance: The full premium is taxed at 18%.

  • Endowment plans: Only a portion of the premium — mostly the investment component — is taxed.

  • ULIPs (Unit Linked Insurance Plans): The risk cover portion is taxed.

Planning to buy or renew a policy? Check life insurance plans and compare premiums instantly based on your age, income, lifestyle and financial goals. Get quote for the suitable one.

How does GST impact on life insurance surrender value?

Earlier, surrendering a life insurance policy didn’t always attract tax. But under GST, surrender values — the amount you receive if you exit your policy before maturity — are subject to 18% GST.

Here’s what that means:

  • You pay tax on the surrender value.

  • This reduces your actual payout.

  • It acts as a nudge to continue the policy for full benefits.

Pro tip: Want to avoid penalties and maximise your savings? Stick with your policy for the full term and enjoy all maturity benefits.

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How will GST affect insurance in future?

Rising premiums may affect affordability, but reforms could change that.

If GST remains at 18%, it may discourage some people from buying higher coverage. However, industry voices are advocating for:

  • Lower GST rates on term insurance

  • Exemptions for specific plans like pension or group insurance

  • More affordable policy structures for mass adoption

Until changes are made, it’s essential to weigh GST costs against the protection, savings, and tax benefits life insurance offers.

Planning for long-term goals? See how life insurance fits into your financial plan — Get a quote now!

Are life insurance premiums eligible for GST exemption?

Mostly no — but tax benefits still help you save.

Currently, most individual life insurance policies are not exempt from GST. However:

  • Some group plans and pension policies may enjoy partial exemptions.

  • You can claim deductions under Section 80C on your premium (excluding GST portion).

Even if GST isn’t deductible, the tax benefits on life insurance can ease your overall financial load.

Pro Tip

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Conclusion

While GST has increased policy costs slightly, life insurance remains one of the most valuable and secure financial tools for your future. With the right plan, the benefits far outweigh the tax impact — from protecting your family to building long-term savings.

Looking to get started? Compare life insurance options tailored to your needs, budget, and goals — and make an informed choice today. Get quote!

Frequently asked questions

How has GST impacted life insurance policy costs?
GST has increased the cost of life insurance policies by levying an 18% tax on premiums. This rate is higher than the earlier service tax of 15%, making premiums slightly more expensive over the policy term, particularly for term and endowment plans.

What is the impact of GST on surrendering a life insurance policy?
Surrendering a life insurance policy attracts an 18% GST on the surrender value. This added cost discourages premature termination and encourages policyholders to retain their plans, ensuring long-term financial protection.

When were GST changes introduced for life insurance policies?
GST changes for life insurance policies were implemented on 1st July 2017. This replaced the fragmented service tax system, creating a uniform taxation framework for life insurance premiums and surrender values.

What potential GST reforms could influence life insurance policies?
Future GST reforms could lower the 18% tax rate on life insurance premiums, making policies more affordable. Potential exemptions or reduced rates for specific policy types could encourage broader adoption, supporting financial inclusion and increasing insurance penetration in India.

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Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Company Limited, Star Health & Allied Insurance Company Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited, Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure & policy wordings carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also distributor of other third-party products from Assistance service providers such as CPP Assistance Services Private Limited, Bajaj Finserv Health Limited. etc. All product information such as premium, benefits, exclusions, value added services etc. are authentic and solely based on the information received from the respective Insurance company or the respective Assistance provider company.

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