When you buy a term insurance plan, you invariably focus on the premium to be paid, the cover amount, and the benefits. But there is one more thing you must understand clearly: GST on term insurance. Many people get confused when they see their premium amount is slightly higher than what they expected. This happens because GST gets added to the base premium.
Thus, understanding GST is fairly simple. Knowing how it works, you can plan better, choose appropriate cover, and even make wiser comparisons of premiums. You can also use a term insurance calculator to check the impact of GST on your final premium.
So, let’s go through the 7 most important things you must know about GST on term insurance premiums. This guide is written in easy and clear language so that readers of all ages – students, young earners, parents, and even senior citizens-can understand it without any difficulty.
1. GST is levied on every premium paid for term insurance.
First of all, and most fundamentally, there is this to know:
- Every premium for term insurance has to bear GST.
Insurance premiums were taxed differently before the advent of the GST, while under the GST, been really simple and uniform. The GST rate, in general, for term insurance is 18% of the premium charged.
This means if your basic premium is ₹1,000, then you will pay ₹ 1,180 after adding GST. Many people get misled by this extra amount and feel that the company is charging the said amount extra. Actually, this is not correct, as it is a government tax; it is not any hidden fee.
2. GST does not change your insurance benefits
Some have concerns that GST will reduce their cover amount or alter the benefits they are entitled to.
But that is not true.
- Your sum assured remains constant.
- Your policy features remain exactly the same.
- Your claim benefits remain the same.
GST only changes how much you pay, not the protection you get.
So, if you purchase a policy with ₹1 crore cover, you will continue to get ₹1 crore as cover, as per the policy terms, irrespective of the GST amount paid on premiums.
3. GST on term insurance makes premiums appear higher, but the policy remains low-cost.
Term insurance remains the cheapest form of life insurance. Though GST was added to it, it still remains fairly affordable for most families.
For instance:
- A non-smoker, 25-year-old may pay approximately ₹500–₹600 per month for ₹1 crore cover.
- After GST, the premium may look like ₹ 590–₹ 700 every month.
But even with the GST, this is one of the cheapest ways to protect your family financially. This is also the reason why experts suggest buying term insurance early: your base premium is low, so your GST amount also stays low for the entire policy duration.
4. GST may further vary as per the type of term insurance policy.
While the general rate of GST is 18%, depending on the features of the policy, it might slightly vary.
For instance:
- Pure term insurance (simple life cover): usually 18%
- Term plans with return of premium: also taxed at standard rates
- Some riders, like critical illness or accidental cover, may fall under different GST rules.
Always check the breakdown of your premium. The insurer in question usually gives a clear tax invoice showing:
- Base premium
- Amount of GST
- Total premium payable
You can use a term insurance calculator that will show you the final price, including GST, in case you are comparing plans. This would make it easier to choose the most affordable option.
5. GST is levied on renewal premiums also.
Term insurance is paid in premiums, like every year, every quarter, or per month, depending on the plan. And every time you pay your premium, there is a GST addition. So your renewal premium will also include the GST.
For example:
If your base premium is ₹10,000 every year, then your renewal premium will be:
₹10,000 plus 18% GST = ₹11,800. People sometimes forget this and are shocked when they get their renewal reminder. But don’t worry-every insurance provider mentions it amply clear at the time of buying the policy.
6. Using a term insurance calculator helps you understand GST impact instantly.
One of the better ways to understand GST is to simply use a term insurance calculator.
A calculator helps you:
- See the base premium
- See how much GST is added to
- Compare different cover amounts
- Compare Variations of Policy Terms
- Choose the most economical option.
The calculator will provide the final premium that you actually need to pay, including GST. This makes it easier to estimate your budget and also to compare policies from different companies.
For example:
If you want a ₹50 lakh cover, the calculator may show:
- Base premium: ₹8,000
- GST: ₹1,440
- Total: ₹ 9440
If you increase your cover to ₹1 crore, the numbers will change. You can instantly see how your GST amount also changes. That is quite helpful, as you get full clarity before buying the policy.
7. Rules regarding GST are subject to change anytime, so stay updated.
GST is a government tax, and the rules regarding taxation also tend to change with time. Currently, the GST levied on term insurance is 18%.
- Yet the government is likely to reconsider it in the future.
- If the GST changes, then your premium will change.
You do not need to bother about keeping track manually. The insurance companies always send across updated premium details if any tax rule change happens. You will also see the revised amount in your renewal reminders. Still, it is a good habit to stay aware, especially in the case of a long-term policy that you intend to purchase.
Why Understanding GST on Term Insurance is Important
Most people just focus on the basic premium, but GST also plays an important role.
Here’s why you need to understand it clearly:
- It helps you in planning your budget.
- It helps in comparing policies correctly.
- It prevents confusion when you see the final premium.
- It gives you a very clear idea as to your total yearly expense.
Ignoring GST, you might think a particular policy is cheaper or costlier than it actually is. Understanding it helps you make smarter decisions.
Conclusion
GST is a small but important part of your term insurance premium. The best thing about it is that it is extremely simple to understand. Once you understand how GST works, you can go ahead and select a term insurance plan with full confidence. It does not impact your sum assured, your benefits, or even the protection accorded to your family. It impacts only what you pay. Always utilize a term insurance calculator to find out the exact impact of GST on your premium. This gives a clear picture of your total cost and helps choose the best plan according to your budget. One of the best gifts you can give to your family is a term insurance policy. Understanding GST is just a minor step that helps you make this gift even more meaningful and well-planned.