When we think about protecting our family’s future, a term insurance plan often comes first. It’s one of the simplest and most affordable ways to make sure your loved ones are financially secure even when you are not around. But when buying or renewing a policy, you might notice that your term insurance premium is slightly higher than what you expected. Have you ever wondered why that happens?
The primary reason is the GST on term insurance. Like most products and services in India, there is a Goods and Services Tax on insurance, too. For the year 2025, GST continues to play a key role in deciding how much you actually pay for your term insurance policy.
Let’s make this simple: in this article, you will learn what GST is and how it affects your term insurance premium and what you can do to make the best financial decision while buying term insurance in 2025.
What is GST, and why does it apply to term insurance?
GST, or Goods and Services Tax, is a single tax levied on practically everything we buy or use in India, be it clothes, food, travel, insurance, etc. It replaced many older taxes to simplify the system and make it more transparent.
In the case of term insurance, the insurance company provides you with service protection for your family in case something happens to you. Since it’s a service, GST on the premium amount is applied.
Presently, the rate on life insurance services, including that for term plans, is 18% under GST. This essentially means that an insurer would collect 18% tax over and above your base premium and pay it to the government.
So, if your base premium is ₹10,000 per year, you actually pay ₹11,800 in total – ₹10,000 as premium + ₹1,800 as GST.
How GST Affects Your Term Insurance Premium in 2025
The insurance premium you see in advertisements or comparison websites is usually the base premium. The final amount that one has to pay is after adding GST.
Even though the GST rate hasn’t changed in 2025, its impact is still important to understand, especially if you’re planning to buy or renew a policy. Here’s how GST affects your term plan:
- Increases Your Total Cost: GST adds 18% extra to the premium you would pay. This means your actual payment is always slightly higher than the amount quoted in normal terms. As an example, if your yearly premium is ₹25,000, GST adds ₹4,500 more, taking your total to ₹29,500.
- Affects Long-Term Budgets: That 18% can add up to a big amount if you are paying your premiums yearly or monthly. More importantly, it helps in understanding how to plan a budget.
- Affects different policy types differently: For different types of life insurance policies, GST is applied differently. While it applies to the entire premium in pure term plans, in policies that accrue savings or otherwise generate returns, GST may apply differently, at times only on the protection portion.
- Impacts Riders Too: If you add riders, such as accidental death cover or critical illness cover, GST is charged on those, too. So the more riders you include, the more total GST you’ll pay.
Example: Understanding the Real Impact of GST
Now, let’s look at a simple example.
Assume you purchase a 20-year term plan with a base premium of ₹15,000 annually.
- GST @ 18% = ₹2,700
- Total annual payment = ₹17,700
As the basic premium, you will pay ₹15,000 × 20 = ₹3,00,000 in over 20 years.
And ₹2,700 × 20 = ₹54,000 as GST.
That means ₹54,000 of your total payment goes to taxes. Knowing this helps you understand the full cost of your plan and avoid surprises.
Why GST on Term Insurance Is Not a Bad Thing
While many people view GST as an additional burden, it brings a good deal of transparency and equity. Here’s why it’s not all bad:
- Uniform Taxation System: Whereas there were various taxes prior to GST, like service tax and cess, presently, there is only one GST. This makes the calculation much easier and will also avoid double taxation.
- Better Accountability: With the coming of GST, insurance companies are required to explicitly show the tax amount in their policy document to illustrate exactly how much you pay and for what reason.
- No Hidden Costs: You may not have known the full breakdown of your premium until now, but GST makes everything open and transparent.
How to Manage the Impact of GST on Your Premium
While you can’t avoid it, since GST is mandatory, here are a few smart ways to reduce its overall effect on your pocket:
- Choose the right mode of payment: Paying annually instead of monthly sometimes helps. Annual payments lessen service charges and convenience fees, helping to slightly offset the impact of the GST.
- Compare Plans Before Buying: Always compare term insurance plans across insurers. Even under GST, some insurers offer more value, lower base premiums, or additional benefits.
- Utilize tax benefits: The good news is that under Section 80C of the Income Tax Act, you can claim deductions on your premium payments. This can help reduce your overall tax burden, thus balancing the effect of GST.
- Go Digital: Most insurance firms will give you small discounts if you purchase a policy online. This helps you save on costs even after paying GST.
- Review Your Coverage Regularly: Needs change as incomes grow. Review your term insurance every few years to make sure you’re not overpaying or underinsured.
GST and Term Insurance Riders in 2025
Riders are additional benefits you can add in your term plan for critical illness cover, accidental death cover, or disability cover. Every rider has its small premium, and GST applies to that too.
For example:
If your critical illness rider costs ₹5,000, you’ll have to pay ₹900 extra as GST.
More rider options have been made available by insurers in 2025, so do remember to check how much each costs after GST before you add them.
What if GST changes in the future?
As of 2025, the GST on term insurance is 18%. The government revises tax rates periodically. When this happens, your term insurance premium will also change accordingly.
- If it decreases, you will pay less.
- The higher it is, the more your total premium will be.
So, always check the latest GST rate before renewing or buying a new policy.
Quick Tip: Always read your policy breakdown
Before purchasing your policy, carefully read through the cost details. Each insurer must indicate:
- The base premium
- The GST rate and amount
- The total payable premium
This helps in understanding how much goes to the insurer and how much goes as tax.
Conclusion:
Buying a term plan is considered one of the wisest financial decisions for your family; it ensures that your loved ones are safe and secure even if life takes an unfortunate turn. While GST on term insurance increases your total cost a little, it brings more clarity and uniformity in the way premiums are calculated. Your term insurance premium might seem to be a little bigger due to the GST factor, but remember, it’s a small price to pay for peace of mind and financial safety. In 2025, insurance is like a shield for every earning individual.
Understanding how GST affects your policy helps you plan better, compare wisely, and make smart financial choices. So, the next time you buy or renew your term plan, do not let GST puzzle you. Rather, consider it as a transparent part of the whole process in keeping the financial system in India fair and consistent.
