GST has definitely impacted every life insurance policy and you should understand this aspect carefully before choosing one for yourself.
When it comes to your life insurance policy, GST (Goods & Services Tax) has certainly impacted the same. GST was implemented from the 1st of July, 2017 and has affected various sectors including insurance services. Earlier, life insurance plans were taxed anywhere between 1.5-15% depending on the type of policy being chosen by the customer. However, with the advent of GST, whenever you buy life insurance, you should know that the taxes have gone up to 18% from 15%. This means that all life insurance quotes that you will now view, will have updated and higher premiums.
Premiums are higher whenever you buy new life insurance online or renew the same. As a result, you should choose the best life insurance policy based on several parameters such as the premium amount and sum assured among others. For example, if you were paying roughly Rs. 20, 000 every year for life insurance inclusive of 15% service tax, you will now have to pay an added 3%, i.e. an extra amount of Rs. 600 on the premium. This tax increase is already being passed onto clients by insurance providers and hence premiums across the industry have been hiked by around 3%. This has made life insurance costlier for families and it also impacts those households which have single earning members.
Under GST, premiums have not just been affected by life insurance but also for motor insurance and health insurance. Premiums for life insurance usually have two aspects, i.e. risk coverage and savings. Taxes are levied only on the premium.
Life insurance plans come in three avatars which include term insurance plans. These are basic schemes where 15% service taxes have gone up to 18% for premiums payable by customers. In the case of ULIPs, clients have to pay taxes of 18% on the benefits garnered under these plans which combine both investments and insurance. For Endowment plans, service tax of 3.75% was previously imposed on premiums at the time of purchase and this has now increased to 4.5% under the GST regime. 1.88% service tax will have to be paid up by clients on premium payments in case of a second renewal. These are policies which pay out a lump sum amount on death/maturity or even a fixed amount each month. Although the costs of insurance policies have gone up nominally due to GST, it will certainly impact customers since they will now have to pay more every year.