Have you ever compared your term insurance premium and thought, “Why is the ultimate amount slightly more than I anticipated?” That little extra is due to GST, or Goods and Services Tax. We all purchase term insurance to secure our loved ones against the uncertainties of life. It provides you with peace of mind knowing that your family is secured for the future, even if something untoward happens to you.
But when you read your premium closely, you find a tiny addition marked as GST. It might not sound significant, but you should know what it is and how it impacts the overall cost of your plan. In this complete guide, we will describe what GST on term insurance is, how much you pay, why the charge applies, and how it impacts your premium in 2025 in the simplest terms possible.
What Is GST, and Why Is It Added to Insurance
The Goods and Services Tax, or GST, is a tax levied by the government on most goods and services offered for sale in India. It was brought in to consolidate various older taxes, such as service tax and VAT, into one easy and transparent tax regime. Insurance services are included in this regime as well. As term insurance is not a tangible product but a service offering financial protection, GST is charged on its premium.
Before GST was implemented in 2017, the public used to pay additional taxes on their policies. Now, the system is standardized, and it is simpler to know about it. All insurers have to abide by the same GST regulations, and that means there will be no surprise or hidden charges.
GST Rate on Term Insurance Premiums in 2025
As of 2025, the GST percentage on life insurance services, including term insurance, is still at 18%. The percentage has remained constant for some years now.
How it works in simple words:
- Term Insurance Plans: GST is applicable on the whole premium you pay.
- Endowment or ULIP Policies: GST is levied only on a fraction of the premium, as these policies contain insurance and investment components.
For instance, if your premium is ₹10,000 per year, you will pay a total of ₹1,800 (18% GST) more, bringing the total to ₹11,800. Although the tax value appears insignificant, you should still add it to your overall cost if you are shopping for policies or budgeting.
Knowledge of GST on Term Insurance in 2025
When you purchase a policy, your insurance company charges GST on term insurance on the premium. The amount of tax is deducted by you and handed over to the government.
Let’s simplify with an example:
If your basic premium is ₹12,000 a year, GST at 18% is ₹2,160.
So, the amount you pay will be ₹12,000 + ₹2,160 = ₹14,160.
This is the reason why you find two numbers when you purchase a policy the base premium and the overall cost, including GST. Being aware of this little fact makes you realize where your money goes and keeps you ready for the actual amount.
Why Is GST Charged on Term Insurance?
Insurance is considered a financial service in India. Every time you purchase a service, whether it is a phone plan, movie ticket, or insurance, GST is applicable. The 18% GST aids the government in collecting revenue that funds public necessities such as healthcare, education, and infrastructure.
Although nobody enjoys paying taxes, GST is more transparent pricing. Because everybody pays according to the same rate, you can compare policies in actual cost without fearing hidden charges.
How GST Impacts Your Premium
This is how GST will impact your overall premium amount:
- Little More to Pay: As GST is levied on your basic premium, you end up paying approximately 18% more overall.
- Budget Planning: When comparing policies, look at the overall cost, not only the basic premium.
- Long-Term Effect: Spread over 20–25 years, the amount of GST builds up. For instance, if you pay ₹10,000 annually, you pay ₹1,800 annually as GST, which comes to ₹36,000 in 20 years.
Even so, term insurance is still the cheapest and best type of protection money can buy today.
Easy Example: Calculation of GST on Term Insurance
Let us take another simple example:
You pay ₹1 crore coverage for a term plan.
Your yearly premium: ₹12,000.
GST (18%): ₹2,160.
Thus, your total payment turns into ₹14,160 yearly.
You pay ₹54,000 of GST in total if you stay for 25 years. But for that, your family receives ₹1 crore of financial protection, and the additional tax is a negligible price for eternal peace of mind.
Is the GST Rate the Same for All Insurance Companies?
Yes, it is. All insurance providers in India adhere to the same GST rate regime imposed by the government. Whether you purchase from LIC, HDFC Life, ICICI Prudential, or Max Life, the GST rate will be 18%. The only variation you will come across is in the base premium that varies with aspects such as your age, health, gender, and sum insured.
Can You Get Any Tax Benefit on the GST You Pay?
This is a frequent question and a relevant one. You cannot directly claim a refund or deduction for the GST charged on your insurance premium. Yet, the whole premium (including GST) qualifies for tax benefits under Section 80C of the Income Tax Act.
This also implies that you can deduct up to ₹1.5 lakh annually from your life insurance premium. Although GST in itself isn’t a refund, there’s still an overall tax saving on your part.
Does GST Make Term Insurance Costlier?
Technically, yes the overall premium goes up by 18%. But practically speaking, there’s not much difference. For example, if your monthly term plan premium is ₹800, you’ll pay only ₹144 extra as GST. That’s less than the cost of a single cup of coffee, and it ensures your family’s safety for years. Even after adding GST, term insurance remains one of the most cost-effective and essential financial tools.
Smart Tips to Manage GST on Your Term Plan
Here are some easy ways to manage your overall costs:
- Choose Annually Paid Premiums: Yearly payment premiums usually carry tiny discounts, benefiting you over the long term.
- Compare Before Purchase: Compare both the basic premium and the overall amount (with GST included) before you purchase.
- Use a Term Insurance Calculator: Online calculators reflect the total premium, with GST. This makes you better prepared for your finances.
- Claim Section 80C Benefits: Don’t miss applying your income tax deductions; it compensates for the additional GST expense.
Will GST on term insurance change in the future?
Up to 2025, there has been no revision in the GST rate on insurance services. The rate still stands at 18%.
However, consideration is always made regarding lowering GST on basic financial services, particularly life and health insurance, so that they become reachable for all.
If these changes occur in the future, it can reduce your overall premium. Currently, however, the 18% rate remains unchanged.
Why GST Understanding is Important
Most individuals overlook little things while purchasing insurance, but GST understanding makes you aware of:
- The actual cost of your policy.
- Don’t be surprised when paying.
- Compare plans appropriately.
- Make better financial decisions.
When you know each constituent of your premium, including GST, you make more informed and confident decisions.
Conclusion:
GST on term insurance is not a hidden fee; it’s a standard tax that applies to all insurance policies in India. While it increases your premium slightly, it doesn’t reduce the value or importance of your plan.
A term plan continues to be the best method to secure your family’s future for a very low cost. The additional GST you pay is just a part of the system, and if you look at it in the context of the peace of mind and financial security it provides, it’s a very minor price to pay.
