Gst on life insurance

In 2017, the Goods and Services Tax was introduced in India, replacing all indirect service taxes with a multi-level, comprehensive tax levied on all goods and services. The introduction of the GST made waves across the country, largely because of the huge impact it would have on the way we approached our financial planning and investments.

three types of life insurance policies

In light of such socio-economic changes, important financial decisions such as considering the right kind of insurance cover might seem to be a little intimidating. Equipped with the right kind of information, however, these decisions can be better streamlined.

Here’s a quick look at the kinds of life insurance options you can have, and the impact of the GST on the policy of your choice.

The Three Types of Life Insurance Explained

The basic premise of life insurance is simple: the policyholder pays a regular premium according to the policy and in unexpected situations, the payout comes in the form of a lump sum or monthly payout from the insurer.

Broadly, there are three types of life insurance policies – term life insurance, unit linked insurance plans (ULIPs), and endowment plans, with several subtypes.

While term life cover assures the policyholder of a lump sum or monthly payout options when critical situations arise, ULIPs combine insurance with investment plans, allowing for a part of the premium to be used for risk coverage, with the rest directed to savings, market investments, etc. Endowment plans pay a fixed lump sum upon maturity or death of the policyholder, whichever occurs first.

Decoding the Effect of GST rules on your Life Insurance Premium

When the GST Act came into effect, the tax rates for the insurance sector were frozen at 18% (an increase from the then existing service tax rate of 15%) for all policyholders – those looking for new policies, as well as those renewing existing policies.

For term plans, this translates into a hike of 3%. This effectively means, that for a payment of every INR 1000 towards term insurance premium, a service tax of INR 150 used to be levied, which increased to INR 180 with the GST.

The tax affects ULIPs a little differently. In ULIPs, GST of 18% is levied only on mortality charges (premium for risk coverage) and not on the investment amount. So, for a premium of INR 100, if the mortality charges are INR 10,  then 18% GST is levied only on INR 10 and not on the amount invested.

For endowment plans, a GST of 18% is applicable on 25% of the actual premium for the first year of the plan, and on 12.5% of the premium in subsequent years of premium pay, until maturation of the policy or policy holder’s demise.

Knowing how much or in what frequency your premium is chargeable according to your insurance plan is crucial to building an iron-clad financial map to future-proof yourself. With a sound financial plan leading the way, your life if anything is much more secure. So, are you ready to get insured?

Take the first step with ICICI Prudential Life! Our new age term life cover plan – iProtect Smart is your reliable partner for preparation for the ‘ifs’! It gives you an option to cover yourself from 34 critical illnesses* like heart disease, cancer, etc., while offering life cover to protect your family from life’s uncertainties.



Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

*The critical illness benefit is an accelerated benefit and the death benefit will be reduced by the critical illness cover paid to the policyholder. The future premiums payable for the residual CI Benefit will reduce proportionately. In case the CI Benefit equal to the Death Benefit, the policy will terminate on payment of the CI Benefit. Only doctor’s certificate confirming diagnosis needs to be submitted. On payment of Angioplasty, if the CI Benefit is more than Rs.5,00,000 the policy will continue for other CIs with CI Benefit reduced by Angioplasty payout. To know more about the illnesses covered, please refer to the Sales brochure. Available under Life and Health and All in One options.

About The Author

ICICI Prudential Life Insurance Company Limited is one of the leading life insurance companies in India. We provide insurance plans & policies that include a range of products like term insurance, ULIPs, tax saving plans and pension & retirement plans.