Summary: For every kind of insurance policy, GST has naturally had an impact and this needs to be assessed carefully before you take any buying decision.
When it comes to an insurance policy, it will naturally be affected by the implementation of GST. The new taxation regime was introduced in July last year and has impacted the insurance sector considerably. Before the advent of GST, customers had to pay 15% as service taxes on premiums of insurance plans in India which were inclusive of the Krishi Kalyan Cess and Swachh Bharat Cess. However, now when you buy insurance policy, you will have to contend with revised premiums. Whenever you purchase insurance plans online, you may usually be looking at the best insurance policies in India. These come in several types. You should know that GST is applicable on the premium amount that ensures coverage from risks.
Here’s looking at the top 5 insurance plan types and how GST will impact them:
United Linked Life Insurance plans combine both investment and insurance and GST is only imposed on the risk coverage component. Risk coverage charges go up with increasing age while fund management costs go up with the increase in the corpus. A marginal increase is expected for these plans since GST is imposed at 18% and service tax was previously charged at 15%.
- Term Insurance Plans-
Life insurance plans only offer risk coverage in these cases and the whole premium will thus be taxable under GST at 18% as compared to 15% earlier.
- Regular Life Insurance Plans with Recurring Premiums-
These are also investment cum insurance policies. Yet, GST is chargeable only on the insurance premium for risk coverage. In most cases, categorization between the investment and insurance components is done via this method-
For the first year, GST is chargeable on 25% of the premium paid which is 4.5% as compared to 3.75% earlier in the service tax regime. For the following years, GST will be charged only on 12.5% of the insurance premium which will be 2.25% as compared to 1.875% earlier under service tax.
- Single Premium Life Insurance-
In case of these plans, GST at 18% will be imposed on around 10% of the annual premium amount paid to the insurer. This has increased from 15% earlier.
- Health, Motor & Travel Insurance-
These are commonly chosen plans and they are risk coverage plans like life insurance without any added components to them accordingly. Premiums are subject to change annually for these insurance policies and the hike is a standard affair without any effect of GST. However, premiums are expected to go up by 2.61% for these plans due to the introduction of GST since it will be imposed on the entire premium amount like in the case of term insurance plans. Also, in case of Motor & Travel Insurance Plans with Health Insurance as they have high risk of claim ratios that’s why you need to be very careful while best health insurance policy for you. Also, motor & travel as. Get a Health Insurance plan which covers you most or you can also buy a add on health insurance plan like personal accident cover, family health insurance and many more.