The first thing you usually notice when you buy a term insurance plan is the premium-the amount you pay to keep your policy active. But many people forget that this premium also includes a tax known as GST.
This is one very good reason to understand how GST on term insurance works: it has a bearing on the total amount one pays every month or year. If one knows how this addition of tax occurs, one may plan the budget in a better manner. Also, you would be able to easily know from the term insurance calculator how much your total premium amount would be after the addition of GST. Let’s break it all down in the simplest way possible.
GST in full is Goods and Services Tax. This is a kind of tax that the government levies on most goods and services you buy in India-from mobile phones to restaurant food, and yes, even on insurance.
Why is GST charged on term insurance?
You might think it is unfair to pay tax on something meant for protection. But under the Indian tax rules, insurance is considered a service provided by the company concerning the financial security needed by a person, hence attracting the GST like every other service.
Therefore, the tax is not something that your insurer adds onto you, as in an extra charge; it goes directly to the government, and the insurance company only collects on behalf of the government.
How Does GST Affect Your Premium?
To understand how GST impacts your payment, let’s take a simple example. Suppose your insurance company is offering a policy where the base premium is ₹20,000 per annum. With GST at 18%, the total will be ₹23,600.
As you see here, you end up paying an extra ₹3,600 every year because of GST. Over 20 years, that is ₹72,000. So yes, GST makes a small but real difference in your total cost.
Can you save tax on GST?
While you cannot directly save or avoid paying GST, there’s still some good news. The premium amount you pay, which includes GST, qualifies for tax deduction under Section 80C of the Income Tax Act.
For instance, if you pay ₹25,000 as the total premium including GST, you can claim a tax deduction on the whole amount of ₹25,000. Hence, even though you pay GST now, you will save on tax at the end of the financial year.
How to Calculate Your Term Insurance Premium (Including GST)
Now that you know that GST affects your premium, let’s see how you can calculate your exact payment in an easy way. Most insurers offer a ‘Term Insurance Calculator’ on their official websites. It’s a simple tool that helps you estimate your premium in a few seconds.
- In the given table, using the accompanying formula, mention your details like age, gender, annual income, smoking habit, and coverage amount required (say ₹1 crore).
- Choose the policy term, which is how long you want the cover to last, for example, 20 or 30 years.
- Choose how often you want to pay: yearly, half-yearly, quarterly, or monthly.
- Click on calculate. The calculator will show you your estimated base premium.
- Add 18% GST on that base premium to know your final payable amount.
Why Should You Use a Term Insurance Calculator?
Most people end up buying a plan based on the amount they see in advertisements. That amount often doesn’t include GST or optional add-ons. A term insurance calculator helps you know the exact amount you’ll pay after adding GST and any other charges.
It also helps you to do side-by-side comparisons of different plans. You are able to see how much you will pay for different coverage amounts or payment terms. In other words, the calculator helps you to make a smart and well-informed decision before you purchase your policy.
How GST changes your final premium
Let’s understand the impact of GST with a few simple examples.
- If your base premium is ₹ 10,000, then after levying the GST, your final premium becomes ₹ 11,800.
- If your base premium is ₹15,000, the total comes to ₹17,700.
- If your base premium is ₹20,000, you will pay a total of ₹23,600.
- And if your base premium is ₹25,000, the total payable amount becomes ₹29,500.
Does the GST rate change for monthly and yearly payments?
The GST remains the same, 18%, whether you pay monthly, quarterly, or yearly. However, most insurers give small discounts if you choose to pay your premiums annually. So while GST remains 18%, you may end up saving a little overall by selecting the annual payment mode.
Does GST Affect the Claim Amount?
No, GST does not affect your claim or the sum assured. If your policy promises your family ₹1 crore, they will get the full ₹1 crore—not a rupee less. GST is applicable only on the premium you pay and not on the payout your loved ones get. Your family’s protection stays completely safe and unchanged.
How to Keep Your Premium Affordable Even After GST
Following are a few smart tips to manage your insurance cost easily:
- Buy early: Premiums are much lower when you start young.
- Choose a longer policy term: It locks in your premium rate for many years.
- Pay annually: It is normally cheaper overall compared to paying monthly.
Conclusion
GST constitutes a small but important component of your term insurance premium. While it increases the amount you pay, it is a basic tax that the government has imposed on all insurance plans. The key lies in understanding how it works so that you can plan your payments better. Always use a term insurance calculator to find out your actual premium amount after adding GST before buying any policy. It takes only a few minutes but helps you avoid any surprises later.
Keep in mind that your term insurance is an investment in the security of your family, not an expense. That little extra you pay as GST today provides peace of mind for the people you love the most. Next time you work out your premium, don’t forget to add the GST. Understand what you pay, appreciate why it’s charged, and select a plan that protects your family within your budget.