Is Your Health Insurance Premium Getting Cheaper? Big Decision Likely Soon

Affordable health insurance soon? Health insurance premiums could see a notable reduction after the upcoming GST Council meeting on December 21, as key decisions on the Goods and Services Tax (GST) applied to life and health insurance policies are set to be reviewed. If approved, the proposed changes could make health insurance more affordable for policyholders.

Relief for low-coverage plans

Currently, health and life insurance policies attract an 18 per cent GST. However, reports suggest that premiums for policies under Rs 5 lakh may be exempted from GST entirely, while policies with coverage exceeding Rs 5 lakh could still be taxed at the current rate. This change would directly impact policyholders, potentially lowering their premium costs.

For example, if you purchase a health insurance policy with a coverage of Rs 5-7.5 lakh, it typically costs around Rs 15,000. Of that, roughly Rs 2,500 goes toward the GST. If the GST exemption is implemented, that Rs 2,500 could be saved, lowering the total premium you pay.

The reduction could also alleviate financial pressure for individuals seeking affordable coverage, especially as healthcare costs continue to rise. Many policyholders currently bear the additional burden of GST on premiums, which makes insurance more expensive.

In the 2023-24 fiscal year, the government collected around Rs 16,398 crore in GST from life and health insurance premiums.

Insurers to pass savings

However, Finance Minister Nirmala Sitharaman has expressed that a reduction in GST rates would reduce the overall cost of insurance for consumers, provided insurers pass on these benefits through competitive pricing. This would ensure that the cost savings reach policyholders rather than being absorbed by insurers.

The Group of Ministers (GoM), reviewing GST on insurance, has also agreed to exempt premiums for term life insurance and senior citizens' health insurance from GST. These changes would primarily benefit those with basic health coverage or seniors, who often face higher premiums due to their age.

The final decision on these proposed changes will be made during the GST Council's meeting in Jaisalmer on December 21, which could signal a significant step toward making health insurance more accessible and affordable.