The Goods & Services Tax (GST) cut on individual life and health premiums is likely to help narrow India’s individual protection gap but analysts caution that the impact will be gradual rather than immediate.
Effective September 22, 2025, the GST on individual policies will drop from 18 percent to zero, reducing the cost of these products by the equivalent of 18 percent.
This matters because protection has historically been a small, though strategically important, slice of new business at private insurers. For most large players, protection accounts for only the low-to-mid teens of annualised premium equivalent (APE), far from being the dominant driver of growth.
“Removing the GST burden should make individual cover more affordable and reduce the price gap between buying a term policy and buying nothing at all. But the shift will not be instant,” said analysts.
He added, the effect on volumes, product mix and profitability will depend on how distribution channels adjust, how insurers reprice to offset the loss of input tax credits, and whether employers push individual policies over group benefits.
Bancassurance, agency networks, and corporate channels will be key to recalibrate their sales strategies if commissions, paperwork, and servicing costs shift meaningfully, they said.
"A faster uptick in protection APE would require insurers or employers to actively promote individual retail term policies over group plans. Such changes are more likely to play out over several quarters rather than in the immediate term," said analysts.
Analysts said, the pace of growth will also depend on insurer strategy. Companies with stronger direct and digital channels, coupled with a track record of selling term products, are better placed to capture early gains from the policy change. By contrast, insurers that lean heavily on bancassurance or group protection may see more gradual improvements.
Looking ahead, several benchmarks will help track whether a revival is underway.
Quarterly APE mix trends from Q3 and Q4 FY26 will be key, with even a 200-400 basis point increase in individual protection share at ICICI Prudential, SBI Life, Max Life or HDFC Life seen as a meaningful shift.
Company disclosures over the next two quarters will be critical to see if protection’s share of APE at ICICI Prudential, SBI Life, Max Life and others begins to climb in a sustained way.
Where protection sits today
For ICICI Prudential Life Insurance, company disclosures show that individual protection has remained a relatively small slice of the overall business, even as it has grown strongly in absolute terms. In the first half of FY24, retail protection briefly surged to around 20.8 per cent of APE, supported by a 74 percent year-on-year jump. But this momentum eased, and for the full year the mix settled back to the mid-teens. In FY25, retail protection grew by 25.1 percent to Rs 598 crore, but accounted for just 5.7 percent of APE, underlining how modest the segment remains relative to ULIPs and savings products.
At SBI Life Insurance, the split between group and individual is even starker. By Q1 FY26, protection accounted for 12 per cent of APE, but only about 4 percent came from individual policies, and the bulk was from group business. Even at its stronger points in FY24, the company’s retail term share was in the mid-single digits. This indicates that while SBI Life has built a significant overall protection book, the individual protection franchise remains underweight.
For Max Life Insurance, the trend is similar. Management commentary around FY24 and FY25 indicates that individual protection makes up only about 10 per cent of APE, despite steady growth in ULIPs and savings. While the company has signalled ambitions to scale protection, the retail term piece has yet to break decisively into the teens, leaving ample room for expansion if affordability and distribution improve.
Even at HDFC Life Insurance, management and analyst notes consistently point to a modest contribution from retail term. The company has focused on higher-ticket size policies, the average reached Rs 82,600 in FY25 but protection’s contribution has lagged, keeping it a relatively small component of new business.
How the GST change reshuffles incentives
Individual policies become cheaper starting September 22, 2025. The sticker price on term and individual health renewals will reduce because the 18 percent tax component stands removed for new policies and renewals falling due on or after September 22, 2025, giving immediate, visible savings to retail buyers.
Group policies are still taxed at 18 percent with employer-sponsored and group covers remain in the 18 percent slab. “That creates a relative cost advantage for individual policies versus group cover, at least on direct premium outflows, and could prompt some corporates and brokers to re-evaluate whether to keep paying for group cover or to nudge employees toward individual term options,” said the analyst cited above.
However, a key uncertainty lies in how the GST change is classified.
Moneycontrol reported earlier that insurers are still seeking clarity on whether the move represents a true nil-rated GST or an exemption. The distinction matters because if treated as an exemption, companies cannot claim input tax credit (ITC) on expenses tied to these policies, which could offset part of the customer benefit.
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