Insurers expect surge in small-ticket policies after GST cut, bet on higher adoption with affordable premiums

Starting September 22, 2025, individual health and life insurance premiums will attract 0 percent GST, down from the earlier 18 percent. 

The GST Council’s decision to exempt individual health and life insurance from GST is being welcomed by the insurance industry as the affordability of insurance policies is set to improve. However, the industry believes they would also have to recalibrate their strategies to capture an expected surge in demand for insurance products, mainly the small-ticket policies.

At its 56th meeting on September 3, the GST Council approved a major tax reform aimed at reducing the cost burden on individuals. Starting September 22, 2025, individual health and life insurance premiums will be exempt from 0 percent GST, down from the earlier 18 percent rate.

According to clarifications from the Council, accident and travel insurance could also be considered for similar treatment in the future.

The move, the GST Council said, aligns with its broader objective of easing the financial burden on families and boosting insurance penetration as part of India’s 'Insurance for All by 2047' vision.

For consumers, the decision translates into instant savings of 18 percent on premiums for individual health and life insurance policies. This could also encourage customers to increase their sum insured, helping bridge India’s protection gap at a time when medical inflation is on the rise.

Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance, said, “This decision makes healthcare protection more affordable at a time of rising medical inflation. It’s a progressive step that aligns with the vision of Insurance for All.”

Premium financing companies, which help customers spread their insurance payments, are also preparing for adjustments as GST exemption changes the dynamics of premium financing.

Hanut Mehta, CEO and Co-Founder of BimaPay Finsure, said, “It’s a turning point. Affordable insurance will drive inclusion, but industry players must adapt to sustain profitability.”

He explained that the average ticket size for financing will shrink in the short term because the tax element has been removed. But the bigger opportunity lies in expanding the market.

"Lower entry costs will encourage first-time buyers to consider insurance. This is where we see real growth potential -- wider adoption and a larger customer base,” he added.

According to Mehta, financing companies will now have to adapt their operating models to handle smaller ticket sizes at scale, requiring greater use of technology and streamlined processes.