The removal of GST on life and health insurance premiums has triggered a sharp spike in demand, with LIC recording ₹1,100 crore inflows on the very first day of implementation. The decision, effective September 22, 2025, is expected to make policies more affordable, encouraging higher coverage penetration. While most of the initial demand came from endowment products, insurers expect long-term gains from higher annual commitments as prices fall.
Core Development
LIC saw ₹1,100 crore of new inflows on Day 1 post-GST exemption, against its monthly average of ₹5,000 crore.
Demand was largely driven by traditional endowment products, not new offerings.
Buyers and agents had delayed purchases in anticipation of the tax cut, releasing pent-up demand.
GST Council’s move covers term, ULIP, traditional life insurance, and health covers, including family floaters and senior citizen plans.
Key Drivers / Issues
Affordability boost from nil GST on premiums.
Pent-up demand as customers postponed purchases until after the exemption.
Broader inclusion of life and health insurance products under zero tax.
Rising ticket sizes across policies, with affordability expected to further push premium commitments.
Stakeholder Impact
For policyholders, the exemption reduces upfront costs and expands access. Insurers gain momentum in both new policies and renewals. Agents benefit from higher sales conversions. For the government, the move aligns with the goal of boosting insurance penetration and long-term savings.
Industry & Policy Reactions
Industry executives said the exemption could reshape buying behaviour, with more families opting for coverage. LIC noted that September’s initial slowdown was due to customers waiting for the exemption. Private insurers also expect similar demand surges.
Challenges Ahead
Ensuring demand sustains beyond initial pent-up purchases.
Educating consumers on product choices beyond cost savings.
Balancing rising ticket sizes with actual policyholder needs.
Strategic Outlook
Nil GST is likely to emerge as a catalyst for deeper insurance penetration, supporting the government’s broader financial inclusion agenda. If sustained, it could significantly expand India’s life and health insurance coverage base.
Why This Matters
By making insurance more affordable, the nil GST regime addresses a critical barrier to coverage. The early surge in LIC sales highlights the potential of policy-driven demand acceleration in India’s underpenetrated insurance market.
