Calls to insurance customers have spiked in the recent past. The reason: a rush to beat the GST date. Come July 1, the tax on your insurance premium is set to go up from 15% to 18%. This is not insignificant. On a car insurance of Rs 20,000, this will translate into an increase of Rs 600. A similar in- crease in premiums is expected across other insurance product categories— health insurance, fire insurance, theft insurance….
Insurance agents are therefore pushing customers to pay their insurance premiums before July 1 and save on the 3% increase. Automobile insurers are especially active on this. Along with the discounts being offered along with freebees on purchase of new vehicles, the lower insurance premium is proving an added incentive to push sales. Car dealers and insurers are going all out to woo customers. While car dealers are primarily looking to sell-off existing inventory before July 1, the insurers are keen to notch up policy sales ahead of July 1, post which they expect some slowdown due to uncertainty, compliance issues and the higher tax. Given this, it may be a good idea to buy that car or get that health and home insurance policy you’ve been meaning to before July 1.
As far as life insurance goes, the tax increase remains the same, but the impact in rupee terms will vary based on the kind of policy. As far as term policies go, the entire amount paid goes towards insurance. Hence the increase in premium will be a straight 3%. So if your present term insurance premium is Rs 25,000, post-GST it will be Rs 25,750.
For endowment plans and unit-linked plans, that bundle savings with insurance, the higher tax will be levied only on the insurance component. So, if out of Rs 10,000, the investment portion is Rs 6,000 and the insurance portion Rs 4,000, there will be a 3% increase in tax only on the latter, amounting to Rs 120.
Therefore, life insurance too is likely to get costlier with the additional levy. How- ever, this increase should not influence you in planning how much insurance cover you need, or in which policy you choose. Those need to be decisions in- dependent of tax rates and levies, which would impact the entire industry.
One kind of policy where the tax rate can make a significant difference from a future perspective is the single premium policy. As these policies re- quire only a single premium payment throughout the term of the policy, buying such a policy before July 1 can provide significant savings in premium outgo—the 1.5% tax on premium will rise to 1.8% post-GST. Other than that, there’s not much for you to do with respect to your insurance. So, don’t lose your cover or your night’s sleep over GST. Insurance is too important for a hike in tax rate to change your plans. Stay covered, stay secured.