Understanding Why Term Insurance is a Premium Product with 18% GST in India

Term insurance has long been a vital component of life insurance, offering a high degree of financial protection to policyholders. However, in India, this crucial policy comes with a few nuances that set it apart from other forms of insurance. One such aspect is the application of goods and services tax (GST) at 18%, which has sparked curiosity and discussions among potential policyholders. In an exclusive interview, the Chairman of the Life Insurance Corporation of India (LIC), M.R. Kumar, provided insights into this.

The Significance of GST in Term Insurance

The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax that has been implemented in India to maintain a uniform tax structure across the country. For term insurance, the application of GST at 18% is significant, as it reflects the value-added services involved in the insurance process, including claims handling, policy management, and risk assessment. Understanding this can help potential policyholders make more informed decisions about their financial protection needs.

Key Insights from M.R. Kumar

M.R. Kumar, the Chairman of the Life Insurance Corporation of India (LIC), shed light on the reasons behind the 18% GST on term insurance. According to Kumar, the application of GST is directly proportional to the value added at each stage of the insurance process. This includes activities such as:

Underwriting and risk assessment of policyholders Claim handling and management Premium calculation and administration Policy maintenance and support

Kumar emphasized that the 18% GST is a well-thought-out measure that ensures transparency in pricing and aligns with international standards. This measure is crucial in reflecting the true cost of providing comprehensive term insurance coverage to individuals and families.

Why Term Insurance is Considered a Premium Product

Term insurance can be considered a premium product due to several factors:

Risk Management: Term insurance is designed to provide pure insurance cover without any additional benefits, making it a focused and effective way to manage financial risks associated with unexpected death. Cost-Effectiveness: Term insurance offers the best value for money, as it minimizes unnecessary features and focuses solely on providing maximum coverage. Flexibility: Term insurance policies offer flexibility in terms of tenure and coverage, allowing policyholders to customize their plans according to their specific needs. Comprehensive Protection: While seemingly straightforward, term insurance ensures that policyholders and their dependents are adequately protected in the event of untimely death, which can be a significant relief to families.

Kumar also highlighted that term insurance is meticulously crafted to meet the diverse financial needs of individuals and families. This is further underscored by the fact that it is a regulated product, ensuring that policyholders receive the promised benefits and services.

The Impact of 18% GST on Term Insurance Policies

The 18% GST on term insurance is not a simple price tag but a reflection of the value added by the insurance company. This value is in the form of:

Coverage: Extensive coverage that protects the policyholder and their dependents against financial uncertainties. Claims Management: Efficient and prompt claim settlements, ensuring that policyholders receive the necessary funds to cover their financial obligations. Risk Assessment: Rigorous underwriting processes that assess the risks associated with each policy and set appropriate premiums. Policy Support: Continuous support and updates to keep the policy relevant and effective for the policyholder.

By understanding these factors, potential policyholders can appreciate the value of term insurance with 18% GST and make well-informed decisions about their financial protection needs.

Conclusion

In conclusion, the application of 18% GST on term insurance is not only a part of the broader GST framework but also a measure that ensures transparency and value for money. The term insurance provided by entities like the Life Insurance Corporation of India (LIC) offers premium protection, value, and flexibility to individuals and families. As a premium product, term insurance stands out due to its focus on pure insurance cover, cost-effectiveness, and comprehensive protection.