The impact of a nil GST on Individual life and Health insurance premiums is a significant reform that primarily benefits policyholders by making insurance more affordable, while creating both challenges and opportunities for insurance companies and agents. The reform is a major step toward increasing insurance penetration in India.
For Policyholders: A Direct Benefit
For policyholders, the most immediate and tangible impact is the reduction in the cost of premiums. Previously, an 18% GST was applied to life and health insurance premiums. With the GST rate now at nil, this tax burden is completely removed. This makes policies more affordable, especially for the middle class and first-time buyers who may have found the previous costs prohibitive. For example, a policy that cost ₹11,800 (including ₹1,800 GST) will now cost just ₹10,000. This is expected to:
* Increase affordability and encourage more individuals to buy insurance.
* Widen the protection gap, especially for critical segments like term and health insurance.
* Enable higher coverage, as policyholders can now afford a greater sum insured for the same outlay.
For Insurance Companies:
Navigating a Mixed Bag while the move is a boon for consumers, insurance companies face a more complex situation. Their primary challenge is the loss of Input Tax Credit (ITC). Under the previous tax regime, insurers could claim ITC on GST paid for their operational expenses, such as agent commissions, rent, and marketing. Since premiums are now GST-exempt, they lose the ability to offset these costs.
* Increased Operational Costs: The GST paid on these inputs becomes a direct cost for the company, potentially leading to short-term margin pressure.
* Pricing Adjustments: Insurers may need to slightly adjust their base premium rates to account for the lost ITC. However, even with these adjustments, the final premium amount is still expected to be lower for the consumer.
* Long-Term Growth: In the long run, the reform is anticipated to boost insurance penetration and sales volume. This increased demand could lead to economies of scale, helping companies offset the initial cost pressures and achieve sustainable growth.
For Insurance Agents:
A Boost in Business Insurance agents and brokers are set to benefit from the policy change. The increased affordability of policies is expected to drive higher demand, leading to a surge in sales volume.
* Higher Sales and Commissions: With policies becoming easier to sell, agents can expect an increase in the number of policies sold, which will directly translate to higher commission earnings.
* Easier Sales Pitch: The removal of the 18% tax component makes the product more attractive, simplifying the sales pitch and helping agents acquire and retain customers more effectively.
Regards,
Ritesh Sheth CWM®
(Chartered Wealth Manager)
Registered Insurance Agent With LIC OF INDIA AND Bajaj Allianz general insurance co Ltd.
Disclaimer: *Views are Personal!*
Insurance is a subject matter of solicitation
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