Things to Know Before You Buy Term Insurance: GST & Premium Costs

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Purchasing term insurance is the best decision you can make in securing your family’s future. When you purchase term insurance, you’re not simply investing in a policy; you’re investing in peace of mind. It guarantees that your loved ones remain financially secure, even if something untoward happens to you. But first, you know, before you actually go out and buy a plan, there are two crucial things you should know: how your premium is determined and how GST impacts it. Let us explain it in the most basic terms possible.

What Is Term Insurance and Why Do You Need It

Term insurance is a form of life insurance that gives you financial security for a specific period. You pay a small premium annually, and in return, your family receives a large sum (the sum assured) if anything untoward happens to you within the policy duration. It’s one of the cheapest methods of keeping your family secure financially. You don’t receive any maturity value if you survive the term, but the security it provides is well worth every rupee.

For instance, if you’re 30 and purchase a ₹1 crore term insurance policy, you could end up paying only ₹700-₹900 per month based on your health profile and the insurer. That’s lower than the amount of money many people spend monthly on coffee or streaming apps!

Understanding How Term Insurance Premiums Work

Before you enrol for any policy, it’s a good idea to know what factors are involved in determining your premium amount. These are the primary factors that determine your term insurance premium:

Age: Older people pay more premiums since they are at a higher health risk.
Lifestyle: Heavy drinkers or smokers tend to pay more premiums.
Policy Tenure: Longer plans may have more premiums but also provide a longer coverage period.
Sum Assured: The greater the amount of coverage, the more you pay, but it guarantees your family full protection.
Health History: Your past medical history also comes into play. Insurers can charge more if you have some pre-existing medical conditions.

The silver lining? You can compare policies online quickly today. Most websites allow you to compare quotes instantly and assist you in selecting the best one for your budget.

GST on Term Insurance: How It Impacts Your Premium

Let’s discuss GST on term insurance, something most people forget while purchasing their policy. In India, GST has been imposed on nearly every financial product, including insurance. The GST rate on term insurance premiums is 18% currently. It implies that whenever you purchase a policy, you end up paying 18% more than your base premium as tax.

Let’s explain it simply:

If your base premium is ₹10,000 annually, then GST will be ₹1,800 (18% of ₹10,000).

Thus, your total payable premium is ₹11,800.

The government levies this tax, not the insurance company, and it is applicable to all life insurance policies, such as term plans, endowment plans, and ULIPs. While 18% may sound high, the total cost of a term plan remains quite affordable compared to other types of life insurance. Remember, you’re paying only for protection; no savings or investments are included, which keeps the base premium low.

Why Understanding GST Is Important

Most consumers only see the base premium and are shocked when the payment is more. Understanding GST enables you to budget more effectively. It also enables you to compare insurers equitably. In comparing quotes, always ensure that you check if the premium quoted includes GST or not. Some sites quote “premium before tax,” while others quote the ultimate “premium after tax.”

If you overlook this, you may consider a policy to be cheaper when actually it is only seemingly so because the taxes are not being added yet.

Can You Save Tax on Term Insurance?

Here’s the plus point: when you pay GST on your premium, you can continue to save money through income tax deductions. According to Section 80C of the Income Tax Act, the premium you pay for your term insurance policy is eligible for tax deduction up to ₹1.5 lakh annually. That allows you to cut your taxable income and save on your annual tax liability.

And if your loved ones get the insurance amount in the event of your untimely demise, that too is entirely tax-free under Section 10(10D). So, although GST increases your expenses slightly, tax benefits keep things even.

Ways to Cut Down Your Premium Expense

Though GST is a fixed rate, there are methods to decrease your total premium expense:

Purchase early: The younger you are when you buy, the lower your premium.
Opt for annual payments: Annual payments are usually cheaper than monthly or quarterly payments.
Stay healthy: Being healthy reduces your risk and makes your premium lower.
Compare before buying: Utilise online calculators or aggregator websites to compare the rates before you buy term insurance.
Select correct coverage: Don’t underestimate or overestimate your coverage requirement. Buy a sum assured of at least 10–15 times your yearly earnings.

By simply following these little tips, you can find the best coverage at the best price.

How to Purchase Term Insurance Online

Purchase of term insurance online is now very simple. Here’s a brief step-by-step guide:

Go to a reliable insurance website or try an online comparison site.
Fill in your information, such as age, income, and lifestyle.
Select the amount of coverage and policy term.
Compare various plans to select one that fits your requirements and budget.
Fill out the form and upload documents such as ID proof, address proof, and medical reports if needed.
Pay for it (remember GST is added to the bill).
Procure your policy document instantly through email.

The entire process is rapid, paperless, and trouble-free. Additionally, purchasing online tends to offer you lower premiums because there are no middlemen.

Common mistakes to avoid when buying term insurance

Although term insurance is straightforward, most people commit tiny blunders that could cost them in the long run. Here are a few to be avoided:

Don’t hide medical conditions: Always provide accurate information about your health. Concealment may result in a claim rejection.
Selecting the lowest premium blindly: The lowest premium doesn’t always mean the best. Check claim settlement ratios, customer feedback, and service quality.
Failure to update the nominee: Make sure your nominee’s information is always current to prevent future issues.
Not considering the GST aspect: Always verify the price inclusive of GST before you confirm your purchase.

Conclusion

When you purchase term insurance, you’re taking one of the most considerate steps towards the protection of your family. It’s a guarantee that regardless of what may happen, your family won’t have to worry about money. Knowing how your premium and GST on term insurance function enables you to make an informed, clear, and confident decision. Don’t see the price; think in terms of value, coverage, and dependability. Ultimately, term insurance isn’t a policy. It’s a safeguard that provides your family with strength, security, and peace of mind, and that is worth more than any amount of money.