Term Plans Boom Post-GST Cut: Is This Sustainable?
India’s life insurance sector has benefitted considerably with the Sept 2025 GST reform. The new wave of demand for the most basic product i.e., pure term plans, is driving a welcome surge to the insurer’s revenues. This boom is the direct result of the GoI’s (Government of India’s) "GST 2.0" reform, of completely removing the 18% GST on individual term and standard health insurance policies.
The market's reaction has been quick and explosive. For instance, PB FinTech (Policybazaar’s parent company), reported an initial 2.5x surge in term insurance purchases (which has since stabilised at a robust 1.8x). This is a policy-driven boost and has lifted the entire industry. India’s life insurance sector's NBP (New Business Premium) grew 12.1% YoY in Oct and reached ₹34,007 cr. This is a sharp rebound from the 5.2% plunge seen in Aug, this year.
Major players like HDFC Life (>50% YoY surge), Axis Max Life (34% YoY surge), and SBI Life (33% YoY surge) have reported notable growth in their protection segments in Sept 2025.
The GST 2.0 policy catalyst is energising the market. However, there is a crucial question for investors: is this a one-time sales bump, or the beginning of a deep, structural shift in how Indians buy insurance?
What Exactly Did This GST Reform Unlock?
The earlier 18% GST (Goods and Services Tax) on insurance premiums was a major point of friction for years. This had especially impacted the pure-protection products. A term plan, unlike a ULIP or endowment plan, has no investment component or maturity value. Instead, it is a (pure) cost for a pure risk cover. The 18% tax was, in effect, had made this essential financial product noticeably more expensive and less preferred.
This tax had created a behavioural hurdle. Particularly, the more price-sensitive and critical demographic i.e., first-time buyers and young earners couldn’t prioritise to a greater extent. Thus, GoI's decision to completely eliminate this tax on new individual term and standard health policies has been a fundamental game-changer, impacting two things immediately.
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Lowered the Entry Barrier - The GST elimination has made pure-protection products instantly cheaper and more accessible for millions of new customers.
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Aligned Policy with Need - It has aligned India's tax policy with the long-term social and economic goal of increasing insurance penetration, which was one of the lowest among developing nations. This move has signalled a clear regulatory focus on "protection-first" products.
This development, as PB FinTech's data clearly shows, has evidently stimulated the insurance market.
Is This Lifting the Entire Insurance Sector?
The tax cut was specific to protection plans. However, the positive sentiment has had a powerful "halo effect," and has lifted the entire life insurance industry. The 12.1% NBP growth in Oct 2025 is a clear sign that the sector's underlying business momentum has returned.
Analysts at CareEdge Ratings have noted that the GST reduction provided a "timely boost" to sales. This has arrested the decline seen in late summer. This growth is not isolated to one or two players, but it is widespread across the board, benefiting both the state-owned LIC and private insurers, who have all achieved double-digit growth.
Strong performance in the individual segment is driving the demand of particularly non-single premium policies. This is a very healthy sign for the industry. It is an indicator of growing demand for recurring products (like term plans and traditional policies where premiums are paid annually), rather than one-time, lump-sum investment-heavy products. But does it signal a sustainable, recurring inflow for insurers, which is a more stable business model?
The Demand Surge Momentum
All signs are pointing to this being more than a temporary spike. Industry executives have stated that they are expecting this trend to sustain. The PB FinTech data, which showed the initial surge "stabilising" at a new, higher baseline appears to be a permanent step-change in demand, not just a fleeting festival-season sale.
The GST cut is expected to grow the overall market by making insurance accessible to a whole new set of buyers. However, the long-term sustainable growth of the sector would be supported by a combination of three main pillars:
- Supportive regulations (like this GST cut)
- Innovative product offerings
- Stronger distribution networks (especially digital channels)
This may be the first step in a much broader, long-term shift in how Indians approach financial planning by moving from a "savings-first" to a "protection-first" mindset.
Source
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