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GST Exemption On Premiums May Boost Insurance Penetration 'To An Extent': Experts

GST exemption could particularly entice younger, first-time buyers, especially those in the 25-40 age group, who are often put off by the cost, according to experts.

<div class="paragraphs"><p>Insurance penetration is likely to get more affordable, especially attracting first time buyers. Credit: Freepik</p></div>
Insurance penetration is likely to get more affordable, especially attracting first time buyers. Credit: Freepik
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In a significant relief for individual policyholders, the group of ministers on GST reform is set to recommend a complete exemption of goods and services tax on health and life insurance premiums under the revamped regime expected to roll out around Diwali.

If health and life insurance premiums are exempt from the ambit of GST, experts believe insurance penetration is likely to get more affordable, especially attracting first time buyers. Still, challenges around awareness, financial literacy, and product understanding remain.

"The proposed exemption from GST on health insurance is a welcome step that addresses issues of affordability and accessibility that have long been under consideration," said Narendra Bharindwal, president at the Insurance Brokers Association of India.

The insurers should pass through the benefit in the form of lowered premiums, with an oversight authority ensuring such pass-through, adding that since affordability and trust are vital in increasing insurance penetration, insurers would not be inclined to keep the incentives with themselves.

The exemption could particularly entice younger, first-time buyers, especially those in the 25-40 age group, who are often put off by the cost, he said. Early entry into the insurance fold is advantageous for the person as it also benefits the industry in risk pooling, he added.

The development could open doors to a broader customer base, Hanut Mehta, CEO and co-founder at BimaPay Finsure also said. First-time buyers can make the most of this by going for a multi year policy which will eventually help beat the inflation, making insurance affordable, he also said.

Additionally, younger customers who are already accustomed to structured financial products may be more receptive to financing options that allow them to spread out their premium payments. This could further reduce the entry barrier.

Penetration linking to premium alone is a misnomer, said Balasundaram R, secretary general at IBAI. Value perception is even more critical compared to price, he said. While reduced price is an added advantage, there is a long way to go to increase penetration, Sundaram said. As such, recent developments may result in a rise but maybe not a boom.

Awareness, financial literacy, and product understanding also matter significantly, said Mehta. If insurers and distributors combine the exemption with better outreach and education, the overall impact on demand could be much stronger, he added.

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