Term insurance purchasing is the wisest financial decision you can make to secure your family’s future. It provides them with a feeling of security even when you are not present. But before purchasing a plan, it is necessary to understand how much premium you are required to pay. For this, a term insurance calculator comes in handy. A term insurance calculator is a simple online application that informs you of how much you will be paying for your policy. You simply enter your age, salary, coverage limit, and policy period, and it provides the premium to you immediately. But have you ever wondered why the actual premium price is slightly more than what you anticipated? That’s due to GST, or Goods and Services Tax, which gets added to your premium.
Let’s learn how GST affects your term insurance premium and how you can calculate it through a calculator to understand the exact amount you will be paying.
What Is Term Insurance and Why Does It Matter
Term insurance is an easy and inexpensive form of life insurance. You pay a small premium, say for a fixed duration, such as 10, 20, or 30 years. In exchange, if any untoward incident happens to you within that period, your family receives a lump sum. This money is used by your family to take care of everyday expenses, settle loans, or fund the education of children. In short, it keeps them comfortable even without your presence.
Since term insurance offers high coverage at low premiums, it’s among the most sought-after kinds of insurance today. However, like every other thing you purchase, your term insurance premium also incurs taxes.
Learning about GST on Term Insurance
Let’s now discuss GST on term insurance. GST refers to Goods and Services Tax. It is a levy the government imposes on nearly every item and service we purchase, from groceries to automobiles, and even on insurance. GST was rolled out in India in 2017 to consolidate various levies. For insurance policies such as term insurance, GST is 18%.
For instance:
If your base premium is ₹10,000 annually, the GST will be ₹1,800. Thus, the amount you actually pay becomes ₹11,800. Thus, though the insurance company gets ₹10,000 as the actual premium, the additional ₹1,800 is paid to the government as tax. Though GST makes your overall premium a bit higher, it is a general rule and is applicable to all life insurance companies in India.
Why Is It Important to Know About GST?
Most individuals overlook the tax component while budgeting for term insurance. They usually consider only the minimum premium illustrated in advertisements or on websites. However, the amount you pay each year is inclusive of GST as well. Once you know the GST impact, you can plan your outgoings more effectively and avoid surprises later. You’ll be very clear about how much will be debited from your bank account every year.
This is where a term insurance calculator makes it convenient. It provides you with a clear picture of the base premium as well as the overall cost, including GST.
How Does a Term Insurance Calculator Help
A term insurance calculator is an online, free facility provided by the websites of most insurance companies. You can access it at any time without having to speak to an agent or complete lengthy forms.
How it works:
- Go to the website of an insurance company.
- Open their term insurance calculator.
- Input your details: age, gender, yearly income, and smoking habit.
- Set the coverage amount (sum assured) you prefer, such as ₹1 crore or ₹1.5 crore.
- Choose your policy tenure, for example, 20 or 30 years.
- Click on “Calculate Premium.
Within a few seconds, the calculator displays your approximate premium. Some calculators even display two amounts, one pre-GST and one post-GST. This lets you know the overall premium of your policy, along with the GST on term insurance.
Example: How GST Impacts Premium Calculation
Let’s consider a straightforward example. Assume you are 30 years old, and you need a term insurance plan with a cover of ₹1 crore for 25 years.
- The minimum premium excluding GST could be approximately ₹9,000 per annum.
- Applying an 18% GST would translate to ₹9,000 × 18% = ₹1,620.
- So, the annual premium you pay is ₹10,620.
Now consider this small variation over 25 years, that’s ₹40,500 more in GST over the policy period. It doesn’t mean you have to worry. It’s just a fraction of the overall cost, and being aware of it helps you plan.
Factors That Influence Your Premium (Before GST)
Your premium value is based on various factors, even before GST is included. Some of the most important factors are:
- Age: Younger individuals pay less premium as they are considered lower risk.
- Lifestyle habits: Smokers will typically pay a higher premium.
- Health: Any existing medical conditions can drive your premium up.
- Coverage amount: A greater sum assured translates into a greater premium.
- Policy term: Increased policy durations might have marginally higher premiums.
Once the base premium has been arrived at using these parameters, the GST is charged over this to obtain the final premium you pay.
How to Use a Calculator to Save Money
Although you can’t escape GST, you can still make use of a term insurance calculator to get a plan that fits your budget. Here’s how:
- Compare several plans: Use calculators from various insurers. Compare overall costs including GST.
- Adjust cover and term: At times, reducing your cover by a small amount or altering the policy term can help cut your overall premium.
- Choose yearly payment: Most insurers provide a discount in case you pay annually instead of monthly.
- Buy online: Online term plans tend to be more affordable as they involve fewer intermediaries.
If you use the calculator judiciously, it is possible to achieve a balance between adequate coverage and a reasonable total premium even after paying GST.
Why You Should Still Buy Term Insurance
You may wonder, “GST hikes my premium, so should I delay buying a policy?” The answer is a firm no. Despite the 18% GST, term insurance remains the cheapest and most worthwhile form of life cover you can purchase. For a modest annual fee, your loved ones receive enormous financial security. And, of course, the premium that you pay for term insurance can also provide you with tax relief under Section 80C of the Income Tax Act. Therefore, while GST is a tiny bit of an added expense, the peace of mind and cover you receive in return are invaluable.
Conclusion:
Knowing GST on term insurance makes you make wiser financial decisions. The 18% taxation is set by the government for all people, but being aware of it makes you budget more correctly. Before purchasing your policy, always check using a term insurance calculator so you can view the true picture of your base premium and the actual cost with GST. It’s easy, quick, and saves you from last-minute confusion.
Term insurance is not a mere expense, keep in mind. It’s an investment in your family’s security and your future. And by using the calculator, you are sure to know what you’re paying and why.
So, take a few minutes today, open a calculator online, and find the best plan that fits your needs because a little awareness now can protect your loved ones for years to come.
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