Insurance shares were buzzing in the today’s morning trading session, with stocks like Life Insurance Corporation, HDFC Life and SBI Life rallying after the Goods and Services Tax (GST) Council announced its decision to exempt all individual life and health insurance policies from GST.
This recent announcement by the Finance Minister Nirmala Sitharaman will take effect from September 22. Also, this marks a significant policy shift that could alter pricing, demand, and profitability dynamics across the insurance sector. Let’s take a look at why this insurance stocks are rallying the most if you check the list of finance sector stocks and other key details-
Why insurance stocks are rallying
The sharp gains in insurance counters come after the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman decided to do away with GST on premiums of life and health insurance policies. As per the FAQs published by the Government on GST in insurance sector.
“GST exemption on life insurance: The policies covered under the exemption recommended on life insurance are all individual life insurance policies, including term, ULIP, and endowment plans and reinsurance services thereof.
“GST exemption on health insurance: The policies covered under the exemption recommended on health insurance are all individual health insurance policies including family floater plans and senior citizen policies and the reinsurance services thereof.”
The reason it instantly led to a fillip in the insurance stocks is primarily because till now, consumers were paying 18% GST on health and term life plans, while endowment and annuity products attracted rates between 1.8-4.5%.
With the exemption, premiums will become cheaper for policy-holders, potentially improving penetration in an underinsured market. For listed insurers like Life Insurance Corporation, HDFC Life and SBI Life, the decision initially looks positive as demand could pick up sharply during the festive season.
Double-edged sword for insurers
For consumers, the benefit is clear. This means premiums fall by nearly 15% in some cases, especially for retail health and term insurance.
But for insurers, the story is a bit complex. Since reinsurance forms only about 30–35% of an insurer’s cost base, and many policies are not even reinsured, the exemption does not provide full relief. Instead, it leaves insurers grappling with higher operating costs due
JM Financial outlook: Savings plans get a surprise boost
According to JM Financial, the GST exemption is not just a relief for protection plans but a bigger positive for traditional savings products. The brokerage called it a “positive surprise” that makes life insurance more competitive compared to bank fixed deposits and mutual funds.
“The exemption on savings plans is a positive surprise and benefits players who are strong in the traditional business – Max Financial Services and HDFC Life,” JM Financial noted in its report.
On the impact for customers, the brokerage explained: “Exemption in GST to the extent of 2.25% on regular premiums implies that an insurer offering a 6% return guarantee can offer 10-15bps higher returns, on an IRR basis.”
It further highlighted that life insurers like LIC, HDFC Life, and Axis Max Life, which derive more than 50% of their annual premium equivalent (APE) from traditional plans, stand to benefit the most. “Players strong in protection and traditional business to benefit the most – Max Financial Services and HDFC Life,” the brokerage said.
On the broader sector, JM Financial added: “GST exemptions make the insurance products more attractive for customers…With pricing leeway and a product mix shift to higher-margin return guarantees, we expect the space to continue to do well.”
HDFC Life Insurance remains the top pick for the brokerage house. They see the stock delivering an 18% VNB growth annually on a compounded basis between FY25-FY28, trading at 2.2x FY27e EVPS.