Overview

The press release explains how the exemption of Goods and Services Tax (GST) on eligible individual life‑insurance policies, effective 22 September 2025, changes the cost dynamics between Unit‑Linked Insurance Plans (ULIPs) and a combination of term insurance plus a Systematic Investment Plan (SIP) in mutual funds.

GST Exemption Details

  • Eligible individual policies – term insurance, ULIPs and endowment policies – are now GST‑free.
  • Group life‑insurance policies remain subject to GST, so the exemption applies only to personal policies.
  • The exemption removes the tax‑related component of the premium cost for these products, but it does not eliminate product‑specific charges.

Product Structures

ULIP

  • Combines life‑cover with market‑linked investment within a single insurance contract.
  • After deducting applicable charges, the remaining premium is allocated to the policyholder‑selected funds.
  • Charges may include mortality, fund‑management, and policy‑administration fees, as stipulated in the policy document.
  • Generally imposes a five‑year lock‑in period; investors can switch funds, make partial withdrawals, or surrender subject to policy terms.

Term Insurance + SIP

  • Life cover is provided solely by a term insurance policy; investment is made separately through a mutual‑fund SIP.
  • The SIP is an investment method, not a distinct product, and its liquidity and exit conditions depend on the chosen mutual‑fund scheme’s rules.
  • Investment costs are limited to the mutual‑fund’s expense ratio and any applicable transaction fees; the term policy has its own premium cost but now benefits from GST exemption.

Cost Comparison

  • ULIP cost assessment must consider all embedded charges (mortality, fund‑management, administration) in addition to the premium.
  • For the SIP route, investors should evaluate the mutual‑fund’s expense ratio and any exit loads, while the term policy’s premium is now GST‑free.
  • Zero GST reduces the tax component for both ULIPs and term policies, so the decision cannot rely on GST savings alone.

Liquidity and Flexibility

  • ULIPs: five‑year lock‑in, with options for fund switching, partial withdrawals, and surrender after the lock‑in, subject to policy conditions.
  • SIPs: liquidity is governed by the underlying mutual‑fund scheme; investors can typically redeem units on any business day, subject to any scheme‑specific exit load.

Investment Risk

  • Both ULIP fund values and mutual‑fund SIP units are market‑linked; returns are not guaranteed and can fluctuate with market performance.
  • Past performance is not indicative of future results; investors should align product choice with their risk tolerance and investment horizon.

Decision Framework

The release advises investors to compare the two approaches based on:

1. Required life cover – ensure adequate protection for family needs.

2. Investment horizon – longer horizons may favor ULIPs if lock‑in is acceptable.

3. Risk appetite – both options expose investors to market risk.

4. Cost structure – evaluate all charges, not just GST.

5. Liquidity needs – consider lock‑in versus fund redemption flexibility.

6. Long‑term financial goals – align product choice with retirement, education, or home‑purchase objectives.

Conclusion

Zero GST changes the cost environment for eligible individual life‑insurance products but does not automatically make ULIPs superior to a term‑insurance‑plus‑SIP strategy. The optimal choice depends on individual cover requirements, risk tolerance, investment timeline, liquidity preferences, and overall financial objectives.

Disclaimer: The above press release is provided under an arrangement with NRDPL. PTI takes no editorial responsibility for the content.