Navigating Life Insurance Premiums, Stocks, and the GST Maze

For most of my 20s, “insurance” was a word I associated with a single, annoying debit from my bank account. It was a black box. I paid for it because I was told to. My health insurance was a basic policy my father had bought me, and my life insurance was a dusty file from a relative who worked as an agent. I was, in simple terms, financially asleep.

My wake-up call didn’t come from a single dramatic event, but from a slow, creeping realization. It started with a colleague, barely 40, who was financially devastated by a family medical emergency despite having a policy. It continued when I started looking at my own financial “plan” and realized I had no plan at all. And it culminated when I received my annual health insurance renewal notice and saw a premium hike of 22%—for no apparent reason.

That 22% hike was the straw that broke the camel’s back. I was angry. Where was this money going? Why was it going up so much? And what was this “GST” component that accounted for a huge chunk of it?

My anger turned into curiosity, and that curiosity turned into a year-long obsession. I dove headfirst into the world of Indian insurance. What I discovered was a fascinating, complex, and often frustrating ecosystem. I found myself untangling three core threads that every Indian family must understand:

The Cost of Protection: Why are health insurance premiums skyrocketing, and what can we actually do about it?
The Business of Protection: If insurance is such a massive, profitable industry (as my premium hike suggested), should I be investing in life insurance stocks?
The Tax on Protection: How does the GST on insurance quietly undermine our financial security, and how do we budget for this invisible drain?

This article is my experience. It’s the story of how I went from a passive, confused premium-payer to an active, informed financial participant. I’m not a certified analyst, but I am a fellow reader and a citizen who has done the homework. I’m sharing my journey and my spreadsheets in the hope that it saves you the frustration and fast-tracks you to clarity.

Part 1: The Annual Shock – Decoding My Health Insurance Premium

My journey started with that renewal email. My premium for a ₹5 lakh family floater had jumped from ₹18,000 to ₹21,960. I hadn’t made a single claim. I was fit. My family was healthy. I felt cheated.

So, I did what I should have done years ago: I started asking “why.”

The ‘Why’ Behind the Hike: It’s Not Just You

My first discovery was a relief: it wasn’t personal. My insurer didn’t single me out. Instead, a perfect storm of factors is driving premiums up for everyone in India.

Medical Inflation: This is the big one. General inflation in India might be 5-6%, but medical inflation is consistently in the double digits, often 14-16%. New technologies, expensive diagnostic equipment, better (and pricier) drugs, and higher hospital running costs all get passed on. The hospital I’d walk into today is far more advanced than the one from five years ago, and that advancement has a price tag.
The Age Bracket Jump: I dug into my policy document and found the premium table. It turned out my spouse was crossing an age bracket (e.g., from 31-35 to 36-40). For insurers, this is a red flag. Actuarial tables show a significant jump in health risks at these milestones, so the premium jumps, too. This was a scheduled hit I was simply unaware of.
“No Claim Bonus” vs. “Loading”: I’d always heard of the “No Claim Bonus” (NCB), where your sum insured increases if you don’t make a claim. What I didn’t know about was its evil twin: “loading.” If I had made a claim, especially for a lifestyle-related disease, my insurer could have added a “loading” fee at renewal, permanently increasing my premium.
Post-Pandemic Correction: The COVID-19 pandemic broke the insurance industry’s models. Claims went through the roof, and not just from COVID. People who had deferred treatments were all rushing back to hospitals. Insurers paid out historic sums and are now “correcting” their premium tables to rebuild their reserves. My 22% hike was, in part, a delayed reaction to that global crisis.

My Strategy: From Passive Payer to Active Shopper

Understanding “why” was fine, but it didn’t lower my bill. My next step was to figure out what to do. I decided to treat my insurance renewal not as a chore, but as a financial negotiation.

1. I Became an ‘Aggregator’ Expert:

My first stop was the online policy comparison sites. I entered my details and was stunned. The same ₹5 lakh coverage was available from other reputable insurers for as low as ₹17,000, while some feature-rich plans went up to ₹30,000.

This taught me my first lesson: Brand loyalty is for fools. Insurers often give the best rates to new customers while hiking premiums for existing, loyal ones (a practice called the “loyalty tax”). Just by being willing to port my policy, I had potential bargaining power.

2. I Discovered the ‘Super Top-Up’ Secret Weapon:

While browsing, I kept seeing the term “Super Top-Up.” This was my single biggest discovery.

Here’s the concept I learned: A base policy (like my ₹5 lakh plan) covers you from ₹0 up to ₹5 lakhs. It has a high “deductible” (the amount you pay first), and then it covers everything else.

Let’s look at my math:

Option A (Old Plan): Upgrade my ₹5 lakh base plan to a ₹50 lakh base plan.
- Estimated Premium: ₹45,000
Option B (My New Strategy): Keep my ₹5 lakh base plan (or even port to a cheaper ₹5 lakh plan) AND buy a ₹95 lakh “super top-up” plan with a ₹5 lakh deductible.
- Base Plan Premium (ported): ₹17,500
- Super Top-Up Premium: ₹7,000
- Total Premium: ₹24,500
- Total Coverage: ₹1 Crore (₹1,00,00,000)

By spending just a little more than my renewal premium, I had increased my total coverage from a pitiful ₹5 lakhs to an armor-plated ₹1 crore. The base plan would handle small hospital visits, and the super top-up would protect my family from any catastrophic event (like major surgery or critical illness) that could wipe us out. This, I realized, is how you build a real financial fortress.

3. I Read the Fine Print on ‘Co-Pay’:

Some cheaper plans I found had a “co-pay” clause. This was a trap. A deductible (like in my super top-up) is a fixed amount you pay once per year. A co-pay is a percentage (e.g., 20%) you pay every single time you make a claim. A 20% co-pay on a ₹10 lakh bill is a ₹2 lakh out-of-pocket expense. I learned to avoid co-pay clauses like the plague, unless they were specifically for senior citizen policies where it’s often mandatory.

My final action? I ported my policy. I switched to a new insurer with a better track record, got a ₹5 lakh base plan, and stacked a ₹95 lakh super top-up on it. My total premium was ₹24,500, my coverage was 20x higher, and for the first time, I felt I was in control.

Part 2: From Protection to Profit – My Foray into Life Insurance Stocks

My health insurance adventure got me thinking. This industry is massive. Premiums are rising. Everyone needs it. The companies selling it must be making a fortune.

This thought collided with another experience. My old-school agent was trying to sell me a “wonderful new savings plan,” a ULIP (Unit Linked Insurance Plan). He showed me glossy brochures of 12% returns. I ran the numbers. The charges were absurd. The mortality charges, fund management fees, and premium allocation charges would eat up my returns for the first five years.

I had an “Aha!” moment.

My agent was trying to sell me a complicated, expensive product. But what if I just bought the company?

Instead of buying a ULIP from HDFC Life, what if I just bought the HDFC Life stock?

This set me on my second journey: understanding the life insurance stocks listed on the NSE and BSE. I wanted to move from being a customer of the insurance industry to being an owner.

The ‘Why’ of Life Insurance Stocks: The “India Story”

I quickly learned that investing in Indian life insurance companies isn’t just a bet on one company; it’s a bet on the entire “India Story.” Here’s what I found:

Massive Under-penetration: This is the most important factor. In India, the insurance penetration (premiums as a % of GDP) is abysmally low, around 3.2%, compared to a global average of over 7%. This isn’t a bad thing for an investor; it’s an opportunity. It means the runway for growth is enormous. There are hundreds of millions of Indians who have no life insurance at all.
The “Stickiest” Customers in the World: Think about it. You pay your life insurance premium for 20, 30, or 40 years. It’s a long-term contract. For the insurance company, this is a beautiful, predictable, recurring revenue stream. This “float” (the premiums they collect and hold before paying claims) is a massive pool of capital they can invest and earn returns on.
Financialization of Savings: As India gets richer, people are moving their savings from physical assets (like gold and real estate) to financial assets (like stocks, mutual funds, and… insurance). The insurance companies are perfectly positioned to capture this massive shift.
The Distribution Moat: The big players (like HDFC Life, SBI Life, ICICI Pru Life) have “bancassurance” partners. This means SBI’s 22,000 branches are selling SBI Life policies. HDFC Bank’s branches are selling HDFC Life. This is a distribution network that no new-age startup can replicate overnight. It’s a powerful “moat.”

My Strategy: How I Learned to Read Insurance Stocks

I made my first mistake almost immediately. I looked at a company like LIC (Life Insurance Corporation of India) and thought, “It’s cheap!”I was trying to value it using the standard Price-to-Earnings (P/E) ratio, the same metric I’d use for a tech or manufacturing stock.

I was completely wrong.

I learned that insurance companies are a different beast. You cannot value them on P/E or P/B (Price-to-Book). I had to learn a new language. Here are the three terms I tattooed on my brain:

1. APE (Annualized Premium Equivalent):

This is the North Star for sales. It’s a measure of the new business written by the company. It’s not just “total premiums,” as that’s mostly old policies. APE tells you if the company is still growing.

2. VNB (Value of New Business) Margin:

This was the game-changer for me. VNB is the profitability of the new business. A company can sell a billion new policies, but if its VNB margin is 10%, it’s less profitable than a company that sells half as much at a 30% margin. The private players (like HDFC, ICICI, Max) have been laser-focused on selling high-margin “non-par” (non-participating) and protection (term) plans, which has driven their VNB margins sky-high (often 27-32%). This is where they create value.

3. EV (Embedded Value):

This is the big one. This is the “book value” for an insurance company. The Embedded Value is, simply, the present value of all future profits from the existing policies on the books.

When you buy an insurance stock, you are paying a multiple of this “EV” (the P/EV ratio). A high P/EV multiple (say, 3x) means the market believes the company will be able to write new business (the VNB) very profitably in the future. A low P/EV (say, 1x) means the market is pessimistic about its future growth.

My Personal Philosophy: “Buy the Company, Not the ULIP”

After all this research, my personal strategy became crystal clear. I call it “S-I-S” (Separate Insurance and Stocks).

Insurance: For my family’s protection, I bought the cheapest, most efficient pure-term plan I could find. This is a pure expense. It’s the cost of sleeping well at night.
Investment: For my wealth creation, I took the money I saved by not buying that expensive ULIP, and I started a SIP into a basket of high-quality life insurance stocks.

This way, my protection is guaranteed, and my investment is in my own control, transparent, and (I believe) riding on one of the biggest growth stories in India. I am no longer just a customer paying into the system; I am an owner profiting from it.

(Disclaimer: This is not investment advice. I am sharing my personal experience and research. Please consult a financial advisor before making any investment plans.)

Part 3: The Invisible Bite – Staring Down the 18% GST

My first two journeys had left me feeling empowered. I had optimized my health coverage and built a thesis for my investments. But there was one thread that was still bothering me: that 18% GST.

On every premium I paid—health, term, even my car insurance—this 18% charge was just sitting there, mocking me.

As I dug in, I realized this wasn’t just a small tax. It was a systemic barrier to financial security for millions of Indians.

The Hard Math: There Is No Escape

Before 2017, we paid a Service Tax, which was around 15%. With the introduction of the Goods and Services Tax (GST), insurance was put in the 18% slab. This was a direct 3% hike overnight.

Here’s how it applies, as I learned:

Health Insurance: A flat 18% on the entire premium. No ifs, ands, or buts. If your premium is ₹20,000, you pay ₹3,600 to the government.
Term Life Insurance: A flat 18% on the entire premium. My ₹15,000 annual term plan costs me an extra ₹2,700 in taxes.
ULIPs & Endowment Plans: This is where it gets tricky. The 18% GST isn’t on the full premium, because a part of it is an investment. Instead, GST is levied on the charges (like mortality, admin, fund management) and the risk (term) component. But for the first-year premium of an endowment plan, it’s often a percentage of the total premium, making it a heavy upfront load.

My “Rant”: Taxing a Necessity as a Luxury

The more I thought about this, the angrier I got. We, as a country, have a “protection gap” that is one of the largest in the world. The government and the IRDAI are constantly running campaigns urging people to buy health and life insurance.

And yet, we tax this critical social good—this financial safety net—at the same rate as a luxury item.

We tax health insurance at 18%, the same bracket as restaurant meals, air conditioners, and televisions. Gold, a pure luxury, is taxed at 3%. Health insurance, which keeps families out of poverty, is taxed at 18%.

This has real-world consequences:

It Hurts the Poor and Middle Class Most: For a family struggling to make ends meet, that 18% is not a small number. It’s the difference between being insured and being uninsured. A ₹10,000 premium is a big stretch, but a ₹11,800 premium is an impossibility.
It Discourages Senior Citizen Coverage: Premiums for senior citizens are already sky-high due to their age. Adding 18% GST to a ₹60,000 premium is an extra ₹10,800 a year, a crippling-blow to a retiree on a fixed pension.
It’s a Contradiction in Policy: It is intellectually inconsistent to beg people to buy insurance on one hand while making it punitively expensive with the other.

The “So What”: Budgeting for the Unavoidable

My research here led me to a dead end. There is no “strategy” to avoid the GST. It is a fixed, unavoidable cost.

So, my takeaway was one of pure, pragmatic budgeting.

When I plan my family’s finances, I no longer think of my health premium as ₹24,500. I think of it as two separate line items:

Premium Expense: ₹20,762
Tax Expense (GST): ₹3,738

This simple mental shift does two things. First, it makes me

accurately aware of my true tax burden. Second, it directs my frustration where it belongs—not at the insurance company (which is just a tax collector in this case), but at the policy itself. It fuels my advocacy for a change in policy, for moving insurance to a “merit” slab of 5% or, ideally, 0%.

Until that day, my personal strategy is simple: Factor in the 18%. It’s the non-negotiable price of admission to the Indian financial system.

My Grand Synthesis: A 3-Point Personal Finance Philosophy

This year-long journey—starting from a 22% premium hike, to analyzing stock tickers, to reading GST council circulars—has fundamentally changed my relationship with money. It all boils down to this simple, 3-point philosophy:

Secure Your Downside: Before you buy a single stock or mutual fund, you must secure your downside. My “Base Plan + Super Top-Up” strategy is the armor. It ensures that one bad hospital bill can never, ever reset my family’s financial future to zero.
Separate Insurance & Investment: My “S-I-S” rule is non-negotiable. I buy pure term insurance for protection (an expense). I buy stocks and funds for investment (an asset). I will never again let an agent blur that line with a “2-in-1” plan that does both jobs poorly.
See the Full Sticker Price: I now look at all financial products through the “Total Cost” lens. This includes expense ratios, broker fees, and most importantly, taxes. The 18% GST is part of the sticker price, and I budget for it, plan for it, and resent it.

My journey isn’t over. Insurance is not a “set it and forget it” product. Every year, I will pull out my spreadsheets. I will compare premiums. I will read the annual reports of the stocks I own. I will check for any changes in the GST regime.

I am no longer financially asleep. I’m awake, I’ve done the math, and I’m in control. And I truly hope my experience helps you get there, too.

Frequently Asked Questions (The FAQ I Wish I’d Had)

Q1: My employer gives me great health insurance. Do I really need my own?

A (from my experience): YES. A thousand times, yes. I have employer insurance too, but I never count it. Why? 1) It’s not portable. The day you leave or lose your job, you are uninsured. 2) The coverage is often basic and has hidden co-pay clauses. 3) You cannot cover your parents affordably under it. 4) You will be uninsurable if you develop a condition and then try to buy a policy after you retire. Buy your own personal base plan today while you are young and healthy.

Q2: You mentioned ‘porting’ your health policy. Isn’t that difficult?

A: It’s not as hard as it sounds, but it requires planning. You must apply for porting at least 45 days before your old policy expires. The new insurer will review your application and medical history. The key benefit is that all your waiting periods (e.g., for pre-existing diseases) get “ported” over. It’s a bit of paperwork, but the ₹4,000 I saved was worth the two hours I spent on it.

Q3: Is the GST I pay on my health insurance premium eligible for tax deduction?

A: Yes, and this is a small silver lining. The entire amount you pay (Premium + GST) is eligible for deduction under Section 80D of the Income Tax Act. So, if you pay ₹25,000 (premium + GST), you can claim the full ₹25,000 as a deduction, not just the base premium.

Q4: You’re high on insurance stocks, but my LIC stock is down since the IPO. What gives?

A: This is a perfect example of my point! LIC is a behemoth, but the market worries about its VNB (Value of New Business) margins. It traditionally sold low-margin endowment plans through a high-cost agent network. The private players (HDFC, ICICI, etc.) are seen as more agile, with higher VNB margins from bancassurance and a better product mix. My investment thesis isn’t “buy all insurance stocks”; it’s “buy the insurance stocks that have high VNB margins and a strong growth story.”

Q5: Term Plan vs. ULIP vs. Endowment: My final verdict?

Term Plan: I buy this. It’s like renting a house. Cheap, efficient, and covers your one specific need (a roof over your head, or in this case, financial protection).
Endowment Plan: I avoid this. It’s like buying a house at 2x the market rate, and the builder promises to give you 1.5x back in 20 years. It’s a low-return, opaque “savings” tool.
ULIP: I avoid this. It’s like buying a house where the builder is also your interior decorator and stock broker, and he takes a 5% cut of everything, every year. The charges are just too high for my comfort.