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How GST Impacts Travel Insurance Costs in India

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Travel insurance is an important consideration when making travel plans. It serves as your financial safety net against unforeseen circumstances that could otherwise derail your plans, such as medical emergencies, trip cancellations, lost luggage, and more. However, the price of travel insurance is more than just the policy itself, which is something you may not have considered. With the Goods and Services Tax (GST) taken into account, what you pay has changed. Insurance is one of the numerous services in India that are subject to the GST, a national tax reform. And yes, it directly affects the cost of your travel insurance. Let’s see how GST impacts the price and accessibility of travel insurance in this article, so you can make more informed decisions before you even pack your bags.

How does GST work on travel insurance?

When you purchase travel insurance, whether for a domestic or international trip, you are essentially securing coverage for medical emergencies, trip cancellations, lost baggage, and unforeseen hiccups. It is worth every penny. Here's where GST comes in: India implemented the Goods and Services Tax (GST) on July 1, 2017, which is a unified tax regime that applies to many services, including insurance. Keep in mind that GST is added on top of your base premium when calculating the cost of travel insurance; the current GST rate is 18%, meaning that your actual payment will be higher than what the policy initially suggests. This extra expense can impact your whole budget, whether you're travelling for a brief vacation or a lengthy work trip, which makes it even more crucial to carefully evaluate coverage.

How does GST impact Travel insurance?

Here is how GST impacts travel insurance:

1. Higher Premiums:

The total cost of travel insurance has gone up since GST was introduced to the base rate. This is particularly noticeable if you compare pricing from a few years ago.

2. Decreased accessibility for some:

This increase may cause some travellers on a low budget, particularly students or frequent domestic travellers, to completely contemplate getting insurance, which is not a good idea.

3. Budgeting:

In the past, purchasing travel insurance was a simple afterthought. Now, while you are budgeting for your trip, you must account for that extra 18%.

Check out our guide on “Buying travel insurance? Here are some frequent mistakes to avoid” to make an informed decision if you're attempting to control the cost of travel insurance.

Why is it important to explore plans?

It's even more crucial to evaluate travel insurance policies before making a purchase now that you are aware of how GST impacts rates. Here's what you ought to examine:

1. Scope and coverage:

What a travel insurance policy covers is what gives it its true worth. Must-haves include lost luggage, cancellations, and medical situations. However, consider your trip: are you planning a leisurely beach vacation or an adventurous holiday? Select a policy based on your journey. You can determine which insurer provides the most protection by comparing plans from several providers.

2. Add-ons and personalisation:

Every traveller is unique, and your insurance should take that into account. Do you hike? Are you staying for a while? Do you wish to have your pre-existing medical conditions covered? Certain insurers allow you to add items to your plan specifically for these circumstances. You can discover a plan that feels like it was created particularly for you by comparing your possibilities.

3. Premium structures:

Many insurance companies have adjusted their base rates to remain competitive as a result of the GST hike. To compensate for the 18% tax, some may reduce the base premium, while others maintain more coverage at a somewhat higher cost. Avoid choosing the lowest option because it may result in gaps in your coverage, which is something you don't want to find out about during an international emergency.

4. Efficiency of claim processing:

How well an insurance policy manages claims is the real litmus test. Red tape is the last thing you want when attempting to reschedule a missed flight or in a foreign hospital. So many providers are renowned for their easy and quick claim procedures. A few rupees saved won't assist if the insurer doesn't help you when it counts, therefore, it's worth looking into this and reading reviews.

Is there any scope for change?

You may wonder if there is a possibility that the government may reduce the GST burden on travel insurance. It's a legitimate query, particularly given that the flat 18% GST slab can cause the price of travel insurance to subtly increase. Let me explain it to you.

In India, there are currently no special exemptions or lowered GST rates for travel insurance. Like many financial services, it is still subject to the usual 18% tax bracket. This has sparked continuous discussions in the travel and insurance sectors, with some analysts pointing out that such a hefty cost deters infrequent and low-budget travellers from choosing coverage at all.

However, there is a twist: other types of insurance, such as life or health insurance, are also subject to taxes. When you purchase those, you receive tax benefits under Section 80C or 80D of the Income Tax Act. As a result, filing taxes feels more like an investment because you'll receive some money back. Unfortunately, despite being essential to protecting your trip, travel insurance does not currently offer this advantage.

There have been several industry-wide conversations. A reduced GST rate, or at the very least a category-wise change, has been proposed by several insurance bodies and travel organisations as a way to increase accessibility to travel insurance. Some have even suggested lowering the GST on short-term travel insurance plans, particularly for elderly or student travellers on a limited budget.

However, as of right now, the government has not made any official decisions or changed any specific policies. Nevertheless, these discussions and petitions are crucial because they raise awareness of the issue and encourage better traveller-friendly policies.

To answer your question simply, yes, there is room for change, but it will take time and ongoing lobbying from industry players. If the GST rate on travel insurance were to be lowered, it could encourage more people to opt in, especially those who avoid it out of cost concerns; after all, a small safety net shouldn't feel like a financial burden when you're spending thousands or even lakhs on a trip. Until then, it's all about making wise decisions and carefully comparing plans to get the best deal on your travel insurance premium.

Conclusion

To sum up, knowing how GST impacts the cost of travel insurance is crucial when you're planning a trip. It may seem like a minor detail, but it can have a bigger impact on your overall budget than you may realise. By being informed, carefully comparing plans, and knowing what you're paying for, you can make better decisions. Until tax laws change to make travel insurance cheaper for everyone, it's all about being smart, choosing what best suits your travel needs, and making sure you're protected without breaking the bank.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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