Individual health and life insurance policies will become more affordable following the GST Council's decision to eliminate the 18% tax on these products, effective September 22. However, insurance industry leaders warn that controlling escalating medical expenses will be crucial for long-term affordability.

The GST exemption covers all individual insurance products, including term life policies, ULIPs, endowment plans, family floater health policies, and senior citizen plans.

"We will pass on the full benefits to consumers. The policies will become 18% cheaper," said Anuj Tyagi, managing director and CEO of HDFC ERGO General Insurance Co, during his visit to Calcutta on Friday.

Insurance companies had initially expressed concern about losing Input Tax Credit benefits, which could have prevented them from passing the full GST savings to customers. However, industry officials now confirm this won't be an issue.

While the GST removal provides immediate relief, Tyagi highlighted a more pressing long-term concern. Medical treatment costs are inflating at a rate of 12-13% annually, which will continue to drive insurance premiums higher despite the tax break.

"In the long run, to make insurance affordable, we will also have to look at medical costs," Tyagi said. "If there is some control on medical expenses, then insurance products could become cheaper."

He also emphasised that expanding coverage among younger consumers could help reduce overall premium costs, since premiums increase significantly with age.

The GST Council's relief extends beyond insurance to pharmaceutical costs:

• 33 life-saving drugs: No GST (earlier 12%)
• Cancer & rare disease medicines: No GST (earlier 5%)
• All other medicines: GST cut from 12% to 5%

Private hospitals are preparing to pass these savings directly to patients. R Venkatesh, group COO of Narayana Health, said the hospital will initially offer discounts on existing stock while waiting for manufacturers to relabel products with new maximum retail prices.

"We will pass on the benefit of reduced GST to patients," Venkatesh said. "Initially, we will show the benefit through discounts to the extent of the reduced GST."