Premium Factors, Plan Types and 2026 Rules
Life insurance in India explained: term plans, savings policies and the 2026 rules
How life insurance works in India in 2026, what term plans, ULIPs and endowment policies cost and pay, and which GST, tax and IRDAI rules apply.
Life insurance in India does one job well: it pays a sum of money to your family if you die while the policy is in force. If your goal is to replace your income for people who depend on you, a term plan does that job at the lowest cost, because the whole premium buys cover. Endowment, money-back, whole life and ULIP policies add a savings or investment component, which makes the premium several times higher for the same cover. In 2026, premiums on individual life policies carry no GST (exempt from 22 September 2025), death benefits remain tax-free, and IRDAI's 2024 policyholder protection framework sets the timelines insurers must meet when your family claims.
This page is the overview for the section on premium factors, plan types and rules. Each part below links to a detailed guide.
The two families of life insurance
| Pure protection (term) | Savings and investment policies | |
|---|---|---|
| What it pays on death | The full sum assured | The sum assured (often small) or fund value, whichever the policy specifies |
| What it pays if you survive | Nothing (except return-of-premium variants) | Maturity value: guaranteed amount, bonuses or fund value |
| Cover per rupee of premium | High | Low |
| Main risk for the buyer | Buying too little cover or letting it lapse | Low returns, high early surrender losses, too little cover |
| Typical buyer mistake | Choosing a round number like ₹50 lakh without calculating | Treating a ₹10 lakh endowment policy as "life cover sorted" |
The difference in cover is the key point. An illustrative 30-year-old non-smoker might pay around ₹1 lakh a year for an endowment policy with ₹10 lakh sum assured, while a term plan with ₹1 crore cover could cost a small fraction of that. The exact figures depend on the insurer and your profile, but the gap between the two products is structural, not a quirk of one quote. The term vs ULIP vs endowment guide works through the numbers.
What sets the premium
Insurers price a term plan from a small set of facts:
- Age at entry: each year you wait raises the premium and shortens the time you can be covered.
- Tobacco use: smokers and users of any tobacco product pay significantly more, and the declaration is checked through medical tests.
- Health and family history: blood pressure, diabetes, weight and past illnesses can lead to a loading, a postponement or a decline.
- Cover amount and policy term: more cover and a longer term cost more, though cost per lakh usually falls as cover rises.
- Premium payment term: regular pay, limited pay (for example 10 years or until 60) or single premium.
- Income, education and occupation: insurers limit cover to a multiple of income and may load hazardous jobs.
- Riders and payout option: accidental death, critical illness, waiver of premium and monthly income options each change the price.
The premium factors guide explains each one and shows why limited-pay plans that look cheaper in total can cost more in present-value terms.
Rules that apply in 2026
GST. From 22 September 2025 individual life insurance premiums, covering term, ULIP and endowment policies, are exempt from GST. Before that, term premiums carried 18% GST and traditional savings plans carried lower effective rates. The GST exemption guide explains what changed and what to check on a renewal notice.
Income tax. A sum received on the death of the insured person is exempt. Maturity proceeds are exempt only if the policy meets the premium-to-sum-assured conditions and, for policies issued in recent years, the aggregate premium thresholds (₹2.5 lakh a year for ULIPs issued from 1 February 2021, ₹5 lakh for other policies issued from 1 April 2023). From 1 April 2026 these rules sit in the Income-tax Act, 2025, which replaced the 1961 Act with new section numbers. See tax on life insurance payouts.
Policyholder protection. IRDAI's 2024 regulations and master circular on protection of policyholders' interests cover the free-look period, claim timelines and grievance handling. Section 45 of the Insurance Act, 1938 limits when an insurer can question a policy (three years from issue or revival). The claims section of this site covers these in detail, starting with the claim process guide.
Government schemes and employer cover
Two government-backed schemes give basic cover through your bank or post office account: PMJJBY (₹2 lakh on death from any cause) and PMSBY (₹2 lakh for accidental death or total permanent disability). Many employers also provide group term cover. Both are useful layers, but neither is usually enough on its own, and employer cover ends when you leave the job. See PMJJBY and PMSBY explained.
Income protection beyond death cover
India has no widespread standalone "income protection insurance" of the kind sold in some other countries. Instead, protection against losing your income comes from a combination of:
- A term plan with a monthly income or lump sum plus income payout option.
- A waiver of premium rider, so cover continues if you become disabled or critically ill.
- Accidental total permanent disability and critical illness riders, which pay while you are alive.
- Personal accident policies from general insurers, some of which pay a weekly benefit during temporary total disablement.
The income protection riders guide explains which of these is worth paying for.
How to use this section
- Read this overview and the premium factors guide.
- Decide whether you need pure cover, savings, or both, using term vs ULIP vs endowment.
- Calculate your cover with the life cover calculator and the cover amount guide.
- Check the tax and GST position of what you are buying.
- Before signing, go through the term insurance checklist.
When to get professional advice
Speak to a fee-only financial planner, a chartered accountant or a lawyer if you have business debts, a large estate, non-resident status, dependants with special needs, or policies with annual premiums above the tax thresholds. Insurance agents and brokers are paid by commission on the policies they sell, so ask how they are paid.
Frequently asked questions
Is term insurance a waste of money if I survive?
No more than a home insurance policy is wasted if your house does not burn down. You pay for the certainty that your family keeps its income if you die early. The buy term and invest the rest guide shows how the money saved on premium can be invested separately.
Can I have more than one life insurance policy?
Yes. You can hold policies with several insurers, but you must declare existing policies and pending proposals on each proposal form. Insurers look at total cover against your income.
Does my employer's group cover count?
It counts while you are employed. Because it stops when you resign, are laid off or retire, most planners treat it as a bonus layer rather than the core of your family's protection.
Is life insurance compulsory in India?
No. It is voluntary, although lenders sometimes ask for cover linked to a home loan. You can usually meet that need with your own term plan rather than a single-premium policy sold with the loan.
Sources
- Insurance Regulatory and Development Authority of India (IRDAI) — list of registered life insurers, consumer guidance, regulations and circulars
- GST Council — rate changes and the 22 September 2025 exemption
- Income Tax Department — Income-tax Act, 2025 and treatment of life insurance receipts
- Jan Suraksha portal — PMJJBY and PMSBY scheme details
- Council for Insurance Ombudsmen — complaint route for claim disputes
