Insurance premium

In this glossary, you’ll understand everything about insurance premiums, what they mean, how they’re calculated, current GST updates in India (2025), and average costs for medical and health insurance plans.

Meaning of insurance premium

An insurance premium is the amount an individual or business pays regularly to an insurance company to maintain active coverage, such as life, health, or medical insurance. In India, as of September 2025, GST on individual life and health insurance premiums has been fully exempted, making policies more affordable for customers.

What is premium in insurance?

A premium in insurance is the cost a policyholder pays monthly, quarterly, or annually to keep the policy valid. It serves as the insurer’s primary source of income and is calculated based on factors like age, health, location, lifestyle, coverage amount, and risk profile.

Medical and health insurance premium

• A medical insurance premium is the payment made for policies covering hospitalization, treatment, and related medical expenses.
  
• As of 2025, average health insurance premiums in India range between ₹5,000-₹20,000 per year for individuals and ₹10,000-₹50,000 per year for family floater plans.
  
• Premiums may rise for higher coverage, metropolitan locations, or add-on benefits like critical illness cover.

Types of Insurance premiums

1. Single premium

A single premium means you pay the entire premium amount in one go for the whole policy term. You don’t need to worry about periodic payments  just one lump-sum payment at the start.

2. Regular premium

A regular premium is paid at fixed intervals  monthly, quarterly, half-yearly, or annually for the duration of the policy. This is the most common payment method for health and life insurance plans.

3. Level premium

A level premium means you pay the same premium amount throughout the entire policy term. The insurer calculates an average rate considering your increasing age and risk over the years, so your premium stays constant.

4. Flexible premium

A flexible premium allows you to adjust your premium amount during the policy term  usually in certain types of policies like ULIPs (Unit Linked Insurance Plans) or corporate group plans. You can increase the premium to get higher coverage or reduce it if your needs change.

GST on insurance premium (India, 2025)

• Earlier, health and term insurance premiums attracted 18% GST.
  
• Effective 22nd September 2025, GST on all individual life and health insurance policies and add-ons has been eliminated, lowering total costs for policyholders.
  Example: A policy that earlier cost ₹10,000 + ₹1,800 GST now costs only ₹10,000.

How insurance premium is calculated?

• Risk profile: age, health condition, and claims history.
• Coverage amount: higher sum insured = higher premium.
• Policy duration: long-term policies often offer discounts.
• Optional features: deductibles, riders, and add-ons affect final pricing.

For quick calculations, try Pazcare’s health insurance premium calculator.