Group Term Life Insurance

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As per government and regulatory norms, insurers are required to pay stamp duty for GTL policy. The calculation of stamp duty amount is as defined under –
1. Stamp duty of INR 0.20 per INR 1000 of the sum insured.
2. Stamp duty is to be paid for every new GTL policy.
3. On renewal of GTL policy, stamp duty is to be paid for an increase in sum insured over and above the previous policy sum insured.

Additional Read: How Does Group Term Life Insurance Work?

For example – The current policy total sum insured is INR 250 Cr. The insurer would have paid INR 5,00,000 as stamp duty for the sum insured INR 250 Cr. At renewal, the sum insured increased from INR 250 Cr. To INR 275 Cr. The insurer would have to pay a stamp duty of INR 50,000 for the additional sum insured, i.e. INR 25 Cr.

How does stamp duty affect first-time purchase and renewal pricing for GTL?

Insurers generally amortize stamp duty over 3-4 years when they quote for GTL policies so that they are competitive in the market. If an insurer continues to renew the policy over a planned amortization period, i.e. > 4 years, it becomes willing to pass on the benefit of reduced cost to the client. In this manner, your overall cost of the GTL policy will reduce with the maturity of the policy with the same insurer.

So, the stamp duty also makes it difficult for a new insurer to match the prices of the incumbent on renewal. This means that the initial selection of a life insurer is even more important because you are likely to stay with that insurer for a long time.