Insured, but at what cost?

Remember the old life insurance ad tagline 'Sar utha ke jiyo' (live with your head held high)? It promised dignity and peace of mind, that no matter what life throws at you, your insurance policy had your back.

But today, as medical costs soar and risks multiply, insurance is no longer optional. The question is, are people truly getting the protection they’re paying for?

Hospitals are turning into battlegrounds over pending claims, with policyholders watching their premiums shoot up faster than their salaries. Growing delays in claims, rising premiums, high taxes, and a lack of trust are forcing people to rethink their insurance plans.

In fact, nearly 50% of policyholders who filed a health insurance claim in the last three years faced major issues, such as rejections, partial approvals, or long discharge delays, according to a LocalCircles survey that covered over 100,000 respondents across 327 districts.

Frustrated by these experiences, some have started trimming their coverage. Others are stepping away from health insurance altogether

Abhishek Kumar, Sebi-registered investment advisor and founder of SahajMoney, says there has been a clear shift.

“Many clients have come back to us asking for advice, especially about health insurance, as premiums are going up exponentially,” he said. “Despite our advice, many have shown intent to reduce the cover or stop it altogether because of affordability issues.”
 

His observation lines up with broader trends. FY24 data from IRDAI (Insurance Regulatory and Development Authority of India) shows that the total amount of health insurance claim rejections rose to Rs 26,000 crore, up 19% from the previous year. The proportion of health insurance claims denied stood at 11%, with another 6% pending.

Young and healthy individuals are the first to de-prioritise insurance. “They don’t prioritise the immediate need for insurance and believe they can purchase it later,” said Kumar.

CLAIMING TURNING INTO A BATTLE

The LocalCircles report reveals that 60% of patients had to wait 6–48 hours for cashless discharge even though IRDAI has asked hospitals and insurers to settle claims within one hour. Only 8% of people said they got prompt, real-time settlement at the time of discharge.

Kumar adds, “Many clients have shared experiences of delays in claims processing or, in some cases, outright rejection. The main reasons are errors in paperwork, non-disclosure of pre-existing conditions, missed premium payments, or inadequate medical documentation. This adds to policyholder frustration.”

TAXES ADD TO THE BURDEN

One often overlooked reason people are quitting insurance is the 18% GST on premiums, especially in health and term life insurance.

Karthik Mani, Partner – Indirect Tax at BDO India, said, “This GST rate leads to a significant increase in cost. Since the full premium plus tax becomes a sunk cost if the claim isn’t triggered, people are questioning the value.”
 

When it comes to health insurance for senior citizens, the pain is worse. Premiums are already higher, and the added 18% GST makes them even more unaffordable.

“People end up paying almost 20% of their premium as GST, which they could have used to increase their cover or spend elsewhere,” said Kumar. “In the absence of a strong public healthcare system, GST on insurance becomes a big deterrent, especially for the middle class.”

SHOULD BASIC POLICIES BE TAX-FREE?

There’s a growing demand to exempt health and term insurance from GST, at least for essential or low-value coverage.

“Several developed countries like Canada and those in the EU have exempted insurance from GST or VAT. We have neither that relief, nor a strong public system, so we are caught between a rock and a hard place,” Kumar argues.

Mani, however, suggests a middle ground. “Full GST exemption would remove insurers’ ability to claim input tax credit, and they may hike premiums to compensate. A better option is to lower the GST rate, say to 5%, so that the benefit is passed directly to policyholders.”

Source:-  India Today