Sum Insured Vs Sum Assured: Know the Difference

What is Sum Assured?

After purchasing a life insurance policy from an Insurer, your nominees will receive a specific predetermined amount in case of your untimely death during the policy term. This specified amount given under a life insurance contract by the Insurer to the nominees in case of the death of the life assured during the policy tenure is known as the sum assured.

A life insurance policy delivers financial protection to your family helping them manage their expenses after your passing.

Key Features of Sum Assured

Here are the important features of the sum assured:

• Fixed Benefit: No change in the amount paid as decided, gives you peace of mind.
• Financial Security: Helps family maintain their lifestyle after your demise.
• Stable Premium: Premium is based on the chosen sum assured and remains stable.
• No Annual Change: The sum assured remains the same throughout the policy term.
• Tax Benefits: Premiums paid towards life insurance qualify for tax benefits under Section 80C (under old tax regime), and the payout is tax-free under Section 10(10D) (subject to prevailing tax laws).

How to Calculate Sum Assured?

Choosing the right sum assured is important to make sure your family can maintain their lifestyle if you are not around. Here’s how you can calculate it:

• Think about your family’s daily living expenses, child’s education, and future goals etc.
• Include your home loan, car loan, or any personal loans that need to be paid off.
• Consider big future costs like weddings, higher education etc.
• Prices rise over time, so choose a sum assured that can cover future costs too.

Tip: A good rule is to choose a sum assured that is 10 times your annual income.

What is Sum Insured?

Non-life insurance coverages such as health, motor, home and travel insurance etc, utilize sum insured as one of their main elements. An insurance company will pay the sum insured as the maximum benefit when you experience a loss of the things covered or make a claim.

The sum insured primarily protects your assets as well as your health and property from losses. This coverage scope reaches up to the damaged expenses, yet extends no further beyond the declared amount.

Key Features of Sum Insured

Understanding the key features of sum insured helps you choose the right insurance:

• You can choose your sum insured based on your needs, and it can change during policy renewal.
• The insurer only pays up to the extent of the actual loss.
• It protects your valuable assets like your house, car, or health etc.
• You can review and update your sum insured yearly.
• Higher sum insured usually means a higher premium, but better protection.

How to Calculate Sum Insured?

When selecting the sum insured, you should be practical. Here’s how you can do it:

• Asset Value: For home or car insurance, select a sum insured close to the market value of the item.
• Healthcare Costs: For health insurance, estimate the cost of treatments at good hospitals.
• Family Size: For a family health plan, select a sum insured that covers all members.
• Lifestyle: If you travel often, you may need a higher sum insured for travel insurance.
• Inflation Factor: Medical and repair costs rise, so keep a margin when deciding.

Difference Between The Sum Assured and Sum Insured

Let’s now clearly understand the difference between sum insured and sum assured with the help of a simple table:

Both are important, but they work differently based on the type of policy you have.

Conclusion

Choosing the right insurance cover is very important for your financial security. Understanding the difference between sum insured and sum assured can help you make smarter choices when buying a policy.

The sum insured meaning is linked to protection against actual losses in general insurance, like health, motor, and property insurance etc, based on policy type. Whereas the sum assured is as a part of life insurance policies which is obtained by the nominee on death of the life assured within the policy term.

Your ability to safeguard loved ones and assets improves after understanding the distinction between sum assured in life insurance and sum insured in general insurance. You must carefully choose your life insurance sum assured and the sum insured for your health or assets etc. Both insurance amounts should be carefully decided based on your current lifestyle, family requirements and your future objectives.

Informative choices will create financial stability for your future.

FAQs

What does the term ‘sum insured’ mean, and why does it matter in insurance?

Sum insured is the maximum amount of money that an insurance company agrees to pay the policyholder in case of a covered loss or claim. It represents the limit of coverage under an insurance policy. The sum insured is very important because it shows the maximum amount the insurance company will pay in case of loss to aspects covered under general insurance.

Which type of insurance policy usually includes a sum assured?

The sum assured is found in life insurance policies. It is the fixed amount of money your nominee will get in case of your untimely demise.

Is the sum insured reviewed every year, and if so, why?

Yes, the sum insured is reviewed every year when you renew your general insurance. It is reviewed because costs like hospital bills or house repairs become more expensive every year. So, by adjusting the sum insured, you can make sure you have enough protection even when prices go up.

Is ‘sum assured’ applicable to non-life insurance coverage?

You cannot find the term sum assured in the general insurance plans such as health, motor insurance etc. Sum assured is a term used for Life insurance plans , it is the predetermined fixed amount paid to the nominee in case of death of the life assured within the policy term.

Do life insurance policies include a sum insured?

In life insurance, you would not find sum insured, however, the predetermined amount fixed for payout in life insurance is referred to as the sum assured. The term sum insured is used general insurance plans such as in health insurance, motor insurance etc.

Can the sum insured amount be modified?

Yes, you can change your sum insured amount when you renew your insurance policy every year. You might want more coverage if your family grows or their financial goals change or hospital costs rise etc. Changing the sum insured gives you flexibility to match your protection needs with your changing life situation.