Difference Between Sum Insured & Sum Assured Before you Buy a Policy!


For a first-time policy buyer, s/he may get overwhelmed by the jargon or insurance terminology used in the policy document. However, as confusing as it can be, it is quite important to learn various insurance words because they have a significant impact on your policy. For example, two of the most significant insurance terms that are widely used are sum insured and sum assured. Though the two phrases seem similar, they have completely different meanings. Read on to learn the distinction between the sum insured and the sum assured before your health insurance and term life insurance plan, respectively. 

What is the sum insured?

The sum insured in an insurance policy is defined by the indemnity concept, which offers coverage or reimbursement for damage, loss, or injury. This notion is typically applicable to non-life insurance products such as auto insurance, home insurance, and health insurance. These plans solely reimburse for losses caused by damage to the insured asset.

Assume you have a health insurance policy with a sum insured of ₹1 lakh. If you are hospitalized and incur ₹50,000 in medical expenditures, your insurance company will refund the amount stated under hospitalisation expenses. If your medical expense exceeds ₹1 Lakh, the insurance provider will only cover ₹1 Lakh, leaving you to pay the remaining amount out of pocket. In other words, what the sum insured amount does is rightly compensate for the loss but doesn’t provide any monetary benefit. 

How do you calculate the amount of Sum Insured Required for health insurance?

When deciding on the basic sum insured for your policy, you should consider the following factors:

Types of health insurance plans: You can choose from a variety of health insurance plans on the market. Individual plans, family-floater plans critical illness plans, and so on. Thus, the Sum Insured amount will be decided based on the type of plan you choose. A Family-floater, for example, may have a slightly higher sum insured than an Individual Plan because more people are covered by a single policy.

Health history and age of the insured: Some people may have medical conditions that necessitate regular medical treatment, such as asthma or persistent diabetes. If you or a covered family member have a reoccurring health issue, you must choose a higher sum insured. The insured’s age is also an important consideration. If your health insurance policy includes coverage for senior citizens, consider increasing the sum insured. The elderly may demand more medical treatment than the young ones. 

Quality of medical facilities in your area: Some localities, particularly cities, may offer advanced medical treatment at a higher cost than other places. Keeping this in mind while determining the amount of sum insured will help you decide whether you require a policy with extra coverage. 

Income and Number of Dependents: Your annual income might help you determine how much insurance you or your dependents require. If your annual salary is limited, consider saving some money to cover the premium for a health plan with a large sum insured. Consider the long-term impact of inflation when determining your sum insured value, but at the same choose a reasonable sum insured that is within your budget. 

What is a sum assured?

Another key insurance phrase that is also widely used in Sum Assured. It is a predetermined amount that the insurance company agrees to pay you or your nominee if the covered event occurs or at the end of the policy period. The sum assured in insurance is calculated at the time of purchasing the term life insurance or other life insurance policy. It remains the same throughout the policy duration. The premiums you pay for the policy are calculated using the sum assured value. When the insurer pays the Sum Assured amount to the policyholder, the policy is terminated. 

This notion applies to both term life insurance and guaranteed return insurance policies. These plans provide you with reliable life insurance coverage and savings to help you achieve your life objectives. A guaranteed return insurance plan guarantees you returns in the mode of your choice. You can choose whether to receive the returns in the form of a lump sum, regular income, or a whole-life income benefit. You can also pay your premium at your selected frequency: annually, semi-annually, quarterly, or monthly. When you choose the right Sum Assured, you will be able to secure your family’s financial future in case of your absence. 

How can I calculate the sum assured?

Choosing the appropriate sum assured is critical for your life insurance coverage and protecting your family financial thereby. Consider the following factors to know the right sum assured:

  • Your sum assured should be sufficient to cover all of your financial obligations, such as funding your child’s school or marriage, meeting your family’s living expenditures, and so on.
  • Your sum assured should be sufficient to provide financial security for all of your dependents, including your spouse, children, and parents.
  • The sum assured under insurance should be sufficient for your family to pay off financial obligations in your absence.
  • Your age influences the sum assured. If you are young, choose a large sum assured because you have a long life ahead of you. However, at the same time, make sure the amount of premium to pay for the term life insurance doesn’t used up all your income. 

So we are saying,

It is critical to grasp the distinctions between these two insurance terms so that you may select the right insurance amount based on your policy and needs.

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