Difference Between Sum Assured and Sum Insured – All About Sum Assured
The insurance segment in India is divided into two parts: general insurance & life insurance. The term sum assured belongs to the life insurance segment while the sum insured relates to general insurance. There are important differences between the two which are discussed below. Also, factors which you should consider while selecting a sum assured are provided for ready reference.
What is the Sum Assured Meaning in Life Insurance?
Sum assured meaning is the amount a beneficiary receives on the death of the life insurance policyholder. It is also known as the coverage or cover plan of the policy. As the name suggests, the sum assured is the assured or guaranteed amount which will be paid to the beneficiary in case of death of the holder.
For instance, an individual (holder) buys a life insurance policy with a coverage of Rs. 1 crore. In this case, Rs. 1 crore is the sum assured that the beneficiary will receive in case of the death of the holder.
Furthermore, the amount depends upon the insurance premium. The higher the sum assured, the higher the premium is. Sum assured is generally a part of life insurance policies.
| Pure Protection life insurance plans | Only one insured event i.e. death of the holder | Beneficiary gets the assured sum. |
| Savings-oriented life insurance plans | Two insured events: Maturity of plan & death of the holder | On maturity: holder gets assured sum On death: Beneficiary receives the assured sum |
What is the Sum Insured?
Sum insured is the maximum amount an insurer pays in case the insured event happens. It is basically the amount received for insured events based on the insurance policy.
For example, a health insurance policy will offer an insured sum in case of hospitalisation. Vehicle insurance will offer damages as a sum insured in case of accidents.
It is generally related to non-life insurance policies. However, there are some life insurance plans that also offer sum insured for certain events as per the policy.
Note: Please check the policy document thoroughly to know whether a sum insured facility is offered or not.
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Key Difference – Sum Assured v/s Sum Insured
| Sum assured is the pre-fixed amount a nominee receives on the death of the life insurance policyholder. | Sum insured is the maximum amount received in case the insured event happens. |
| The value of the sum assured depends upon various factors such as age, income, assets, liabilities, and expected working life period among others. | The value of the sum insured depends upon the insured asset. In the case of medical insurance, it depends upon medical history, pre-existing diseases, etc. |
| Generally, it relates to life insurance contracts. | It relates to non-life insurance contracts such as vehicle insurance, health insurance, indemnity contracts, etc |
Relation Between Sum Assured and Insurance Premium
Sum assured is directly proportional to the insurance premium. The higher the assured sum, the higher is the premium. Younger individuals tend to have lower premiums due to the age advantage.
Medical history and old age can increase your insurance premium for the same sum assured. Older individuals should consider getting a high sum assured to ensure safety & security.
Factors to Consider While Selecting Sum Assured
The value of the sum assured depends upon many factors. It is very personal in nature. Every person has different goals in life. Some buy life insurance just for the sake of it while others understand its importance for the future well-being of their family. They invest wisely in life insurance products based on actual requirements.
The most important factors while selecting a sum assured are:
- Age – As a rule of thumb, young people get high coverage for low premiums. A middle-aged person with a family should choose a higher sum assured.
- Income – You must select an appropriate plan keeping in mind your working age and earnings per year till retirement.
- Lifestyle – Based on your lifestyle & expenses, choose an appropriate plan that takes care of your family’s well-being in case of any unfortunate incident (death).
- Assets & Liabilities – the value of assets and liabilities must be considered while selecting sum assured. The amount must take care of all your liabilities along with providing a decent life to your family in case of any unfortunate event (death).
Final Words
It is rewarding to understand the sum assured meaning in insurance along with its difference with the sum insured. Not only it helps in choosing the best insurance plan suiting one’s needs but also ensures enhanced protection of our assets. The factors mentioned in the article should guide you in selecting the best option when it comes to the sum assured in insurance.
However, the most important aspect while selecting any insurance policy is to read the policy document thoroughly and understand the fine print. Remember, the devil lies in the details.
FAQs
Ans: It is individualistic in nature. For every person it is different. Consider factors such as age, income, lifestyle, assets & liabilities to choose the best plan for your family’s well-being.
Ans: Life insurance protects your family from financial trouble in case of your death. It covers the risk of death.
Whereas, general insurance protects anything & everything other than your death. It is a general term for all kinds of non-life insurance such as vehicle insurance, health insurance, etc.
Ans: It is absolutely safe to buy insurance online. It is quick, easy, and paperless.
Ans: Generally, a sum assured facility is not available in the non-life insurance segment. But, certain plans do offer this facility. Please, check the policy document for specific details.
Ans: Generally, a sum insured facility is not available in the life insurance segment. But, certain plans do offer this facility. Please, check the policy document for specific details.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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