Differences Between Sum Insured Vs Sum Assured And Calculation
The insurance segment in India is divided into two parts: General Insurance & Life Insurance. There are important differences between sum insured vs sum assured which are discussed below. The term sum assured belongs to the life insurance segment while the sum insured relates to general insurance. 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, 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 sumOn death: Beneficiary receives the assured sum |
How is Sum Assured Calculated?
Life insurance companies calculate the sum assured amount through various methods. One of the most popular methods they use is the Human Life Value or HLV. As per this method, your sum assured is calculated depending upon your existing and future expenses, age and current and future earnings.
This method helps in understanding your capitalized value according to the ongoing inflation. You can also find the HLV calculator online to know your Human Life Value and select the correct sum assured.
What is 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 hospitalization. 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. It’s natural to be worried about hospital charges in COVID times. The best way to remain calm & stress-free is to get health insurance. Download Navi app to avail the incredible benefits while assuring your health and your family’s well-being.
Also read: What Is General Insurance: Benefits, Types, List Of Companies And How To Claim
Can Sum Insured be Increased?
Insurance companies allow policyholders to increase their sum insured amount at the time of policy renewal. You can seek a higher sum insured by opting for a timely policy renewal before its expiration.
However, note that increasing the sum insured amount will result in an increased premium amount.
Factors Facilitating the Calculation of Sum Insured
Similar to the sum assured, the calculation of the sum insured also depends on various factors. These include the following:
- Your age: The earlier you purchase an insurance policy, the greater your sum insured amount will be.
- Dependents in the family: When it comes to health insurance plans, consider taking into account the medical needs of your family members, if you plan to purchase a family floater plan.
- Health conditions: If you have any pre-existing disease, the insurer might be hesitant in providing a substantial sum insured amount.
Apart from these factors, your lifestyle and personal habits also affect the amount of sum insured.
Key Differences: Sum Insured vs Sum Assured
| Sum assured is the pre-fixed amount a nominee receives on 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 Insured
Sum insured is an important factor that decides the cost of your insurance policy. Mentioned below are a few factors you should consider before deciding on the coverage amount of your insurance plan:
- Medical history – You should consider your pre-existing diseases while choosing the sum insured. Accordingly, you must purchase a plan that provides the required coverage benefits.
- Number of family members – The number of family members you want to secure under a plan plays a crucial role in deciding the sum insured. If you have a large family, consider choosing a high sum insured.
- Financial situation – You should also assess your financial situation, future income and expenditure before choosing the sum insured amount. Note that a higher sum insured attracts higher premiums.
- Inflation – Keep in mind that a health insurance plan that comes with a low premium might be sufficient for you now, but it won’t be able to cover your medical expenses in the future due to inflation. Thus, consider the future inflation while choosing the sum insured amount.
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).
Also read: Third-Party Administrator (TPA) In Health Insurance: Roles, Functions & Importance
Final Words
It is rewarding to understand sum assured meaning in insurance along with its difference with 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
Yes, you may increase the sum assured of your life insurance policy by informing your insurer about the same. However, note that this option might vary from one plan to another. So, consider reading the terms and conditions of your policy beforehand.
Yes, you can increase your policy’s sum insured while renewing your policy. Nevertheless, keep in mind that your policy’s premium will also increase henceforth.
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.
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.
Learn more about life insurance & general insurance through our detailed guide here.
It is absolutely safe to buy insurance online. It is quick, easy, and paperless.
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.
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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