Sum Assured in Life Insurance
  • Understand the Term Assured
  • Factors to Select Sum Assured
  • Difference between Assured & Insured
Sum Assured in Life Insurance
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Understand the Significance of Sum Assured in Term Insurance

In this fast-paced world, life insurance has become the best way to save yourself from the unfortunate event of demise. It's like having a personal guardian angel to protect your loved ones in your absence. As we know, everyone is likely to have different needs.

Therefore, the insurance company lets policyholders determine the sum assured amount that would be payable to their nominee in the event of demise. To provide policyholders with satisfactory coverage, the insurer offers several components of a life insurance plan—for instance, a death benefit, premium, maturity, Etc.

So, knowing the concept of sum assured is essential to get the most out of your life insurance policy. Stay tuned and keep reading the pointers below to understand what is sum assured and its applicability.

Sum Assured: Meaning and Understanding

Sum assured is a pre-planned fixed amount that an insurance company provides policyholder nominee at the time of uncertain occurrence. When you buy term insurance you’ll get peace of mind that you've pre-planned the financial security for your family.

  • However, the fixed amount will be decided over the policy tenure, as per the insurance life policy you signed up for.
  • Even policyholders can choose to get plenty of maturity benefits under specific types of sum assured in life assurance.
  • If you bought premium life insurance, the company will ensure you pay a sum assured amount as a death benefit to the nominee in case of unforeseen circumstances.

For instance, after three years of the COVID-19 pandemic, people are now well aware of life insurance's importance. It drives prospective policyholders to buy higher sums insured under term insurance.

Differentiate Between the Sum Assured and the Sum Insured

To understand the difference between the sum assured and the sum insured check out the details below in Table-

Sum Assured

Sum Insured

Sum assured is the fixed amount covered under life insurance policies such as health, term life, whole life insurance, etc.Sum insured is the fixed amount covered under non-life insurance policies such as motor, travel, credit, accident insurance, etc.
The sum assured is typically estimated based on the HLV (Human Life Value).The sum insured is usually estimated based on the value of assets.
Sum assured is a pre-planned fixed amount decided while purchasing the life insurance.The sum insured is compensation the insurance company provides you for the loss or damaged asset.
Sum assured refers to the pre-decided amount the insured person or nominee avails. Even in specific types of life insurance plans, policyholders get maturity benefits.In case you're holding non-life insurance, no maturity benefit is involved related to the sum insured.

What Should Be the Ideal Factors While Selecting Sum Assured?

It's hard to predict unfortunate circumstances like an accident or serious medical problems, but it can surely cost you a lot of money. Therefore, several people prefer to buy life insurance to protect their families financially. However, the optimum sum assured will surely give you peace of mind. To get the most out of your life insurance, you may consider a few factors while buying sum assured-

Age

When it comes to determining your sum assured, your age will be the primary determinant that helps you to decide the extent of required coverage. Keep in mind that the younger you are, the additional sum assured you can secure.

There are two types of pros to doing this-

  • If you buy life insurance early on, you'll get a low premium for a higher sum assured.
  • A younger person Investing with proper research in the correct sum assured allows you to retire early (in the case of endowment plans).

This way, age will be a beneficial factor in purchasing a higher sum assured because premiums are comparatively lower. However, your life insurance "term plan" will be raised by 6% to 8% annually. Please note that the sum assured is about providing policyholders with financial protection rather than premiums payable.

Income

According to the research of IRDAI, 37% of the citizens in the country have access to life insurance schemes. However, the crucial factor behind it is the lower income rate, which keeps around 400 million people in India without term insurance. That's why your budget is an essential element to consider while estimating the sum assured.

Over a while, you can easily increase the sum assured in case your income boosts. When selecting sum assured as an inferior, coverage can affect you underinsured. Further, it'll forfeit the fixed payable amount of life insurance, and your family may have to face uncertain financial circumstances in your demise.

Lifestyle

While deciding your sum assured, you may consider looking at your lifestyle needs and habits to cover all the potential contingencies.

Unhealthy Lifestyle Healthy Lifestyle
If you're facing any medical issue, you may consider opting for additional safety in the form of a higher sum assured.If you live a healthy life, there are some chances that you may outlive the policy period.
While buying life insurance, make sure to discuss everything related to your habits, such as alcohol or smoking consumption, with your insurer.Remember that a basic sum assured life insurance plan doesn't allow policyholders to take any benefits on survival. To avail of the maturity benefits, consider selecting the premium cover.

Inflation

In this fast-paced world, the index of inflation fluctuates yearly, as do household, education, or medical expenses. To be fully accountable for any amends in your annual financial budget and the future pre-planned funding for your child's education or retirement. You should invest in a life insurance policy while considering the inflation rate.

Medical History

While deciding your sum assured, you may first clear your doubt related to policy and share past medical records or any medical history of a particular disease with an insurer. It'll allow you to choose a sum that'll eventually cover the expenses of your treatment charges while also covering any uncertain circumstances of death.

Conclusion

After three years of the COVID-19 pandemic, life has changed, and the importance of life insurance worldwide. A good understanding of sum assured allows you to protect your family financially and helps you choose a suitable insurance plan based on your needs.

What is the Sum Assured In Life Insurance?: FAQs

1. What is the sum insured and the sum assured in insurance?

Sum assured is a pre-planned fixed amount that an insurance company provides to a policyholder nominee. The sum insured is the amount received in case the insured event happens.

2. Is the sum assured the same as the maturity value?

Sum assured is the pre-fixed amount that the policyholder nominee will receive. The maturity amount is the amount the insurer pays to policyholders when the policy matures.

3. What is the maximum sum assured allowed?

Typically, the maximum sum assured provided by the insurer is 10 times more than the annual income of the policyholders.

4. What is the sum insured cover?

The sum insured is a pre-fixed amount the policyholder can claim for any insured event.

5. What is the sum assured risk?

Sum at risk is the amount of risk the company takes on your life. It is the amount assured on your death (Sum Assured).

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Sahil Singh Kathait

Written By: Sahil Singh Kathait

Sahil is a passionate content writer with over two years of expertise in the insurance domain. He uses his knowledge in the field to create engaging content that the customer can relate to and understand. His passion lies in simplifying insurance terminology, ensuring a hassle-free understanding for potential policyholders. With his outstanding collaborative efforts with people, he understands different perspectives and keeps readers' viewpoints at the forefront of his content writing approach.