Understanding the difference between the sum insured and the sum assured is essential when choosing the right insurance policy. While both terms are related to the amount of coverage provided, they apply in different contexts and serve distinct purposes.
The sum insured refers to the maximum amount an insurer will pay for a claim, typically in general insurance policies like home, car, or health insurance. It is the financial protection you receive in case of a covered loss or damage.
Meanwhile, sum assured is a key concept in life insurance. It represents the guaranteed amount that will be paid to your beneficiaries upon your death or the policy's maturity. This sum offers financial security for your loved ones, ensuring they are supported even after you're gone.
What is the Sum Insured?
For general insurance or non-life insurance products, the sum insured is the principle of indemnity that covers or compensates for injury, damage or loss of the insured asset.
The Sum Insured concept ensures that policyholders don’t make a profit from claims, but only recover their losses. In non-life insurance policies, the Sum Insured refers to the total coverage amount. For life insurance, if you are the sole provider for your family, it’s important to choose a sum that can cover your family’s current and future expenses.
When choosing the Sum Insured for your policy, consider the following:
Set the sum insured based on the asset's value to ensure you receive adequate compensation for any loss
Choose a sum that can cover medical expenses during emergencies
Factor in rising costs when calculating the sum insured
What are the Key Features of Sum Insured?
The sum insured is the maximum amount an insurer will pay for a covered loss or claim. Understanding its key features helps ensure you have the right protection.
Flexibility - Policyholders can choose the sum insured based on their needs and risk level. Higher sums insured mean higher premiums but offer more financial security
Annual Review - The sum insured can be adjusted yearly to reflect changes like inflation or raised value of assets
Insurance for Property and Casualty - This term is often used in property and casualty policies to cover specific assets or risks, such as car or home damage
What is the Sum Assured?
Sum Assured refers to the guaranteed amount a life insurance company will pay beneficiaries upon the policyholder’s death or maturity of the policy. It forms the core of a life insurance contract.
When selecting the right sum assured, take the following into consideration:
The amount should cover financial obligations like your child’s education, marriage, and family living expenses
Ensure it provides financial security for all dependents, such as your spouse and children
Your age matters. If you're young, you can choose a higher sum assured, as premiums are typically lower
Sum Assured is the guaranteed amount an insurer pays when a claim is made. To ensure proper coverage, consider these key features -
Guaranteed Payout - The sum assured guarantees a fixed payout to beneficiaries, regardless of any investment performance linked to the policy
Long-Term Commitment - In life insurance, the sum assured stays constant throughout the policy term, providing reliable and predictable coverage
Death Benefit - If the policyholder passes away during the policy term, the sum assured is paid to beneficiaries. This offers crucial financial support during difficult times
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Difference between Sum Insured and Sum Assured
Having understood the meaning of sum assured and sum insured, let’s find out the difference between sum assured and sum insured from the following table.
Basis
Sum Insured
Sum Assured
Associated Insurance
Used for general insurance – health, travel, motor, property, and more
Used for life insurance policies
The Nature of Policy
The policyholder is reimbursed for the lost or damaged amount
Upon policy maturity, the insurance company pays a fixed, pre-specified amount in the event of the policyholder's death
Flexibility
It can be adjusted as per the policyholder’s needs
The sum assured remains constant throughout the policy tenure
Payout
The payout takes place in case of damage or loss of an insured asset
The payout is paid upon the death of the life assured or in case of policy maturity
Understanding the difference between the sum insured and the sum assured is crucial when selecting an insurance policy. The sum insured applies to general insurance (health, car, and property) and refers to the maximum amount an insurer will pay for a covered loss or claim
It ensures policyholders are compensated for losses without making a profit. When choosing a sum insured, consider the value of the asset, medical expenses, and rising costs
In contrast, the sum assured is relevant to life insurance, guaranteeing a fixed amount paid to beneficiaries upon the policyholder’s death or policy maturity
It provides financial security for loved ones and helps cover expenses like education, living costs, and more. The sum assured remains constant throughout the policy’s term
To understand these terms better, it is important to explore the detailed differences between the sum insured and the sum assured. This will help you choose the right option based on your needs and circumstances
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