Planning for unforeseen eventualities is an integral part of our lives. With the risk of uncertainties growing around us in different forms, it makes sense to protect our lives with the right type of life insurance policy. With life insurance, you can plan for financial assistance available to your family in your absence. A crucial term that many policy buyers do not know about is the sum assured. It is interchangeably used with sum insured quite often, which is a different parameter.
Before you decide on buying a life insurance policy, let’s help you understand sum assured meaning in detail.
What is Sum Assured in Insurance?
Sum assured refers to the pre-decide life coverage amount payable either to the policy nominee or policyholder when the insured event occurs. Most individuals understand life insurance benefits in terms of the amount they will receive post death of the insured. Think of sum assured as the term given to that amount in insurance terminology.
In relation to life insurance, these policies cover two types of events – death of the insured or maturity of the purchased policy, depending on the type of life insurance policy you buy. Before you buy the policy of your choice, you need to select the sum assured and then continue to pay the corresponding premiums to benefit from the policy.
Given below are some other facts related to sum assured meaning:
- In case of pure protection policies, the life insurance company pays a sum assured as a death benefit to the policy nominee in case of the unfortunate demise of the insured (subject to underwriting).
- The sum assured you select is directly related to the premium payable. In general, the higher the sum assured, the higher will be the policy premium.
- It is quite important to select an adequate sum assured while buying life insurance.
Factors to Consider While Selecting Sum Assured
Many people think of life insurance purchases as a way to ensure guaranteed financial protection for their loved ones. Next to knowing the basic sum assured meaning, you must also know about the impact of different factors on sum assured selection.
The following table covers five important factors to consider before selecting sum assured:
|Rate of inflation
How is Sum Assured Different from Sum Insured?
Although both sum assured and sum insured are often used interchangeably, they are different from each other. The following table covers sum assured vs. sum insured comparison in detail:
|It is the value of insurance coverage related to life insurance policies.
|It is the insurance coverage amount related to non-life insurance plans like health insurance.
|It refers to the pre-fixed amount that the insurer agrees to pay to the policyholder or nominee when the insured event occurs.
|It refers to the compensation or reimbursement based on the indemnity against loss/damage.
|You can also choose to get a maturity benefit with specific types of life insurance.
|No maturity benefit is available.
Recommended Read: All About Sum Insured
How to Calculate Sum Assured?
Sum assured selection is a very important part of buying life insurance. You should calculate the basic sum assured after considering the following aspects:
- Assess your financial needs, liabilities, and future expenses
- The sum assured should be adequate enough to cover the needs of all your dependents, including parents, wife, and kids
- Consider your age while selecting sum assured
- Select the coverage amount the corresponding premium for which is affordable to your pocket
Get into the Depth of Sum Assured Meaning at BimaBandhu
When it is about understanding the concept of life insurance before purchase, it is easy to feel confused about its various aspects. As per IBEF, the overall insurance penetration in the country was 4.2% in FY2021, which indicates the need to create awareness about life insurance amongst the masses.
At BimaBandhu(.in), we are dedicated to providing comprehensive guides to various concepts related to insurance to make it easier for you to make an informed decision. Whether it is sum assured meaning, definition, selection criteria, or comparison with sum insured, you can read about it all at BimaBandhu.
Sum Assured FAQs
What is sum assured in the insurance industry?
Sum assured is the amount that the insurer agrees to pay to the nominee/policyholder in case of his demise or as defined in the life insurance policy terms.
What is basic sum assured?
The minimum sum assured you can select under a life insurance policy excluding riders is also known as basic sum assured.
What is the meaning of sum insured?
Sum insured is analogous to sum assured but in the context of non-life insurance policies. It is based on the concept of indemnity and is paid accordingly.
How much sum assured should I select under life insurance?
To select the right sum assured, consider your family’s financial needs, your income, and the rate of inflation.
Should I buy life insurance only based on premium?
The policy premium should not be the only factor to decide life insurance purchase. It is because a low-price policy can make you underinsured and will not fulfil the needs you want to buy it for.
How to choose the best life insurance company?
Make sure to check the insurer’s market reputation, Claim Settlement Ratio (CSR), and online reviews before making any decision.
Is it essential to include riders above the basic sum assured?
Life insurance riders are optional add-ons that you can add for better protection after paying an additional premium. It is up to you to decide if you want to add riders to your policy.