Sum Assured

Sum assured is the fixed amount that an insurance company guarantees to pay upon the occurrence of the insured event, such as the policyholder’s death or the policy’s maturity. It is the core benefit of any life or general insurance policy and represents the coverage amount you are buying when you purchase the policy.

What Is Sum Assured?

In life insurance, the sum assured is the death benefit or maturity benefit the insurer pays. It is the guaranteed amount and does not include bonuses or market-linked returns in traditional policies. In health insurance, sum assured is called the sum insured and represents the maximum amount the insurer will pay for medical claims in a year.

Sum Assured in Different Types of Insurance

**Term insurance:**
The sum assured is the death benefit paid to the nominee if the policyholder dies during the policy term. There is no maturity benefit in pure term plans.

**Endowment and money back plans:**
Sum assured is paid either on death or maturity. It is the guaranteed component. Non-guaranteed bonuses are added on top of this.

**ULIPs:**
Sum assured is the minimum death benefit, typically 10 times the annual premium. Market-linked fund value may be higher.

**Health insurance:**
Sum insured (not sum assured) is the annual limit for medical claim reimbursements.

How Much Sum Assured Should You Have?

A commonly recommended thumb rule for life insurance is to have a sum assured of at least 10 to 15 times your annual income. If you earn Rs 10 lakh per year, aim for Rs 1 crore to Rs 1.5 crore in life insurance coverage.

Factors to consider:
– Outstanding loans (home loan, car loan)
– Future financial goals (children’s education, marriage)
– Dependent family members
– Existing assets and savings

Sum Assured vs Sum Insured

| Term | Context | Meaning |
|——|———|———|
| Sum assured | Life insurance | Guaranteed payout on death or maturity |
| Sum insured | Health/general insurance | Maximum claim limit per year |

Practical Example

Rajesh earns Rs 12 lakh per year and has a home loan of Rs 40 lakh. He buys a term plan with a sum assured of Rs 1.5 crore. If Rajesh dies during the policy term, his family receives Rs 1.5 crore. They use Rs 40 lakh to repay the home loan and invest the remainder to replace Rajesh’s annual income. The sum assured was sized to adequately protect their financial goals.

Key Takeaways

– Sum assured is the guaranteed amount the insurer pays on death or maturity
– In health insurance, the equivalent term is sum insured (the annual claim limit)
– A sum assured of 10 to 15 times annual income is a widely used guideline for life cover
– Factor in outstanding loans and dependent goals when deciding the appropriate sum assured
– Term plans offer the highest sum assured per rupee of premium paid