# What is Sum Assured & How is it Different from Sum Insured?

## How is Sum Assured Different from the Sum Insured?

If you have been planning to purchase an insurance policy, you must have heard about another term - "sum insured". Unlike sum assured that is paid to the beneficiary upon the untimely demise of the insured, sum insured is the maximum amount that a policyholder can claim once a year for any insured event.

For example, the sum insured for health insurance is the maximum amount the insurer will pay for your medical expenses that are covered by the policy.

It is pretty common to get confused between sum assured and sum insured. However, these two are significantly different from each other and have entirely different purposes.

The differences between sum assured and sum insured have been discussed below:

 Parameters Sum Assured Sum Insured Applicability Sum assured is only applicable for life insurance policies. Sum insured is applicable for other types of insurance plans such as health insurance, car insurance, etc. Definition It is a guaranteed sum that the policy provider must pay to the beneficiary in case of the untimely demise of the insured. The policyholder receives this sum as reimbursement or compensation depending on the expenses incurred as per the policy agreement. Relation with Maturity Benefit One can avail life insurance plans with maturity benefits (sum assured + bonuses) if the policyholder survives the policy tenure. There is no such thing as a maturity benefit with sum insured. Mode of Calculation Sum assured can be calculated through the HLV method. Sum insured depends on the value of the asset. For example, if you have vehicle insurance, the insured amount will depend on the damage incurred or by your vehicle, depending upon your insurance plan.

## Factors to Consider while Calculating the Ideal Sum Assured Amount for You

### Is sum assured the same as death benefit?

No, sum assured usually means the minimum guaranteed amount that is paid to the beneficiary in the unfortunate event of the insured’s demise. On the other hand, death benefit is the minimum sum assured plus bonus that is paid to the nominee if the policyholder dies within the policy’s tenure.

### What is the difference between maturity and sum assured?

Maturity amount is the sum paid to the policyholder by the insurer after the term of a certain policy ends. On the other hand, sum assured is the guaranteed amount paid to the nominee of an insurance plan without including any bonus amount.

### Can the maturity amount be less than sum assured?

No, usually the maturity amount is higher than the sum assured as it also includes the bonuses payable upon the maturity of the policy. In contrast, sum assured is only the minimum guaranteed amount.

### Do I need to pay tax on the sum assured?

Any sum assured amount received at the time of maturity of an insurance policy is exempted from taxation as per Section 10(10D) of the Income Tax Act.

### What is the meaning of Sum Assured in Insurance?

The sum assured is a predetermined fixed amount that an insurance company pays to the nominee (beneficiary) in the event of the policyholder's death. This guaranteed sum is chosen by the policyholder when purchasing the insurance policy. The sum assured directly influences the policy premiums.

### How is the sum assured calculated?

The sum assured is calculated based on income, expenses, dependents, and goals. Insurers typically consider 10-20 times your annual income, outstanding debts, final medical bills, funeral expenses, the number of dependents and their needs, education and retirement goals, and business succession planning (if relevant).

### Can sum assured be less than total premium?

No, the sum assured in a life insurance policy cannot be lower than the total premiums you have paid. As it is the coverage amount your beneficiary receives if something happens to you. Insurers set premiums based on risk, and part of your premium covers protection costs. If an unfortunate event occurs, the guaranteed sum assured is paid out.

### What is the difference between sum assured and sum insured?

The Sum Assured is the benefit or prefixed amount a nominee receives on the death of the policyholder in life insurance. Whereas Sum Insured represents the reimbursement you receive for any loss covered by the policy, generally offered by non-life insurance companies.

### What is the difference between life insurance or life assurance?

Life insurance provides financial protection for a set term and pays out only if the policyholder dies within the chosen term. While life assurance covers the policyholder for their entire lifetime and guarantees payout upon the policyholder’s death, as long as premiums are up to date.

### Is the sum assured paid on maturity?

The sum assured is not paid on maturity, as there is no maturity benefit in a pure-term life insurance policy. However, in other types of life insurance policies, such as endowment policies, whole life insurance policies, money-back policies, and ULIPs (United Link Insurance Plans), the sum assured or a portion of it may be paid on maturity along with any bonus or interest accumulated.

### What happens if my policy's Sum Assured is too low?

A life insurance beneficiary is a person or entity named in your life insurance policy to receive the death benefit upon your passing. If the Sum Assured in your life insurance policy is insufficient, it can create financial difficulties for your beneficiaries. Ensuring that the coverage adequately meets your family’s needs is crucial.

### What is the maximum limit of sum assured?

There is no upper limit on the sum assured for life insurance. However, the sum assured is determined by the policyholder’s age, income, lifestyle, inflation and medical history. The general rule is to have a sum of 10 - 25 times your annual income. Still, this amount can be slightly higher or lower depending on your income, existing wealth, liabilities, and needs.

### Is sum assured guaranteed?

In life insurance, the sum assured is typically guaranteed, but there are some exceptions and conditions to consider:

1. Guaranteed sum assured: Here, the insurer promises to pay the specified amount in the event of death.
2. Conditional guarantees: Some policies may have conditions or riders that affect the sum assured, such as suicide clauses or exclusions.
3. Non-guaranteed components: Like bonuses or interest, which are not part of the guaranteed sum assured.
4. Insurer’s solvency: The sum assured is only as good as the insurer’s ability to pay.

### Can a sum assured be reduced?

Yes, If you have held a life insurance policy for 12 years but stopped paying premiums after five years, your policy will convert to a reduced paid-up sum assured. This means you will still have coverage, but it will be proportional to the premiums you have paid and the policy’s cash value.

### What is the sum at risk?

The sum at risk in life insurance is the amount the insurer is liable to pay if the insured event occurs. It's the difference between the policy's sum assured and surrender value. For example, if the sum assured is \$100,000 and the surrender value is \$20,000, the sum at risk is \$80,000. This represents the amount the insurer is liable to pay in the event of a claim.

### How much sum assured is enough?

The sum assured should cover your family's expenses, debts, and future goals. A general rule of thumb is 10-15 times your annual income.

### How is sum assured calculated?

Sum Assured = Annual Income x Years left until Retirement

### Is sum assured taxable in term insurance?

Section 10(10D) of the Income Tax Act states the money you receive when your life insurance policy matures or when you surrender it is not taxed. Any bonuses you get along with that amount are also exempt from tax.

### What is the difference between sum assured and premium?

Sum assured is the amount your family gets if you pass away. Premium is the amount you pay to keep your insurance active.

### Who is assured in insurance?

A person who is promised a payment or benefit under a policy, such as life assurance, is referred to as "assured" in the context of insurance. It may also refer to a person who has insurance coverage protecting them from any loss or harm specified in the policy.

### Can I increase the sum assured in a term plan?

Yes, many term plans allow you to increase the sum assured over time, usually by 50% in case of the policyholder's marriage or 25% in case of childbirth. This means rather than buying multiple-term plans, you can boost protection as your income or needs grow.

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