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Sum Insured Vs Sum Assured: Know the Difference 

Sum insured and sum assured are among the fundamental terms that an individual essentially needs to understand before choosing a life insurance plan. The two terms are the basis on which a plan is evaluated. Though a novice might interpret the sum assured and sum insured to mean the same, their actual meanings are significantly different. While a sum assured refers to the benefit, the sum insured is the reimbursement of insured loss. 

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What is Sum Assured? 

A sum assured amount is applicable in case of life insurance plans. Sum Assured is the pre-specified amount that is payable by an insurer to the life assured at the end of the policy term or to the nominee/beneficiary mentioned in policy documents in case of policyholder’s death. 

The money paid by the policyholder to the insurer as a premium amount depends on the total sum assured. The more the life cover (sum assured) amount, the more the premium paid to the insurance company. 

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How to Calculate Sum Assured? 

Selecting the right sum assured is important for your life insurance plans. Here is a list of factors you should consider to know the right sum assured: 

  • The sum assured should be adequate enough: 

    • To cover all your financial obligations like paying for child’s marriage or education, maintaining the living expenses of your family members and more. 

    • To financially protect all your dependants like spouse, parents, children, etc. 

    • To pay off the financial obligations in case of your absence 

  • Age is an important factor that determines your sum assured amount. If you are in your 20s, opt for a high life cover. 

  • The sum assured in term insurance should be pocket-friendly. 

What is Sum Insured? 

Sum insured is applicable in general insurance plans like health insurance, home insurance, motor insurance, etc. These type of plans works on indemnity principle that provides coverage or compensation in case of any loss, damage, or injury to the asset that is insured. 

The sum insured concept aims to ensure that there are no such financial benefits made by the policyholders and their losses are covered only. The total amount of cover provided for the general policies or non-life insurance plans is called as sum insured. 

For example, Imagine you buy a health insurance plan with a sum insured of Rs. 5 Lakhs. If you get hospitalized and have to pay Rs. 50,000 in medical fees, and other costs, the insurer will reimburse the full medical bill amount. But, if your medical costs are around Rs. 2 Lakhs (more than 1 lakh), the insurer will pay only Rs.1 Lakh and you will be required to pay the balance amount from your side. 

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How to Calculate Sum Insured? 

At the time of choosing the sum insured for your plan, you should consider below parameters: 

  • In case of insuring an asset, always consider the value of asset as your loss and damage will be compensated completely. 

  • If you are insuring your health, opt for a amount that is adequate to cover medical costs in case of an emergency. 

  • Also, consider your current annual income, updaid financial liabilities, expenses, debts/loans, and any other future financial needs. 

  • Take care of impact of inflation in the future when deciding the amount of sum insured. 

  • Choose a pocket-friendly sum insured amount that fits your budget. 

Difference Between The Sum Assured and Sum Insured 

Below table highlights the difference between the sum assured and sum insured: 

Parameters  Sum Insured Sum Assured 
Applicabe for:  Non-life insurance policies like motor insurance, home insurance, health insurance, etc.  Life insurance plans such as term insurance, saving plans etc. 
Nature  Based on the principle of indemnity, reimburses the amount of damage or loss  The amount is fixed, pre-specified by the insurance company is paid in case of demise during the policy’s maturity. 
Benefits Monetary benefit is not there. Only the reimbursement of damage or loss amount.  The financial benefit is paid to the nominee or the insured. 

Wrapping It Up!

It is extremely important to be aware of the differences between sum assured and sum insured terms so that you can select the appropriate amount as per your plan and requirements. Choose the right sum assured for securing your future. 


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