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Demystifying the Concept of Sum Insured Vs Sum Assured

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.

Sum insured

Non-life insurance policies, such as motor insurance, home insurance and health insurance, which work on the principle of indemnity offer an amount called sum insured. Indemnity refers to the compensation that insurer pays for any loss, damage, or injury. These policies provide coverage only for the losses due to any damage that happens to the insured asset. For instance, an individual buys a health insurance policy that offers a sum insured of Rs. 1lac. Now, in case of the insured person’s hospitalization any bill amounting to less than Rs. 1lac will be entirely paid by the insurance company. However, if the bill amount exceeds Rs. 1 lac, then the insurer will be liable to pay only Rs. 1 lac and the remainder will have to be borne by the policyholder.

The idea behind this concept is that the compensation should not lead to a monetary benefit to the policyholder and the only amount that is equal to the actual loss suffered should be paid to him. This is why the cover in non-life insurance policies is known as the sum insured.

Sum assured

Sum assured is a pre-decided amount that the insurance company pays to the policyholder when the insured event takes place. For example, when you buy a life insurance policy, the insurer guarantees to pay a sum assured to the nominee in case of the insured person’s demise. It is the sum assured that determines the amount of premium payable by the policyholder to the insurer.

Polices offering both

Typically life insurance plans offer sum assured and non-life insurance policies offer sum insure.Insurance companies have nowadays started offering policies that along with reimbursing your medical bills give you a pre-defined benefit incase a pre-defined medical event takes place. These kind of dual-benefit plans are offered by both non-life as well as life insurance companies. A common example of this kind is a critical illness plan that comes with a one-time benefit in case the insured person suffers from any illness specified in the policy, such as paralysis, heart attackor cancer.For instance, a hospital cash policy gives daily cash benefit up to a pre-defined limit for all the span of timethat insured person is hospitalized. Similarly, surgical benefit plans entitle the policyholder with pre-defined sum assured in case of a surgery.

 If an agent is offering you a sum assured on the health insurance policy that you have bought, you would be getting a defined benefit plan. But a basic health insurance plan that would reimburse your medical expenses would be your primary requirement.