Difference between Sum Insured and Sum Assured
In India, the insurance sector is categorized into two main segments: General Insurance and Life Insurance. The term "sum assured" is specific to the life insurance segment, whereas "sum insured" pertains to general insurance.
Below, we will delve into the significant distinctions between these two terms.
What is Sum Assured?
Sum assured is a predetermined amount that the insurance company agrees to pay at the end of the policy term or to the nominee upon the death of the policyholder. Premiums paid by policyholders to insurers are dependent on the total sum assured. A higher life cover (sum assured) means a higher insurance premium.
The premiums you pay for these plans are exempt under Section 80C of the Income Tax Act, 1961. The death benefit and maturity proceeds are exempt from taxes under Section 10(10D).
For instance, you buy a guaranteed return insurance plan with a sum assured of ₹15 Lakh in case of demise during the policy tenure. It means that in case of your unfortunate death during the insurance policy period, your nominee will get ₹15 Lakh as a guaranteed insurance sum.
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What is Sum Insured?
The term "sum insured" applies to general insurances such as health, motor, and home insurance. These policies operate on the principle of indemnity, offering compensation for damages, loss, or injury to the insured asset.
The Sum Insured concept ensures policyholders receive only compensation for their losses, preventing any monetary gains. It represents the total cover provided for non-life insurance policies.
For sole breadwinners, purchasing life insurance with an adequate sum assured is crucial to cover current and future family expenses. Increasing inflation and lifestyle costs may influence the required life cover amount.
Difference between Sum Insured and Sum Assured
| Sum Assured | Sum Insured |
| The term sum assured refers to the pre-decided amount a nominee will receive upon the demise of the policyholder. | The term insured refers to the maximum reimbursement amount one receives at the time of insured loss. |
| The sum assured is determined based on the various factors like budget, inflation, income, lifestyle, and overall working period | The sum-insured value is decided based on the insured asset. In the situation of medical insurance, based on the past medical issues or pre-existing diseases, sum insured value is determined. |
| There is no monetary benefit in the sum insured. The amount of damage or loss is the only amount to be reimbursed. | Nominees or insured individuals receive financial benefits, such as guaranteed return insurance policies that provide life cover alongside investment benefits. |
| Sum Assured relates to Life Insurance Policies | Sum Insured related to Non-Life Insurance Policies like Motor, Travel, Property, credit , accident, insurance, etc. |
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How to calculate the sum assured?
Choosing the right sum assured is extremely crucial for your life insurance policies. You can consider the following factors to know the optimal sum assured amount:
- Ensure that your sum assured adequately covers all your financial obligations, including sponsoring your child's education or marriage and sustaining your family's living expenses.
- Your sum assured should provide sufficient financial security for all your dependents, including your spouse, children, and parents.
- Consider your age when determining your sum assured. If you are young, opt for a higher sum assured as you have a longer life expectancy.
- Your insurance sum assured should be affordable and not strain your finances.
Bottom Line
In essence, while both Sum Insured and Sum Assured play pivotal roles in the domain of insurance, they operate in distinct contexts and serve different purposes. Sum Insured safeguards against losses incurred due to unforeseen events in general insurance policies, whereas Sum Assured provides a guaranteed payout to beneficiaries in life insurance policies.
Understanding these disparities empowers individuals to make informed decisions while purchasing insurance, ensuring that their coverage aligns with their specific needs and offers comprehensive protection against life's uncertainties.
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