Sum Assured Meaning, Definition, How to Calculate?

The sum assured is a predetermined amount paid by the insurance provider to the policyholder, or their nominees or beneficiary, when the insured event occurs. These insured events can be death, accident, permanent disability etc, depending on the insurance cover taken. This offers the much-needed cushion for your family to fall back on. The amount of premium payable by the policyholder to the insurer is determined by the sum assured at the time of buying the life insurance policy. Sum assured is a guaranteed amount payable, provided all premiums of the policy are paid duly.

For example, when you purchase a life insurance policy, the insurer promises to pay out a sum assured to your nominee(s) if you meet an untimely death. Naturally, it is critical to select a sum assured that will be sufficient for your loved ones. However, before settling on it, consider the following factors.

● How much do you earn currently?

Your income determines how much you can pay in premiums. The higher the sum assured, the higher the premium; therefore, you must understand how much you can spare from your income after deducting expenses.

● Do you have any financial liabilities?

If you have outstanding long-term loans, consider including them in the sum assured of your life insurance policy.

● What are the financial needs of your family?

Estimate the future expenses that your family will incur, such as the child's education, marriage, and monthly expenses. Then, choose a sum that is certain to be sufficient to cover all these expenses.

Please note that 'sum assured' is not to be confused with 'sum insured'. Non-life insurance policies that operate on the security/indemnity concept, such as an auto, house, and health insurance, provide a sum insured. Indemnity is the reimbursement paid by insurance for any loss, damage, or injury. These insurance policies solely cover damages incurred because of damage to the insured asset.

Choose the appropriate policy with a sufficient sum assured, and live stress-free!

Siddhant Dubey - Writer & Photographer

Siddhant works as a freelance content writer who is interested in a wide range of spheres from photography and personal finance to cooking. He is also an aspiring photographer striving to showcase life around him through his vision.