One of the key terms you will come across when reading about insurance is 'sum assured'. It's an important aspect of any insurance policy; understanding it can help you make an informed decision. In this article, we'll explain what sum assured is, how it works, and why it's important to consider when purchasing an insurance policy.
What Is Sum Assured?
Sum assured refers to the maximum amount that an insurance company will pay out in the event of a claim. This amount is specified in the insurance policy, representing the coverage you are entitled to receive.
For example, let's say you purchase a life insurance policy with a sum assured of Rs. 50 lakhs. In the event of your untimely demise during the policy period, your nominee will receive the sum assured of Rs. 50 lakhs from the insurance company.
How It Works
The sum assured is determined at the time of purchasing the insurance policy. It's based on factors such as your age, health condition, lifestyle habits, and the type of policy you choose. The higher the sum assured, the higher the premium you will pay.
In most insurance policies, the sum assured is fixed throughout the period. However, some policies may offer a flexible sum that can be changed based on your needs.
Why Is Sum Assured Important?
The sum assured is a critical aspect of any insurance policy as it determines your coverage. It's essential to choose a sum assured that will adequately cover your financial obligations in the event of an unfortunate event.
While choosing the sum assured, it's important to consider factors such as your financial liabilities, dependents, lifestyle, and inflation. A higher sum assured will provide better financial protection, but it will also come with a higher premium.
In the case of life insurance, it's recommended that the sum assured should be at least 10-15 times your annual income. This will ensure that your dependents can maintain their standard of living even in your absence.
In the case of health insurance, the sum assured should be determined based on various factors. These factors include but aren't limited to, your medical history, lifestyle, and the cost of medical treatment in your region. Choosing a sum that will cover the cost of medical treatment without putting a strain on your finances is essential.
Sum assured vs Sum Insured
While "sum insured" and "sum assured" may sound similar, they are quite different. Sum insured is a term used in general insurance policies, such as health or motor insurance, and refers to the maximum amount an insurer will pay out in case of a claim. On the other hand, sum assured is a term used in life insurance policies and refers to the guaranteed amount that will be paid out upon the insured person's death or at the end of the policy term.
In simpler terms, the sum insured is the maximum coverage you can receive in the event of a claim, while the sum assured is the guaranteed payout amount in a life insurance policy.
Understanding the difference between the two is important when selecting an insurance policy to ensure you get the right coverage for your specific needs.
Sum assured is an important aspect of any insurance policy, and understanding it can help you make an informed decision while purchasing it. It's essential to choose a sum assured that will adequately cover your financial obligations in the event of an unfortunate event. With the right sum assured, you can ensure financial protection for yourself and your loved ones.