There are different types of insurance available to ensure the safety of individuals and those who are dependent on them. It can be life insurance that gives an assured sum of money to the beneficiary, or it can be insurance for a car, etc., that covers damage in case of loss. But people often get confused between the terms sum assured and sum insured and may perceive them as one.
This article will help you understand the clear difference between sum assured and sum insured, along with their meaning.
What is Sum Assured?
The fixed, guaranteed sum that a life insurance company agrees to pay to the policyholder’s designated beneficiary in the event of the policyholder’s passing or at the conclusion of the policy term (for maturity benefits) is known as the sum assured.
It is a predetermined benefit amount that is determined by the cover agreed upon at the time of policy purchase, rather than actual losses. It usually applies to life insurance policies like ULIPs, term plans, and endowment plans.
Key Features:
- Payout: Regardless of actual costs or losses, the payout is guaranteed.
- Fixed at Policy Inception: The policyholder selects the sum assured at the time of purchase.
- Supports Financial Planning: Provides the family with financial stability in the event of an unexpected death.
- Tax Benefits: Section 80C and Section 10(10D) of the Income Tax Act allow for tax deductions.
What is the Sum Insured?
It is the amount that the individual gets from the insurance provider in case of loss or damage from hospitalisation, loss, or damage is known as the sum insured. Its foundation is the indemnity principle, which states that actual financial losses up to the policy limit must be reimbursed.
Key Features:
- Payout based on indemnity: Only the actual loss incurred is reimbursed, if it is within the amount paid as insurance.
- Annual Coverage Limit: Usually renewed annually, with the option to update the coverage.
- Useful in General Insurance: Applied to policies such as auto, health, and travel insurance.
- Possible Partial Claims: Any unused balance may be applied at a later time during the same policy year.
- Claim-Based Premium Increase: If you file a lot of claims, it might affect your renewal premium.
Difference Between Sum Assured and Sum Insured
Sum Assured: Found in life insurance policies (term plans, etc.).
Sum Insured: Applied to general insurance policies (e.g., home, auto, health).
Let us understand the difference between them based on features:
| Feature | Sum Assured | Sum Insured |
| Type of Policy | Life Insurance | General Insurance |
| Nature | Benefit-based | Indemnity-based |
| Claim Basis | The fixed amount agreed upon | Actual loss up to maximum coverage |
| Flexibility | Fixed throughout the policy tenure | Can vary and be revised yearly |
| Claim Amount | Full payout as agreed | Reimbursed based on actual expense |
| Examples | Term Plan, ULIP, Endowment Plan | Health Insurance, Vehicle Insurance |
Now, let us see the suitability of sum assured and sum insured by differentiating them with the help of the table below:
Sum Assured:
- You wish to ensure the financial stability of your family.
For instance, your nominee will receive that exact sum that you have assured without any questions if something goes wrong. - After you are gone, you want to make sure your dependents are not burdened.
Example: To safeguard their child’s education and way of life, a young parent purchases a life insurance policy with a sum assured. - A long-term plan without annual premium adjustments.
For instance, level-premium term insurance policies are based on a fixed sum assured and do not vary annually.
Sum Insured:
- You want to safeguard valuables like your home, vehicle, or bicycle.
For instance, the sum insured under your auto insurance policy is Rs. 6 lakh. Up to that sum, the insurer covers replacement or repairs if it is damaged. - Flexibility to modify your coverage annually.
For instance, health insurance policies allow you to modify your annual sum insured based on inflation, medical needs, or your age. - Instead of receiving a set lump sum payment, you would prefer to be compensated for actual losses.
For instance, travel insurance with a sum insured of Rs. 2 lakh covers lost luggage or trip cancellations based on actual costs.
The table below summarizes the suitability:
| Case | Choose Sum Assured | Choose Sum Insured |
| Want to provide financial support to the family | Yes | Not applicable |
| Want protection against hospital bills | Not applicable | Yes |
| Expect a fixed, guaranteed payout. | Yes | No |
| Looking for coverage for asset loss (car/home) | No | Yes |
| Prefer yearly renewal and adjustments. | No | Yes |
Bottomline
The conclusion can be drawn that sum assured and sum insured as two different terms used for different purposes. Individuals should analyse why they are choosing it before choosing one. This will ensure that the suitability aligns with the goal. Sum assured is usually found in life insurance, while sum insured is the amount that will be reimbursed in case of loss or damage.
Knowing about these terms will help in personal finance as well as making wise financial decisions.