What is the Difference Between Sum Assured and Sum Insured?

Sum Assured vs Sum Insured: Key Differences Explained

Insurance is a crucial financial instrument that helps you stay financially covered during critical times. Whether it's health or life insurance, the right policy can assist you by protecting your health and finances. However, before buying any insurance policy, you must have an insight into its components and terminologies.

The phrases "sum insured" and "sum assured" are frequently used in the context of insurance. Despite their similarity in sound, each has a unique meaning and importance. Policyholders should be aware of the differences to select the best policy and guarantee appropriate coverage.

Keep reading for a detailed insight into their differences.

What is Sum Assured?

The term "sum assured" refers to the guaranteed sum that an insurance provider agrees to pay to the policyholder or their nominee in the event of a specific occurrence. The amount is usually paid upon the insured's death or the maturity of a life insurance policy.

It is a fixed value established during policy purchase and serves as the basis for life insurance contracts. Unless the policyholder chooses to add more riders or enhancements, this sum stays the same for the duration of the policy.

For instance, you have purchased a life insurance policy with a ₹10 lakh sum assured. Your nominee will get ₹10 lakhs if you pass away within the policy's term, regardless of any other circumstances.

Here are some of the features of the sum assured:

• Applicable to life insurance policies.
• Paid out on death or maturity, whichever occurs first.
• Provides financial security to beneficiaries.
• Not influenced by the actual loss or expenses incurred.

What is Sum Insured?

It is the maximum amount an insurer will reimburse for a covered loss, claim, or damage under general insurance policies. This includes health, motor, property, or travel insurance. It is based on the principle of indemnity, which means the insurer compensates only for the actual loss, ensuring you are not financially better off after a claim.

For instance, Rahul purchased a health insurance policy with a ₹5 lakh sum insured and incurred hospital bills of ₹3 lakhs. The insurer will pay ₹3 lakhs as the sum insured, and if your bills exceed ₹5 lakhs, he will have to pay the difference.

Here are some of the features of the sum insured:

• Applicable to general (non-life) insurance policies.
• Based on the value of the insured asset or potential loss.
• Reimburses actual expenses up to the sum insured.
• It can be adjusted annually to reflect changing needs or asset values.

What are the Key Differences Between Sum Assured and Sum Insured?

The table below discusses the key differences between sum assured and sum insured:

How are Sum Assured and Sum Insured Calculated?

The sum assured is calculated based on factors such as age, income, lifestyle, and long-term financial goals. The amount is chosen to ensure that beneficiaries are financially secure in case of the policyholder’s death or at policy maturity.

The sum insured is determined by the asset's value, potential risk, and the extent of coverage required. For example, health insurance may be set according to anticipated medical expenses, while property insurance reflects the replacement cost of the property.

While “sum assured” and “sum insured” are often confused, understanding their differences is crucial for selecting the right insurance product. Sum assured provides guaranteed financial support in life insurance, while sum insured offers indemnity-based protection in general insurance.

Assess your needs carefully to ensure comprehensive and effective coverage for yourself and your loved ones. At Star Health, we offer extensive coverage for a wide range of diseases and their treatments under our general insurance plans. We also provide hassle-free claim settlements with reduced turnaround time across over 14,000 network hospitals in India.