Updated on October 4, 2023
The sum assured is one of the most important parts of an insurance policy. This term and its importance is explained here.
Meaning of sum assured
Sum assured, often referred to as the “sum insured” or “coverage amount,” is a fundamental component of any insurance policy, including life insurance, health insurance, and general insurance. It represents the specific amount of money that the insurance company promises to pay to the policyholder or the beneficiary in the event of a covered loss, damage, or eventuality.
What is the meaning of sum assured in different types of policies?
Life Insurance – In life insurance policies, the sum assured is the amount that is paid to the beneficiary upon the death of the insured. It can also include additional riders or benefits, such as accidental death or critical illness coverage, which may provide a separate sum assured for those specific scenarios.
Health Insurance – In health insurance policies, the sum assured represents the maximum amount the insurer will pay for medical expenses incurred by the insured. It can be per policy year or for the entire policy duration, depending on the policy terms.
General Insurance – In general insurance, such as car insurance or home insurance, the sum assured denotes the coverage limit for repairing or replacing the insured property or covering liability claims. For example, if the sum assured for a car insurance policy is Rs. 5 lakhs, the insurer will pay up to that amount for covered damages or third-party liability.
What are the factors to consider in determining the sum assured in insurance policies?
Coverage Assessment – Policyholders should thoughtfully assess their insurance requirements, considering factors like family expenses, outstanding debts, and future financial objectives, to determine an appropriate sum assured.
Periodic Review – As financial situations change, it is recommended to periodically reassess and modify the sum assured to ensure it aligns with existing and anticipated financial responsibilities.
Policy Comparison – To find the most suitable coverage and premium, it’s crucial to compare policies from different insurers when purchasing insurance.
Document Scrutiny – Policyholders should meticulously examine their insurance policy documents to comprehend the sum assured’s terms and conditions, including potential exclusions, waiting periods, or applicable conditions.