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In today’s world of uncertainty, getting an insurance policy is a no-brainer. Life insurance serves as a safety net for familiy in times of need. In case you are the primary earner, your family depends on you financially for a good living style and a secure future.
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When you buy life insurance, the sum assured should be sufficient enough for your family to secure their future in your absence. This is why it is important to understand the meaning of sum assured and how choosing the amily right sum assured works:
Sum assured is the fixed amount paid to the plan nominee/beneficiary in case of the unfortunate event of the policyholder's death. In other words, if the policyholder dies before the maturity period of the life insurance policy, the insurance company pays a particular amount to the nominee that was chosen by the policyholder at its issue.
Let us understand this concept through an example:
Gagan worked in an IT firm and spent his entire life creating and developing codes. He was married to Neeta and had two children. After the birth of his two children, he was worried about them if anything happened to him. To get a safety net for them, he purchased a term insurance policy from Policybazaar for a maturity period until he was 65 years old. Unfortunately, at the age of 62, he had a heart attack, and the doctors could not save him.
Neeta was in a state of panic . She had to look after two children, all on her own now. However, since Gagan had nominated her for the 1 crore sum assured policy he had taken from Policybazaar, Neeta got that amount after filing a claim. This eased her panic and reduced her financial burden.
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Calculating the sum assured is quite feasible. HLV (Human Life Value) Calculator helps you determine the sum assured for your term plan. This HLV calculator is available online. All you have to do is enter some details, such as an estimate of future and current expenses, age, income, and other information. The calculator factors in inflation over the coming years to estimate the ideal sum assured need to cover your family’s expenses
People often mistake sum assured and sum insured to be the same. However, we need to understand the differences between the two. The following table helps us understand the difference between the two:
| Parameter | Sum Insured | Sum Assured |
| Applicable for | Non-life insurance policies like motor insurance, health insurance etc. | Life insurance plans such as term insurance |
| Nature | It is based on the principle of indemnity, and reimburses the amount of loss or damage.reimburses the loss or damage amount | The amount is fixed and predetermined at the time the policy is purchased. It is given to the policyholder's nominee in case of death. |
| Benefits | No monetary benefit. Only the reimbursement or damage or loss amount is given. | Financial benefit is paid to the nominee of the policy. |
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Now we understand the concept of sum assured. It is also essential to consider the following factors while deciding the sum assured amount:
Age: Your age determines the coverage you need.
Income: Your income will help assess your living standards, and thus it is an important factor to determine the life cover (sum assured).
Dependents: The sum assured amount depends on the number of dependents. The higher the dependents, the higher the life cover you need.
Lifestyle habits: Your lifestyle habits are important in deciding the sum assured. If you are a regular smoker or consume alcohol regularly, it affects your decision of sum assured. These habits can result in a higher premium as you may require a higher sum assured since the life expectancy is reduced for smokers and drinkers
You can buy life insurance for the protection of your family. However these plans are also a good way to invest for long term goals such as a child’s education , retirement , marriage etc. You can increase the sum assured by either buying different plans or a single term plan with increasing cover.
Here are various types of life insurance plans that you might want to consider:
Term Life Insurance Term life insurance provides pure protection coverage. It offers substantial coverage at a minimal premium, ensuring financial security for your loved ones in your absence. It's recommended to have coverage 10-15 times your annual income. If you have other life insurance plans for specific goals, a lower sum assured may suffice.
Unit Linked Insurance Plan : ULIP combines life insurance benefits with an aggressive investment portfolio. It allows investment in diversified portfolios for market-linked returns.
Endowment Plans Endowment plans offer both insurance coverage and savings. The policyholder receives the sum assured upon policy maturity, subject to terms and conditions. In case of the policyholder's demise during the policy term, the insurance company pays the death benefits to the nominee.
Understanding the concept of sum assured is essential in life insurance planning. It represents the guaranteed amount paid to the nominee if the policyholder passes away before the policy matures. This financial support can significantly ease the burden on dependents during a difficult time.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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