Insurance jargon might be difficult to understand. However, it is critical to comprehend various insurance terminology because they have a significant impact on your coverage. Sum insured and sum assured are two of the most essential insurance terms. Despite the fact that these phrases sound the same, they have very different meanings.
The difference between sum assured and sum insured is that sum assured refers to the benefit of your guaranteed1 return insurance plan, whereas sum insured refers to the payment of an insured loss.
The idea of indemnification, which provides a cover or reimbursement for harm, loss, or injury, defines the sum insured in an insurance policy. Non-life insurance policies, such as auto insurance, house insurance, and health insurance, are typically covered by this notion. These insurance solely cover damages incurred as a result of damage to the insured asset.
Let’s say you have a health insurance policy with a basic sum insured of one lakh rupees. If you are admitted to the hospital and have to pay $50,000 in medical bills, your insurance company will repay you in full. However, if your medical cost is for Rs. 2 lakh (usually more than Rs. 1 lakh), the insurance company will only pay Rs. 1 lakh, leaving you to pay the rest out of pocket.
The basic sum insured is intended to fairly compensate for the loss experienced rather than to give any monetary gain.
Consider the following factors when determining the basic sum insured for your policy:
- If you’re insuring an asset, you should think about the value of the asset so that any damage or loss is properly reimbursed.
- If you’re insuring your health, make sure the amount is enough to cover medical bills in the event of an emergency.
- If you’re buying a family floater plan, make sure the sum insured is enough to cover all of your dependents.
- If you’re looking to insure your life, think about your present income and spending, any ongoing financial obligations, and any impending large financial obligations.
- When determining the value of your sum covered, keep in mind the long-term impact of inflation.
Another crucial concept to understand in insurance is the sum assured. The sum assured is a pre-determined amount that the insurance company agrees to pay you or your nominee if the covered event occurs or the policy period expires. The insurance policy’s sum assured is calculated at the time of purchase. Throughout the policy period, it remains unchanged. The sum assured value is used to determine the premiums you pay for the policy. The coverage is cancelled when the insurer pays the cash assured to you or your nominee.
This principle is applicable to both life and guaranteed return insurance policies. These plans provide you with comprehensive life insurance coverage as well as a savings component to help you achieve your life objectives. A guaranteed1 return insurance plan provides you with guaranteed returns in your preferred mode. You have the option of receiving your plan’s returns as a lump amount, recurring income, or a lifetime income benefit. The plan also includes guaranteed1 insurance coverage to safeguard the people you care about the most: your family.
With the correct sum promised for your insurance policy, you may ensure your family’s financial future in the event of your death. You may also add-on riders to your guaranteed1 insurance policy to make it more comprehensive. Furthermore, this guaranteed1 return insurance plan allows you to pay all payments in one single sum, on a regular basis, or for a certain period of time.
You can also pay your premiums on a regular basis, such as annually, semi-annually, quarterly, or monthly. You can also borrow money against your guaranteed1life policy. Furthermore, guaranteed1 insurance plans in India are tax-free.
Section 80C of the Income Tax Act of 1961 exempts the premiums you pay for these schemes. Section 10 exempts the death benefit and maturity revenues from taxes (10D).
For example, suppose you purchase a guaranteed1 return insurance plan with an amount insured of 15 lakhs in the event of death within the policy term. This means that if you die unexpectedly within the insurance policy time, your nominee will get a guaranteed insurance payment of Rs. 15 lakhs.
Choosing the correct sum assured for your life insurance coverage is critical. To determine the best total assured amount, examine the following factors:
- Your sum assured should be sufficient to fulfill all of your financial obligations, such as supporting your family’s living expenses, sponsoring your child’s schooling or marriage, and so on.
- Your sum assured should be sufficient to cover all of your dependents, including your spouse, children, parents, and others.
- In the event of your death, the insurance payout should be sufficient to cover your family’s financial obligations.
- Your sum assured is determined by your age. If you are young, choose a high sum assured since you will live a long time.
The following table illustrates the distinction between basic sum insured and sum assured:
Non-life insurance policies, such as home insurance, auto insurance, and health insurance, are all eligible.
In the event of death during the policy’s duration or maturity, the insurer pays a pre-determined amount.
It’s critical to know the distinctions between these two insurance terminology so you can select the appropriate insurance quantity for your policy and needs. For a secure future, choose the best sum covered and sum assured for your insurance policy.
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What is sum insured with example?
The highest amount that your insurance company can pay in the event that you are hospitalized for a year is known as the sum insured. Any amount not covered by your insurance will have to be paid out of your own pocket. This is based on the indemnity principle. It will compensate you for any losses incurred as a result of the injury you have suffered.
Sum Insured
Non-life insurance products, such as vehicle insurance, have a sum insured value.
Your Sum Assured is often computed by factoring in the economic value of your life (Human Life Value), which might increase over time.
For assets, the Sum Insured normally depreciates. The main distinction is between coverage for the item’s originator and coverage for the asset itself.
In the event of a disaster, the insurer pays the policyholder or nominee a pre-determined amount.
It is a reimbursement/compensation based on the indemnification idea for damage/loss.
The benefit received by the insured individual or recipient is referred to as the sum assured. Maturity benefits are available under some types of life insurance plans.
Why is sum insured important?
The basic goal of health insurance is to provide financial protection in the event that you develop a medical problem, allowing you to keep your resources safe. Low insurance coverage defeats the purpose and can exhaust all or most of your money if you require medical assistance.
As a result, choose the sum insured as carefully as possible when acquiring a health plan. You can also contact the insurer for assistance in making the best option.
Type of health insurance plan
There are many different types of health insurance policies to pick from on the market. Individual plans, family-floater plans (example above), employer-sponsored group plans, critical illness plans, and so on are all available. As a result, the amount protected under your health insurance coverage will be determined by the type of plan you select. Because more members are protected under a single policy, the sum insured of a Family-floater can be slightly more than that of an Individual Plan.
Number of members covered
In comparison to Individual Plans or Senior Citizen Policies, some plans, such as Family-Floater and Employer’s Group Plan, cover a larger number of covered people. Select the sum insured based on the number of people covered by the policy. This will provide you some flexibility in using the money insured for any medical emergencies that arise throughout the policy time. A lower sum covered may be depleted after a few claims. Your out-of-pocket expenses may rise as a result of this.
Health history and age of the insured
Some people have medical conditions that necessitate frequent medical attention, such as asthma or persistent diabetes. If you or a covered family member has a reoccurring health issue, you must choose a higher sum insured. In this case, the insured’s age is also a factor. If your health insurance policy covers senior citizens, consider increasing the sum insured. Elderly people may require more medical attention than younger people.
Income and number of dependents
Your annual income might help you determine how much coverage you or your dependents require. If your annual income is minimal, set aside some money to pay for the premium of a health plan with a large sum protected. This will allow you to receive extra coverage and ensure that you are covered in the event of a medical emergency for the duration of your policy. When purchasing an insurance, keep in mind the number of dependents. Always keep in mind that the bigger the number of dependants, the higher the sum insured must be.
Quality of medical facilities in your area
Some areas, particularly cities, may offer advanced medical treatment that is more expensive than in other areas. This can assist you decide if you need a policy with extra coverage if you keep this in mind while choosing the amount of sum insured.
Existing health insurance coverage
When purchasing a new health insurance policy, always determine the total useful sum insured. If you work, you (and your dependents) may be covered by your employer’s health insurance plan. However, such plans may not be beneficial in the long run because the policy expires when the employee’s employment ends. Additional coverage, such as an Individual Health Insurance policy, can serve as a backup in this situation.
Many health insurance plans can also be beneficial since, according to the regulator’s newest Standardisation Guidelines (IRDAI), you can claim against multiple policies to cover the whole cost of a medical incident.
Assume you’ve nearly depleted your Family-floater policy’s covered amount and are dealing with a fresh medical emergency. You are also protected by your employer’s Group Medical Policy. In this case, you can claim X from the Family-Floater insurance and the remaining Y from the Group Medical Policy, as per the provisions of the policy.
IRDAI will allow you to file a claim for the same occurrence under both policies in order to receive the most financial assistance for the new medical emergency.
What is the difference between sum insured and premium?
Money (Coverage) that we will receive from life insurance companies is a concise summary of the sum insured. The money we must pay to life insurance companies is known as the insurance premium. In most cases, the total covered and the insurance premiums will differ. That is to say, the bigger the sum covered, the higher the monthly or annual premiums we must pay. We must spend more (insurance premiums) if we require more coverage (insurance coverage).
Insurance is not difficult to grasp; simply study and understand it over time or seek guidance from any SCB branch. Because unexpected events are bound to occur. Insurance will provide you with a sense of security. We have insurance protection that permits us to continue living without interruption regardless of illness, injury, work, or a lack of income. Prepare for any eventuality by purchasing insurance that meets your requirements today.
Is sum assured paid on maturity?
While the maturity sum is the total premiums paid until the policy matures, the sum assured is a pre-determined amount paid to the policyholder’s nominee after death. It is a set amount that you will receive if you pay your premiums on time. Your life insurance policy premium will rise if you increase the sum assured amount. As a result, it’s critical to select a sum assured for which you can afford to pay regular premiums.
What is sum insured safeguard?
Understand the policy’s coverage before purchasing house insurance. This will allow you to compare policies and choose the best house insurance for your needs.
Cover the cost of rebuilding your house
- Sum-insured coverage an estimate of the cost of rebuilding your home if it were completely destroyed.
- The cost of repairing or rebuilding your house to the same quality is covered under total replacement coverage.
With whole replacement coverage, you’re less likely to be underinsured. However, few insurers provide it, and it is frequently more expensive.
Check if your insurer offers a’safeguard’ or’safety net’ to avoid being underinsured with sum-insured coverage. This means that in the event of a total loss, they will increase your sum-insured value by up to 30%.
Calculate the cost of rebuilding your house
To prevent being underinsured, calculate an accurate sum-insured amount. To assist you, most insurers include calculators on their websites.
Look for a calculator that employs ‘elemental estimation.’ It will ask you for a variety of information about your house, such as:
Elemental estimating is more precise than ‘cost per square metre,’ which is based on the size of your home and the materials utilized.
Check to see if’supplementary expenditures,’ or additional fees for rebuilding your home, are reimbursed. For example, temporary housing throughout the rebuilding process and debris removal from the site.
Check the exclusions
Home insurance protects against loss and damage resulting from specified or insured events. Fire, flood, storm, theft, and vandalism are just a few examples.
Check to see if there are any events that aren’t covered. This could involve damage from the sea, smoke, landslides, or power outages, among other things.
Even if flood insurance is included, some aspects of your home may not be covered. See insurance for storms, floods, and fires.
Adjust your excess
You can usually adjust your excess with most insurance. Consider the benefits of having a low excess but a higher premium vs the contrary. By increasing your excess, you may be able to lower your premium.
What should be the health insurance sum insured?
It’s easier said than done to choose the proper total covered amount for health insurance. Although there is no simple formula or step-by-step guidance for calculating the appropriate sum insured amount, there are several guidelines that can be followed to achieve it quickly:
Choose Health Insurance According to Age
When you’re young, it’s a good idea to have a health insurance policy. Not only is it more economical at that time, but it also requires less coverage elements. According to experts, sum insured options ranging from Rs. 2-3 lakh are sufficient for someone in their twenties. The sum insured, on the other hand, can be increased at the time of renewal in succeeding years.
Choose the Sum Insured as Per the Income
It is advised that you get a health insurance policy with a sufficient amount of coverage at a reasonable price. Health insurance policy customers should choose a coverage with a premium that is less than 2% of their annual income, according to experts. For example, a person with a yearly income of Rs. 5 lakh should purchase a health insurance policy with a maximum premium of Rs. 10,000.
Choose the Sum Insured as Per the Lifestyle
Buyers of health insurance policies must select a sum insured based on their lifestyle. If someone is under a lot of stress, has a work that doesn’t allow them to exercise, doesn’t eat a healthy diet, or drinks alcohol on a regular basis, they should get a health insurance policy that protects them for a variety of lifestyle diseases.
Consider the Medical History of Family
If the policyholder’s family has a history of medical problems, they should choose a bigger sum insured choice. This will assist the policyholder in obtaining adequate coverage for the aforementioned ailments. If any of these illnesses are covered by a critical illness policy, it is suggested that you acquire a separate critical illness policy in addition to your basic health insurance policy. This is due to the fact that ordinary health insurance policies may not usually provide adequate coverage for urgent conditions.
Difference Between Sum Insured and Sum Assured
Sum insured refers to the value of non-life insurance policies, whereas sum assured refers to the value of life insurance contracts. Sum insured is based on the indemnity principle and provides repayment or compensation to the insured in the event of hospitalization. Sum assured, on the other hand, is the predetermined amount that the health insurance company will pay the policyholder in the event of an accident. Amount assured, unlike sum insured, is a monetary reward delivered to the insured at the end of the insurance period.