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 does sum assured means in health insurance?
A sum assured is a predetermined amount that is paid to the plan’s nominee in the case of the policyholder’s death. The insurance provider will pay you the amount you specified when you purchased the policy.
What is the difference between premium and sum assured?
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.
How much sum assured is enough for health insurance?
In the previous few decades, medical advances have greatly increased life expectancy. However, changing lifestyles and external influences have resulted in people living longer but in poorer health today, particularly in metropolitan regions. As a result of the increased number of automobiles on the road, there has been a considerable increase in medical diseases caused by new-age lifestyles, often known as lifestyle disorders. Everyone is more vulnerable to hospitalization today than they were a few years ago, from newborn babies to the elderly.
How much health insurance is required for an individual?
If you’re seeking for a health insurance plan in your early years of life, you should always go for a policy that covers you for more than 3 lakhs. This will assist them in obtaining much-needed coverage to cover any expenses incurred as a result of illness. Furthermore, you are less likely to file a claim at a young age, which means you are more likely to benefit from the no claim bonus or cumulative bonuses, which means your total insured will increase by up to 200 percent year after year.
How much health insurance is needed for family?
Meanwhile, the expense of healthcare has been continuously rising for the past decade or so, with medical inflation estimated at 15% per year. With escalating healthcare expenditures, not having health insurance regardless of age might be dangerous. You never know when an illness will hit and leave you with astronomical medical expenditures. A single hospitalization, if not planned for, might devastate a family’s carefully adjusted finances. In light of these possibilities, having a Health Insurance coverage in place to protect you and your family in the event of an emergency medical condition is critical.
Having a health insurance policy is beneficial, but it is also a legal necessity. To get the most out of a Health Insurance policy, it’s also critical to have the right balance of coverage. In India, most policyholders insure their families for roughly Rs 7-9 lakhs, with a single family sharing the common total insured. Choose a sum insured of at least ten lakhs for two adults and two children.
Health insurance for senior citizen or parents
When deciding on the level of coverage, you must be reasonable. Even a minor medical operation nowadays can easily cost up to Rs 100,000. Today, a bypass surgery at a reputable hospital costs more than Rs 2 lakh, and it will almost probably cost more in the next five years. A Sum Insured that appears enough today may not be sufficient to cover your healthcare costs in the coming years. As a result, before settling on the Sum Insured, it’s a good idea to take inflation into account. Also, if your parents are senior folks, they will require a bigger sum insured, as well as a higher premium commensurate with their age.
Is there ever a right amount or coverage that one needs to look at?
The proper quantity of coverage is determined by a number of factors, including the type of hospital you like, your current age and health conditions, your budget, and so on. The cost of healthcare varies greatly depending on the institution and the services chosen. When you choose an imported implant for an indigenous one, the cost of a knee replacement procedure practically doubles. The size of your health insurance should be proportional to your income and lifestyle in this way.
While there is no optimal sum assured for an individual’s Health Insurance policy, there are two widely acknowledged market standards for its amount. To begin, your health insurance should cover at least half of your annual income. Second, your insurance should at the very least pay the cost of a coronary artery bypass transplant at a facility of your choice. A minimum health protection of Rs 5 lakh is recommended by most personal finance specialists. You can insure a similar amount as a family floater to cover your entire family.
The escalating costs of drugs and treatments may make your individual Health Insurance plan insufficient to cover all of your costs. The basic Health Insurance coverage may not cover expenses such as extended nursing care, counseling sessions, or rehabilitation throughout the recovery phase. However, using products like Riders and Top-Ups, you may significantly improve your health coverage above and above your standard policy without having to pay a higher premium.
A Rider is an optional feature that provides you with additional benefits. Hospitalization is one of the most popular riders included with health insurance policies, but only once a certain deductible has been met. The insurance company does not cover deductibles, which must be paid by the insured. The deductible clause makes Top-Up plans less expensive because the insurer does not have to pay for minor claims. When the severity of the sickness is extreme (such as a heart problem), you’ll require a Top-up cover, which can bring your basic treatment cost to Rs 5 lakh or more.
What is sum assured in insurance with example?
When the covered event occurs, the insurance company pays the policyholder the sum assured, which is a pre-determined amount.
When you acquire a life insurance policy, for example, the insurer promises to pay a sum assured to the nominee in the event that the covered person dies. The amount of premium paid by the policyholder to the insurer is determined by the sum assured. In most cases, life insurance policies provide a sum assured, while non-life insurance policies provide a sum insured.
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.
How is the sum assured calculated?
When determining the sum assured for a life insurance policy, take into account the number of years for which you want to cover your family. To get an approximate sum assured, multiply your family’s annual expenses by that number and then add it to the net liabilities.
Is sum assured same as maturity value?
Before any incentives are added, the sum assured is the amount of money that an insurance policy guarantees to pay out. In other terms, the sum assured is the amount that the policyholder is guaranteed to receive. The amount an insurance company must pay an individual when the policy expires is known as maturity value.
What is maturity benefit?
A term life insurance policy, also known as a term insurance plan, is a policy designed to financially cover the insured individual and her or his family in the event of an unanticipated event or the insured policyholder’s death.
After the policy matures or terminates, the holder or nominee of the policy receives the maturity benefit. Maturity benefits in a term insurance contract may include the following:
In general, the maturity benefit is the amount of money placed with the insurer over the course of the term life insurance policy that the insurer promises to return to the policyholder as well as bonuses when the policy matures. The maturity benefits are accumulated premiums deposited over five, ten, or fifteen years.
Term life insurance plans and traditional life insurance plans differ from one another, despite the fact that they are both insurance plans designed to address the uncertainties in our lives. They differ in terms of death benefits, covered risks, savings, flexibility, and tax advantages.
- Death Benefits: One of the most notable differences between term life insurance and standard life insurance policies is the death benefit. Term plans only pay out death benefits if the insured person dies during the term. The policyholder receives a death payment as well as maturity benefits from traditional life insurance.
A term life insurance policy provides a substantially bigger death benefit to the insured or nominee than a regular insurance policy.
- Risks Covered: Term life insurance does not provide survivorship benefits, unlike traditional life insurance. If you can’t afford to pay large premiums but still want a death benefit, term life insurance is the way to go.
Traditional life insurance is useful when you want to combine a savings account with a life insurance policy. Term life insurance is cost-effective and has a high rate of return.
- In a Term life insurance plan, if the insured cannot pay the premiums throughout the term, the policy fails and the benefits are canceled. In a life insurance policy, however, the maturity amount is only paid if the insured completes the whole term of the policy. In addition, most term life insurance plans are renewable and can be converted to endowment plans with a premium increase.
- Tax Benefits: The premium paid for a term life insurance plan is eligible for tax deductions under section 80C of the Internal Revenue Code. Furthermore, it is less expensive than regular life insurance. The premium amount paid for traditional life insurance is higher than the premium amount paid for term life insurance.
Thus, if you wish to save money through tax deductions, choose term life insurance plans and invest the proceeds in other tax-saving plans such as ELSS and PPF (Public Provident Fund).
- Annual premium: Term life insurance products offer more coverage for less money. Policyholders who want more coverage from their life insurance policy must pay a higher premium. As a result, many policyholders fail to pay their payments on time, causing their insurance policy to lapse. Thus, if you do not have a steady income or have high expenses with little savings in your family, a term life insurance plan is an economical and uncomplicated approach to safeguard your family’s future. Traditional life insurance policies provide low returns but can be beneficial to a household with a consistent income.
As previously stated, term life insurance has the following advantages:
- Term life insurance has premiums that are both affordable and feasible.
- It gives benefits such as tax deductions, lowering the amount of annual premiums to be paid.
- If the policyholder is unable to pay, the plan can be revoked at any time.
- The policyholder or nominee receives death benefits as well as maturity benefits.
- It also has riders for Critical Illness, Accidental Deaths, and other assistance.
Plans with maturity benefits have a number of perks. However, the sorts of premiums, investments, and benefits vary. The three most popular forms of maturity benefit programs are as follows:
1. Term Life with Premium Refund Plans (TLRP Plans):
If the insured survives the policy term, the additional benefit of premiums is returned to the policyholder when the insurance is terminated in Term Life with Return of Premium insurance plans.
2. Endowment Strategies:
Endowment plans are a mix of investing and insurance in most cases. The guaranteed amount is not very large in this case. Funds are invested in debt funds, which means that the returns are lower risk and thus not as great.
Unit-Linked Insurance Plans (ULIPs):
Unit Tied Insurance Plans (ULIPs) are insurance plans that are linked to the stock market. They’re fragile, and the danger is larger than it is with standard life insurance. Furthermore, they are subject to additional fees. A portion of the premiums, similar to endowment plans, is invested in financial instruments that provide the policyholder with the benefits of both insurance and investing. This plan also allows for partial withdrawals of funds, which is advantageous in a crisis.
Many elements of term life insurance with maturity advantages should be considered before making a decision. The following are some of the aspects to keep in mind when choosing term life insurance plans:
- Policy Period: The plan’s minimum policy length is five years, with a maximum policy term of 30-35 years.
- Entry Age: A person as young as 18 years old can apply for a term life insurance plan, and citizens up to 65 years old can apply for a term life insurance plan.
- Plan Types: Term life insurance plans give you the option of choosing between single life and joint life coverage.
- Premium payment frequency: A policyholder can pay premiums monthly or yearly, according on his or her preference.
- Policy Coverage: The following are the areas covered by a term life insurance policy:
- Nominations: Nomination criteria are comparable to those for regular life insurance policies. Any person, blood relative or not, can be a nominee. If the nominee is under the age of 18, another attendee will be nominated in his or her place. To learn more, see our article.
- Maturity age: Maturity ages vary from policy to policy and from insurer to insurer. Some are 25 years old, 65 years old, 75 years old, or even a lifetime old.
- Premium Amounts: Premium amounts are determined by the assured sum and the policyholder’s age at the time of policy beginning.
- Sum Assured: The sum assured varies from one policy to the next and from one insurance provider to the next.
- Policy Revival: If a premium is not paid, a policy can be revived within two years of the date the premium was not paid.
- Free-look Time: For a term life insurance policy purchased offline or manually, the free-look period is 15 days, and for a policy acquired online, it is 30 days.
- Grace Period: In term life insurance, the grace period ranges from 15 to 30 days. Monthly mode policies have a 15-day grace period, whereas other modes have a 30-day grace period.
The Indian demographic benefits greatly from term life insurance coverage. You may get a lot of benefits for yourself and your family with a small investment in premiums. Here are some things to think about while choosing a term life insurance policy:
While investing or applying for insurance, keep an eye on the stock markets.
Canara HSBC Oriental Bank of Commerce offers the iSelect+ Term Life Insurance Plan, which protects your family in the event of accidental death or injury to the covered individual. A flexible plan that provides coverage, premiums, and benefits distributions to protect the family in the event of an emergency.
Can I increase sum assured in health insurance?
Simply click the edit option next to the sum insured of your health insurance policy when renewing your policy to increase the coverage amount. Keep in mind that if you choose a bigger sum covered, your premium will rise as well.