Sum Assured
The sum assured is the amount of money that is promised to be paid to the beneficiary in the event of the insured’s death. It is the primary amount of compensation paid to the beneficiary.
Definition:
Sum assured is the amount agreed upon between the insured and the insurance company at the time of policy issuance. It is the monetary value that the beneficiary will receive if the insured dies.
Types of Sum Assured:
- Simple Sum Assured: A fixed amount of money that is payable in the event of death.
- Reducing Sum Assured: A sum assured that decreases over time, such as a life insurance policy with a decreasing death benefit.
- Increasing Sum Assured: A sum assured that increases over time, such as a life insurance policy with an increasing death benefit.
Determining Sum Assured:
- Age and Health: Factors such as age and health status influence the sum assured.
- Financial Needs: The insured’s financial needs and ability to provide for dependents are considered.
- Insurance History: Past insurance claims and history of risky behaviors can affect the sum assured.
- Policy Provisions: Specific policy provisions, such as exclusions or riders, can influence the sum assured.
Examples:
- A life insurance policy with a sum assured of $500,000.
- A decreasing term life insurance policy with a sum assured of $250,000 that decreases to $150,000 after 20 years.
- An increasing term life insurance policy with a sum assured of $300,000 that increases to $400,000 after 20 years.
Note:
The sum assured is a key component of a life insurance policy, and it is important to choose an amount that is sufficient to provide financial protection for the beneficiary.
FAQs
What is meant by sum assured?
Sum assured is the guaranteed amount that an insurance policyholder or their beneficiaries will receive in the event of a claim, such as upon death or policy maturity.
What is the difference between sum assured and maturity benefit?
Sum assured is the fixed coverage amount in the policy, while maturity benefit includes the sum assured plus any additional bonuses accumulated over the policy term, paid when the policy matures.
How is sum assured different from sum insured?
Sum assured is a guaranteed benefit amount in life insurance, while sum insured is the maximum coverage amount in general insurance, typically reimbursing expenses up to a certain limit.
What is the meaning of sum assured in LIC?
In LIC policies, sum assured is the fixed amount guaranteed to be paid to the policyholder or beneficiaries, either at maturity or in case of an insured event, such as death.
How do you calculate sum assured?
Sum assured is typically chosen based on the policyholder’s needs, but may also be influenced by the premium, age, and policy type. For term policies, it can be calculated by estimating required financial support for dependents.
