Sum Assured Meaning: Everything You Need to Know

Discover what sum assured means in insurance, why it matters, and how it affects your coverage and benefits. Get clarity on key aspects of sum assured today.
Check Life Insurance Policies
3 min
19-March-2025
When buying an insurance policy, one of the most important terms to understand is sum assured. It is the fixed amount that an insurer agrees to pay the policyholder or nominee in case of an unfortunate event, such as death or a critical illness. This amount is determined when purchasing the policy and plays a vital role in financial planning.

Understanding the concept of sum assured helps policyholders choose the right coverage for their needs. It ensures financial security for families, helps with long-term goals, and acts as a safeguard against uncertainties. Unlike sum insured, which applies to general insurance, sum assured is primarily used in life insurance policies.

Choosing the right sum assured depends on multiple factors, including income, expenses, liabilities, and future goals. A well-calculated sum assured ensures that your dependents can maintain their lifestyle even in your absence. This article explains everything you need to know about life insurance—get clarity, compare plans, and choose the most suitable coverage for your needs! Check plans!

What is sum assured in insurance?

Sum assured is the pre-determined amount an insurer agrees to pay to the policyholder or nominee in a life insurance policy. This amount is fixed at the time of policy purchase and remains unchanged throughout the policy term unless the policyholder opts for riders or modifications.

For instance, if a person buys a life insurance policy with a sum assured of Rs. 50 lakh, their nominee will receive this amount in case of the policyholder’s untimely demise during the policy term. Sum assured acts as a financial safety net for families and ensures financial stability in the absence of the primary earner.

It is important to note that sum assured differs from the maturity amount in life insurance policies. While sum assured is the guaranteed payout upon death, the maturity amount includes additional benefits like bonuses and investment returns in endowment or ULIP policies.

Choosing the right sum assured is crucial as it determines the level of financial protection a family will receive. Factors like annual income, lifestyle expenses, outstanding loans, and future financial goals should be considered before selecting a suitable sum assured.

Difference between sum assured and sum insured

Sum assured and sum insured are two different concepts in insurance. Sum assured is a fixed amount paid to the nominee in life insurance upon the policyholder’s death. Sum insured, on the other hand, is the maximum coverage amount in general insurance policies like health, motor, or home insurance.

Sum assured is predefined and guaranteed, while sum insured is based on the actual loss incurred. In life insurance, the insurer pays the sum assured irrespective of circumstances, whereas in general insurance, the insurer reimburses expenses up to the sum insured.

For example, if a life insurance policy has a sum assured of Rs. 50 lakh, the nominee will receive this amount in case of death. But in health insurance with a sum insured of Rs. 10 lakh, the insurer only covers medical bills up to this amount.

Importance of sum assured in life insurance

Choosing the right sum assured is essential for financial security. Here is why:

1. Provides financial stability:

A well-calculated sum assured ensures that dependents can manage household expenses, education, and lifestyle costs in the policyholder's absence.

2. Covers outstanding liabilities:

If the policyholder has home loans, car loans, or personal loans, the sum assured helps repay these debts, preventing financial strain on the family.

3. Supports long-term financial planning:

Certain life insurance policies, like endowment plans and ULIPs, offer sum assured along with bonuses, making them useful for long-term savings.

4. Acts as a retirement backup:

In whole life insurance, the sum assured can provide a financial cushion post-retirement, ensuring continued income for dependents.

5. Ensures children’s future security:

A higher sum assured guarantees funds for children’s education, marriage, and other life goals, protecting them from financial hardship.

Life insurance covers your family’s future—debts, income, education, and more. Check plans and secure your future today!

How to calculate sum assured for your policy?

Determining the right sum assured requires careful financial planning. Here is how you can calculate it:

1. Assess your annual income:

Experts recommend a sum assured of at least 10-15 times your annual income to provide sufficient financial security.

2. Factor in outstanding debts:

Consider all home loans, personal loans, and credit card dues to ensure your family is not burdened with repayment.

3. Account for inflation:

Since living costs increase over time, your sum assured should factor in at least 6-7% annual inflation to maintain financial stability.

4. Estimate future expenses:

Plan for significant expenses such as higher education, marriage, and medical emergencies to choose an adequate sum assured.

5. Use online calculators:

Many insurance providers offer life insurance calculators to help you determine the ideal coverage based on your financial needs.

Sum assured vs. maturity amount: key differences

Many people confuse sum assured with the maturity amount. Here is how they differ:

1. Definition

Sum assured: The fixed amount paid on death or policy maturity in certain policies.

Maturity amount: The total payout at the end of the policy term, including bonuses and returns.

2. When is it paid?

Sum assured is paid in case of the policyholder’s death during the policy term.

Maturity amount is paid if the policyholder survives the policy tenure.

3. Includes bonuses and returns?

Sum assured is a fixed amount and does not include bonuses.

Maturity amount includes the sum assured plus bonuses, loyalty additions, and investment returns.

4. Applicable policies

Sum assured is relevant in term insurance, whole life insurance, and endowment plans.

Maturity amount applies to endowment plans, ULIPs, and money-back policies.

Understanding these differences helps in selecting the right life insurance plan for your needs.

Conclusion

Understanding sum assured is crucial when buying a life insurance policy. It is the fixed amount paid to the nominee in case of an unfortunate event, ensuring financial stability for loved ones.

Unlike sum insured, which applies to general insurance, sum assured is predefined and does not depend on actual expenses. It is different from the maturity amount, which includes bonuses and applies when the policyholder survives the term.

Choosing the right sum assured requires careful assessment of income, liabilities, future expenses, and inflation. By selecting an adequate amount, policyholders can ensure long-term financial protection and peace of mind for their families.

Frequently asked questions

What is the meaning of sum assured in an insurance policy?
Sum assured is the predefined amount an insurer agrees to pay in a life insurance policy upon the policyholder’s death or maturity, depending on the plan. It acts as financial protection for the insured’s family and is determined at the time of purchasing the policy, ensuring a guaranteed payout.

How is sum assured calculated in life insurance?
Sum assured is calculated based on income, financial obligations, future expenses, and inflation. Experts recommend coverage of at least 10-15 times your annual income. Online insurance calculators help determine an appropriate sum assured by considering loans, lifestyle costs, and dependents’ financial needs for comprehensive coverage. Further helping to compare plans and get a quote for life insurance plans that fits your needs.

Is sum assured the same as the total payout in insurance?
No, sum assured is the fixed base amount, while the total payout includes bonuses, maturity benefits, or additional returns. In endowment and ULIP plans, the final payout may exceed the sum assured due to accrued benefits, whereas in term insurance, the nominee only receives the sum assured.

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*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Company Limited , Star Health & Allied Insurance Company Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

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