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 the meaning of sum assured?
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.
