Introduction to Sum Assured
Sum Assured is a financial safety, insurance term that refers to the amount given by an entity, insurance company in this case, to the policy holder or their family when the event against which the policy was taken occurs.
Understanding Sum Assured
Sum Assured is a term commonly found in life insurance policies and nowhere else. It is the amount that an insurance company will pay to the insured person’s family in the unfortunate event of the insured person’s death. Income is a strong determinant of sum assured. Since life insurance is usually taken by people who are the key breadwinners of the family, their death will disrupt everything— primarily the source of income for the family. Sum Assured will pay the money to the family when such an event occurs. A Sum Assured is promised at the time of purchasing the insurance policy, that is paid to the family, provided that all the premiums have been paid in full. The total amount to be expected is decided on factors such as: - Financial liabilities — loans pending, running investments, debts etc. - Financial responsibilities - Number of dependants - Existing assets - Age and Affordability for sum assured; high sum assured means higher premium to pay Because the value of human life cannot be measured economically, the cost of such life too cannot be ascertained. By assuming sum assured, the policy seeks to cover for the financial needs of the family for a significant amount of time by paying the sum agreed at the time of the purchasing the policy.
Highlights of Sum Assured
- Sum Assured and Sum Insured are different from each other. Sum Assured is found in life insurance policies, whereas Sum Insured is found in general insurance policies.
- Sum Assured will pay a fixed amount, but Sum Insured will cover the extent of the loss over which the insurance liability is covered.
- The most common method of calculating Sum Assured is through the Human Life Value (HLV) calculator, which can be found online too.
