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sum insured vs sum assured

Sum Insured vs Sum Assured

Sum insured‘ and ‘Sum assured‘ are two fundamental insurance terms in which people get confused. These two terms are the base of any insurance plan. User should know the difference between sum insured and sum assured as they sound similar but have different meanings. In simple words, sum assured is benefit and sum insured is reimbursement of any insured loss.

What is ‘Sum Insured’ ?

General Insurance like health, motor, home work on the concept of indemnity which means the compensation offered by the insurer for the loss, damage or injury to the insured asset.

For example, if suppose a person has taken insurance of Rs. 5 lakhs for his car. If an accident happens and if the amount needed to repair the car costs less than 5 lakhs then insurance company pays that much money to customer. If the amount needed to repair the car goes beyond 5 lakhs then the customer has to pay the remaining money.

So, the insurance company pays the amount equal to actual loss, i.e. sum insured. Cover in non-life policies is known to be sum insured.

How should a person calculate sum insured value? If a person is insuring an asset then the value of asset is considered so the damage or loss if fully reimbursed. In case of health insurance, the amount which is sufficient in case of emergency. In case of life insurance, the expenses, liabilities, major financial requirement have to be considered. Inflation should also be kept in mind while calculating value of Sum Insured.

Also Read: What is General Insurance? 5 Different types of General Insurance

What is ‘Sum Assured’ ?

Sum insured is the pre-decided amount paid to the policy holder by insurance company if insured event happens. For example, if a person has taken a life insurance with a guarantee of sum to be paid to the nominee from insurance company. The amount of sum insured decides the amount of premium to be paid by policy holder to insurance company. Typically life insurance offers sum assured and non life insurance offers sum insured. When the sum assured is paid to policy holder, the policy is considered to be terminated.

How to calculate Sum Assured? It is very difficult to calculate. The amount should be enough to fulfil all financial requirements like child‘s education, marriage, etc., the amount should be enough so the financial liabilities can also be paid in absence of policy holder by dependents, the amount should be enough to secure family members.

This concept gives assurance of paying insurance coverage to nominee so they can run their expenses of day to day life.


We understood the differences between these two insurance terminologies so that we can choose the right insurance amount as per policy and needs. Choose the optimal sum insured and sum assured as per your insurance policy for a secure future.

Post Author: ashwini

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