What is Sum Assured in Insurance?

An insurance plan contains some words that, despite their apparent simplicity, can have complicated implications. And a solid understanding of these phrases is required to prevent any problems in the future.

You must be familiar with the terms Sum Assured and Sum Insured in relation to insurance. If you are unaware of what Sum Assured is? So, can you explain Sum Assured in more detail? And why is it crucial that you understand?

What is Sum Assured?

The insured and the insurance provider predetermine a fixed amount as the sum assured. This sum is chosen at the time insurance is purchased. This sum, which is received by the insured or his beneficiary, is already a guaranteed sum.

It typically has life insurance as an association. When an insured person passes away during the policy’s term, the insurance company promises to pay a pre-determined sum to the beneficiary or nominee of the insured.

Until the end of the insurance period, the Amount Assured does not alter. The amount assured determines the premium you will pay for the insurance. This coverage expires after the insurance provider pays you or your beneficiary the sum assured.

How to calculate Sum assured?

The Sum Assured can be determined in a variety of ways. Finding the ideal sum assured for their family’s future needs is a challenge for many people.

Choosing the appropriate sum assured is often done using the Human Life Value, or HLV. Using your current and projected earnings, current and projected costs, and your age, this approach determines your Sum Assured.

It assists you in figuring out your capitalised value using the current rate of inflation. You can now choose the appropriate sum assured by using online human life value calculators to determine your HLV.

How to choose the right Sum Assured

Your sum assured is based on your age. You may choose a bigger quantity if you are young. because you still have a long life to live. You should have the following considerations in mind while selecting your Sum Assured:

• Your insurance payout should be enough to cover all of your dependents, including your spouse, children, and parents.
• You decide on the amount of insurance coverage that will cover all of your family’s expenses as well as the costs of your children’s education and future marriage.
• You should pick an assured sum that will cover all of your debts once you pass away.
• Your insurance amount is based on your age. Decide on a bigger sum assured for yourself if you are young.

Factors Determining Sum Assured

The following are the variables that affect your insurance sum assured:

• Age: Your Sum Assured is based on your age. If you are young, pick a bigger amount guaranteed.
• Income: Your standard of living is determined by your income. So, it is crucial when figuring out your sum assured. Ten times your yearly income is the maximum sum that you can keep.
• Personality or Habits: Your personal lifestyle choices, such as drinking alcohol or smoking. Your insurance premium and sum assured are determined by these behaviours. These behaviours could lead to an increase in your premium. because drug users may live shorter lives.

Important things related to Sum Assured

• Your income determines the Amount Insured. Any insured person may also deduct from his income ten times the amount of the insurance.
• The sum assured is the amount granted by the insurance company to the beneficiary or nominee of the insured in the event of the insured’s death for any reason.
• The sum assured serves as the basis for calculating your insurance premium.
• The amount that is referred to as the cover, sum assured, or coverage is the sum assured. In the event of maturity or death, the insured is given the same amount.
• The reward obtained when the policy reached maturity. It is included in the sum assured based on the sum assured.