Sum Assured OR Sum Insured

Sum Assured

The sum assured to a policyholder is the benefit that is pre-defined and to be paid to the policyholder in the event of a claim. Relevant to life insurance policies, the sum assured is decided while purchasing the insurance policy. The policy terminates once the assured sum has been paid.

For instance, in a life insurance policy, the insurer promises to pay the nominee/beneficiary a sum assured (a pre-decided amount) in case of the policyholder's death. For this amount, the policyholder pays a premium to the insurer. If the policyholder dies during the term of the policy, the insurer will pay the nominee/beneficiary the sum assured and the policy terminates.

Sum Insured

On the other hand, more relevant to general insurance, the sum insured refers to the amount that covers the cost of repair or compensation upon the occurrence of the event insured against. In general insurance policies including health insurance, motor and home insurance, the amount of coverage is always the sum insured. This policy that offers a sum insured works on the principle of indemnity. By definition, indemnity means compensation for any damage, loss or injury suffered.  These policies only cover the losses on account of any damage to the insured asset. The idea is that the compensation should not result in a monetary benefit and so the policyholder should not be given more than the loss he has suffered. For this reason, the cover on these policies is referred to as the sum insured.

Let's take an example of a health insurance policy that offers a sum insured of Rs1 lakh. If the insured person gets hospitalized and has to pay less than or equal to Rs. 1 lakh, the insurer will pay the entire amount. However, if the bill runs up to Rs2 lakhs, the insurer will pay only Rs1 lakh and the insured person will have to pay the balance.

 Dual benefits

 Insurance companies have now started offering policies that along with reimbursing your medical bills give you a pre-defined benefit incase a pre-defined medical event takes place. These kind of dual-benefit plans are offered by both non-life as well as life insurance companies. A common example of this kind is a critical illness plan that comes with a one-time benefit in case the insured person suffers from any illness specified in the policy, such as paralysis, heart attack or cancer. For instance, a hospital cash policy gives daily cash benefit up to a pre-defined limit for all the span of time that insured person is hospitalized. Similarly, surgical benefit plans entitle the policyholder with pre-defined sum assured in case of a surgery.

 

 

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