Insurance terms can be confusing. However, it is essential to comprehend various insurance terminology because they significantly impact your term insurance policy. For instance, sum insured and sum assured are two of the most important insurance terms in the contract. Although these phrases sound the same, they have different meanings.
Below is an explanation of the distinction between the sum insured and the sum assured:
What is term insurance‘s sum insured?
The principle of indemnification, which provides coverage or reimbursement for loss, damage, or injury, defines the amount insured in an insurance policy. Typically, this concept applies to non-life insurance products like auto, house, health, etc. These plans solely reimburse damages to the covered property.
Assume, for example, that you had a health insurance policy which has a basic sum insured of 1 lakh rupees. The insurance provider will cover the entire amount if you are hospitalised and incur 50,000 medical expenses. However, if your medical expenses are 2 lakhs (usually greater than 1 lakh), the insurance company will only pay 1 lakh, and you will be responsible for the remaining 1 lakh. The basic amount insured under insurance is to adequately pay for the loss, not to give a financial advantage.
How do you compute the insured amount?
Consider the following considerations when determining the basic sum insured for your policy:
- When insuring an asset, you should examine the asset’s value so that you are adequately paid for any damage or loss.
- You should choose a sufficient quantity to cover emergency medical bills if purchasing health insurance.
- When purchasing a family floater plan, you should get enough coverage to cover all dependents.
- Consider your current income, expenses, existing financial obligations, and potential financial needs before purchasing life insurance.
- Consider the long-term impact of inflation when determining your total insured.
- Choose a sum insured that matches your budget and is cheap.
Look up a term insurance calculator to get the right plan for you at the right rate.
What is term insurance‘s sum assured?
Sum assured is another essential insurance phrase you should be familiar with. Sum assured is a predetermined amount that the insurance company agrees to pay you or your designated beneficiary if the insured event occurs or after the policy period. The insurance coverage amount is decided at the time of policy purchase. It remains unchanged during the duration of the policy. The premiums you pay for an insurance policy are based on the sum assured. The insurance expires when the insurer pays the cash insured to you or your nominee.
This notion applies to policies of life insurance and guaranteed return insurance. These plans provide life insurance and savings to help you reach your life objectives. A guaranteed return insurance policy provides you with guaranteed returns in the manner of your choosing. You can receive your plan’s returns as a lump payment, a regular income, or a lifetime income benefit. The plan also provides guaranteed insurance coverage to safeguard your family.
With the correct sum insured for your insurance coverage, you may secure your family’s financial future in case of your absence. You can also improve your guaranteed insurance coverage with additional riders. In addition, this guaranteed return insurance plan allows you to pay all payments in a lump sum, regularly, or for a set duration. Need help with what to do? Use the term insurance calculator.
Depending on your preference, you may also pay your premium annually, semiannually, quarterly, or monthly. These premiums are free from federal income tax per Section 80C. The death benefit and maturity proceeds are excluded from taxes under Section 10(10D) (10D).
*Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
Difference between the insured amount and the promised amount
Here is what you should know:
Applicability for policy: Sum Insured applies to non-life insurance policies such as home, auto, and health insurance, among others. Whereas sum assured applies to plans of life insurance and guaranteed return insurance
Nature of government: Based on the indemnification principle, the sum insured reimburses only the amount of loss or harm. In case of sum assured, a fixed sum, predetermined by the insurer, is paid in case of death during the duration or maturity of the policy.
Benefit: The sum insured provides no monetary benefit; only the loss/damage amount is reimbursed. And the sum assured benefit is paid to the insured or beneficiary.
Conclusion
It is essential to know what term insurance is and grasp the distinctions between these two terminologies in term insurance to determine the appropriate insurance quantity based on your policy and demands. Choose the ideal sum insured and assured per your insurance policy for a secure future.