Sum Assured

Definition of Sum Assured

Sum assured is a pre-determined amount that the insurer agrees to pay to the policyholder or their beneficiaries upon the occurrence of a specified event covered by the policy. This could be the death of the policyholder in the case of life insurance, or the occurrence of a health issue in the case of health insurance.

Role of Sum Assured

The sum assured is one of the key elements of an insurance contract. It represents the maximum liability of the insurer under the policy and determines the level of financial protection provided by the insurance policy.

The sum assured is usually chosen by the policyholder at the time of purchasing the policy, based on their financial needs and the premiums they can afford to pay. The insurer then calculates the premium amount based on the sum assured and other factors such as the policyholder's age, health status, and the term of the policy.

Types of Sum Assured

In the Indian insurance context, there are several types of sum assured:

• Fixed Sum Assured:
  This is a fixed amount that does not change throughout the term of the policy. It is the most common type of sum assured in life insurance policies.


• Decreasing Sum Assured:
  The sum assured decreases over the term of the policy, usually on an annual basis. This is often seen in mortgage or loan protection policies, where the sum assured decreases as the outstanding loan amount reduces.


• Increasing Sum Assured:
  The sum assured increases over the term of the policy at a predetermined rate or amount. This is designed to provide increasing cover to match inflation or increasing financial needs.

Factors to Consider When Choosing Sum Assured

Choosing the right sum assured is crucial as it directly impacts the level of financial protection the policy provides. Here are a few factors to consider:

• Financial Needs:
  The sum assured should be enough to cover the financial needs of the policyholder or their dependents in case of an insured event.


• Income and Expenses:
  The sum assured should be proportional to the policyholder's income and lifestyle expenses.


• Affordability:
  The sum assured affects the premium amount, so it's important to consider what the policyholder can afford to pay in premiums.

In conclusion, the sum assured is a critical component of an insurance policy. It determines the level of financial protection provided by the policy and the premium amount. Policyholders should carefully consider their financial needs and ability to pay premiums when choosing the sum assured.