When you purchase a life insurance plan, the insurance provider signs a contract to offer financial protection to your chosen beneficiary in the unfortunate event of your demise. So, in your absence, your loved ones have a financial cushion to fall back on. However, since the needs of each family are likely to differ from one another, the insurance company allows you to pick a fixed amount that would be payable to your beneficiary in your absence. There are several components of a life insurance plan, including riders, death benefit, maturity benefit, and others. This makes it essential to know the sum assured meaning and how it is different from other payouts of insurance.

What is the meaning of sum assured?

A sum assured is a fixed amount that is paid to the nominee of the plan in the unfortunate event of the policyholder’s demise. The insurance company pays this money as per the sum chosen by you at the time of purchasing the policy. This figure is the guaranteed amount of money that your loved ones will receive in your absence, provided all your premiums have been paid in full.

The sum assured is an instrumental component of a life insurance plan as it dictates the premiums of the policy.

How to calculate the sum assured?

Calculating the sum assured is easy. Even though most people struggle with determining the ideal amount for their family’s future needs, using a Human Life Value (HLV) calculator can help you find out the sum assured for your policy. The HLV calculator can be found online. All you need to do is enter some details like an estimate of your current and future expenses, income, age, and other details. The calculator accounts for inflation in the coming years and gives you an estimate of the ideal sum assured required to cover your family’s expenditure.

What is the meaning of sum insured?

The sum insured is the amount that the insurance company pays to the policyholder in the case of an unpredictable event, such as an illness. The amount paid is a reimbursement for the costs incurred and not a fixed sum of money like the sum assured.

How is the sum assured different from the sum insured?

The confusion of sum assured vs sum insured is a common one. However, there are many differences between the two.

  • The sum assured is offered by life insurance companies and the sum insured is generally offered by non-life insurance companies, such as health or car insurance companies
  • The sum assured is calculated based on the HLV, while the sum insured is paid as per the value of the asset, such as in the case of a car insurance plan, the sum insured will be determined as per the damages incurred by the vehicle
  • The sum assured is a fixed amount that is decided at the time of buying the insurance plan. The sum insured, on the other hand, is compensation paid to you for the loss or damage incurred

Factors to consider while selecting the sum assured

Here are some things to consider

  • Age: Your age will determine the cover you will need
  • Income: Your income dictates your standard of living and is important while calculating the sum assured
  • Lifestyle habits: Your lifestyle habits, such as smoking, consuming alcohol, and other habits affect your premium and ultimately the sum assured. These habits can result in a higher premium as you may require a higher sum assured since the life expectancy reduces for smokers and drinkers


Understanding the sum assured meaning and the difference between sum assured vs sum insured, can help you pick out a suitable insurance plan for your needs. This way, you can calculate the adequate cover required to protect yourself and your loved ones. Moreover, when you choose suitable coverage, you pay just the right amount of premiums. There is no scope for overspending or paying higher premiums.

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