Do you know the exact difference between the sum assured and the sum insured?
When it comes to the concept of insurance, there are some technicalities which you should understand. These technicalities dictate the terms and conditions of the policy. Until and unless you understand the terms of the policy, understanding the policy benefits might prove to be a challenge. Take for instance the concepts of sum assured and sum insured. Both these terms determine the coverage level of an insurance policy and so you might believe them to be interchangeable. But are they interchangeable?
No, they are not. Sum insured and sum assured are two different concepts which are used in different types of insurance policies. Let’s understand their difference –
What is the sum assured?
Sum assured represents the coverage of a life insurance policy. This is the benefit which is paid in case of death or maturity of the plan.
What is the sum insured?
Sum insured, on the other hand, is the level of coverage under general insurance policies. This amount shows the maximum liability undertaken by the insurance company to compensate you in case of a covered eventuality.
Top 3 points of difference between sum assured and sum insured
The difference between the concepts of sum assured and sum insured can be analysed in the following table –
| Points of difference | Sum assured | Sum insured |
| Application | The term is used in life insurance policies | The term is used in general insurance policies |
| Nature | Sum assured represents a predetermined benefit which is fixed. In case of death or maturity, a life insurance policy pays the promised sum assured irrespective of the loss suffered | Sum insured implies that the principle of indemnity would apply in case of a claim. The principle of indemnity pays the actual loss which the policyholder suffers. This loss might be lower than the sum insured of the plan |
| Relevance | The concept of sum assured becomes relevant because the economic value of human life cannot be measured. Thus, in the case of death, the cost of loss of life cannot be ascertained. The policy, therefore, pays the coverage amount which the policyholder chose when buying the policy | General insurance policies are taken on assets or to cover the financial loss suffered in certain events. The value of the asset or the extent of loss suffered can be easily ascertained. That is why general insurance policies follow the principle of indemnity and use the concept of the sum insured. |
Illustration:
In a life insurance policy, if the cover is bought for INR 10 lakhs and the insured dies during the policy tenure, the death benefit would be INR 10 lakhs which is the sum assured of the policy.
In case of general insurance policies, say health insurance, let’s assume the coverage level to be INR 5 lakhs. When the insured is hospitalised, the medical bills amount to INR 3 lakhs. In this case, though the sum insured is INR 5 lakhs, the claim payable would only be limited to INR 3 lakhs which is the actual loss suffered. However, if the hospital bills amount to INR 6 lakhs, the claim would be INR 5 lakhs which is the maximum liability insured by the insurance company.
So, the concepts of the sum assured and the sum insured is different. Understand them and their relative differences so that you know what your insurance policy would pay in a claim.
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Courtesy Article: / October 22, 2019
