Sum Insured vs Sum Assured: Understanding the Difference

Insurance terminologies can get quite complicated. But it is important to understand different insurance terms because they have a big impact on your policy. Two of the most important insurance terminologies are sum insured and sum assured. Though both the terms sound the same, in principle, the two have different meanings altogether.


Sum assured relates to the benefit of your guaranteed1 return insurance plan, and sum insured defines the reimbursement of an insured loss.


Read below to understand the difference between sum insured and sum assured:

What is a sum insured?


Sum insured in an insurance policy is defined by the principle of indemnity that provides a cover or compensation for damage, loss or injury. This concept is usually applicable for non-life insurance policies such as motor insurance, home insurance, health insurance, etc. These policies only reimburse the losses on account of damage suffered by the insured asset.


For instance, assuming you have a health insurance policy with a basic sum insured of ₹1 lakh. If you get hospitalised and have to pay ₹50,000 in medical bills, the insurance company will reimburse the entire amount. However, if your medical bill is ₹2 lakh (typically above ₹1 lakh), the insurance company will only pay ₹1 lakh, and you will have to pay the balance from your pocket.


The objective of the basic sum insured is to rightly compensate for the loss suffered and not to provide any monetary benefit.

How to calculate the sum insured?



When choosing the basic sum insured for your policy, you should consider the following factors:


  • If you are insuring an asset, you should consider the value of the asset being insured so that your damage or loss is compensated fully. 
  •  In case you are insuring your health, you should opt for a sum that is sufficient to cover medical expenses in an emergency.
  •  If you are buying a family floater plan, you should take a sum insured that is sufficient to cover all dependents.
  • If you are insuring your life, you should consider your current income and expenses, any outstanding financial liabilities and any upcoming major financial requirements.
  • Consider the impact of inflation in the long run when deciding your sum insured value.
  • Choose an affordable sum insured that fits your budget.
What is a sum assured?


Sum assured in insurance another important term you should know. Sum assured is a pre-defined sum that the insurance company agrees to pay to you or your nominee if the insured event happens or at the end of the insurance term. The sum assured in insurance is determined at the time of policy purchase. It remains unchanged throughout the policy period. The premiums you pay for the policy are decided against the sum assured value. When the insurer pays the sum assured to you or your nominee, the policy stands terminated.


This concept applies to life insurance policies and guaranteed return insurance policies. These plans give you secure life insurance coverage along with an element of savings to help you meet your life goals. A guaranteed1 return insurance plan offers you assured returns in the mode of your choice. You can opt to take returns from your plan as a lump sum, regular income or a whole life income benefit. The plan also offers guaranteed1 insurance cover to protect those you love the most in the world – your family. 


With the right sum assured for your insurance cover, you can secure the financial future of your family in case of your absence. You also have an option to enhance your guaranteed1 insurance policy through add-on riders. Further, this guaranteed1 return insurance plan gives you the freedom to pay all premiums in a lump sum, regularly or for a limited period.


You can also choose to pay your premiums as per your preferred frequency – annually, semi-annually, quarterly or monthly. You can also get a loan against your guaranteed1  life insurance plan. Additionally, guaranteed1 insurance plans in India are exempt from taxes.


The premiums you pay for these plans are exempt under Section 80C of the Income Tax Act, 1961. The death benefit and maturity proceeds are exempt from taxes under Section 10(10D).


For instance, you buy a guaranteed1 return insurance plan with a sum assured of ₹15 lakhs in case of demise during the policy tenure. This means that in case of your unfortunate death during the insurance policy period, your nominee will get ₹15 lakhs as a guaranteed insurance sum.


How to calculate the sum assured?


Choosing the right sum assured is extremely crucial for your life insurance policies. You can consider the following factors to know the optimal sum assured amount:


  • Your sum assured should be sufficient to cover all your financial responsibilities such as sponsoring your child’s education or marriage, sustaining the living expenses of your family, etc.
  • Your sum assured should be enough to financially secure all your dependents such as your spouse, kids, parents, etc.
  •  The sum assured in insurance should be adequate for your family to pay off the financial liabilities in case of your absence.
  •  Your age determines your sum assured. If you are young, opt for a high sum assured because you have a long life ahead of you.
  •  The sum assured in insurance should be affordable and not pinch your pockets.
Difference between the sum insured and sum assured


The table below highlights the difference between basic sum insured and sum assured:



Sum Insured

Sum Assured

Applicability for policy

Applicable for non-life insurance plans such as home insurance, motor insurance, health insurance, etc.

Applicable for life insurance and guaranteed1 return insurance policies

Nature of policy

Based on the indemnity principle, reimburses only the amount of loss or damage

Fixed amount, pre-determined by the insurer, is paid in case of death during the tenure or maturity of the policy


No monetary benefit, only reimbursement of loss/damage amount

The monetary benefit is paid to the insured or nominee



It is important to understand the differences between these two insurance terminologies so that you can choose the right insurance amount as per your policy and needs. Choose the optimal sum insured and sum assured as per your insurance policy for a secure future.


Tata AIA Life online offers a guaranteed1 return insurance plan that offers life cover, assured returns, tax benefits, unique riders, loan against policy and much more! To know more, get in touch with our insurance experts.



  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
  •  For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this podcast is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

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